JOBS Act seen working against more IPOs

Supporters of the 2012 JOBS Act frequently describe it as an entrance ramp to the IPO market.

Venture-backed startups file confidentially as growth companies, test the waters with investors and ease their way onto the public markets.

The on-ramp may not be working quite as expected. The market’s 2016 results, when just 39 venture-backed companies went public, should give partners and others pause.

One element of the act that may not be working to encourage more startups to IPO is the change it made to the shareholder rule for private companies.

The act raised the number of permitted shareholders, before a startup is required to release financial information to the SEC, to 2,000 from 500. And it eliminated employees from the count.

This has enable companies to raise more private capital and remain private longer, said Lise Buyer, founder of Class V Group, speaking on a SharesPost sponsored webinar on Friday. And it has brought new crossover capital into the market, increasing the supply of money.

“That’s why you saw the explosion of the unicorn herd,” Buyer said.

But Buyer said she is seeing a shift in entrepreneur sentiment. More founders understand the tangible benefits of being a public company, she said. Nine months ago, this wasn’t the case, she said.

Whether a Snap IPO will open the floodgates, is an unanswered question. How Snap trades over the first couple months will be a valuable observation for other unicorns, Buyer said.

But it probably won’t have a big impact for the vast majority of private companies.


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