SEC Clears a Path for a Viable Equity Capital Marketplace with Second No-Action Letter on Angel Crowdfunding

When the SEC followed up its March 29 “No-Action” letter to an online angel investment platform with a second letter a day later addressing the same issue to a different online angel funding startup, it did something that no-action letters aren’t supposed to do: it made policy. And by successively offering to stand-down from enforcement of the onerous broker-dealer rules governing most equity offerings, it cleared a path, albeit rock-strewn and circuitous, toward a viable crowdsourced equity market – something that the agency has been unable or unwilling to do within the mandates of the JOBS Act. The message delivered by the agency in those letters to the FundersClub and AngelList online angel funding websites was that small but not insignificant amounts of investment capital may be aggregated together through online networks and restricted equity securities distributed in return, without registering as a broker-dealer or as a JOBS Act “crowdfunding portal,” FINRA’s soon-to-be Cinderella stepchild. William Carleton, an attorney that has watched the JOBS Act implementation closely and regularly writes about it at and his own blog, calls the publication of the two letters “momentus.” While cautioning that no-action letters only establish a “green zone” within which certain activities are allowed given specific conditions and contexts, he still nonetheless believes they were meant to sketch out a framework for exempted crowd fund-raising and investment. “[I]t is fair to say that no-action letters are rarely, if ever, as high profile as these two,” Carleton wrote.

Epstein_The Perfect Corporate Board

Addressing the Unique Challenges of Small Cap Corporate Governance

Over the course of the decade I have spent writing about the financing of emerging growth companies I have been contacted regularly by mainstream financial news reporters working on stories involving this or that small cap management team that they suspect has engaged in accounting fraud, stock manipulation, self-dealing, or worse. Inevitably, they are looking for some confirmation of their suspicions and validation of their sense that the activities they are investigating are beyond the pale of acceptable behavior for the senior management of small public companies. I try to be helpful, to place the situations they present in context, but often I disappoint them. “Look,” I find myself saying, “finding a small or microcap company with accounting irregularities, conflicted directors, promotional senior management, or unscrupulous investors is like shooting fish in a barrel. It’s a dog-bites-man story,” I tell them, meaning there is little that’s newsworthy in one more tale of a young public company practicing poor corporate governance, even if they’ve broken a few securities laws in the process.

Tim Keating

Encouraging Analyst Coverage to Help Solve the Orphaned Public Stock Problem

Pity the research analyst.  In the 79 years since the 1934 publication of Benjamin Graham and David Dodd’s Security Analysis, no other job on Wall Street has been characterized by more reputational and financial volatility. From near obscurity, the creation of Institutional Investor magazine’s “All-America Research Team” concept in 1971 gradually moved the star equity analyst to the top of the investment banking pecking order.  By 2000, the analyst had become the prima donna. But just as Icarus’ wax wings melted when he flew too close to the sun, the equity analyst’s star crashed and burned under the weight of a series of indefensible conflicts of interest and outright abuses that reached a zenith in the dot-com era of 1999 to 2001.

ATM Offerings and Equity Lines: Three Differences Issuers Need to Understand

At-the-market (ATM) offerings and equity line facilities are methods of raising capital that publicly traded issuers in growth industries such as biotech have been using for a number of years. These issuers have been seeking additional ways, other than the traditional PIPE or registered direct offerings, to raise capital that lowers their cost of capital and gives them additional flexibility in accessing the capital markets. The graphs below illustrate the trends in usage of ATMs and equity lines over the last three years in the life sciences industry. At first glance, ATMs and equity lines appear to be very similar. People often confuse these two methods of raising capital.