Premium

SEC CorpFin Head Urges ‘Principled’ Approach to Investor Verification

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For all the excitement among retail investors for the new investment options made available to them by the JOBS Act, professional investors and investment bankers have for the most part reacted coolly to the new opportunities to raise capital and make investments in a more open and broadly marketed manner. Part of this is due to the disintermediating effect of crowdsourced capital on the traditional investment banking model, as well as to the skepticism among professional investors that the investment wisdom of the crowd is anything but wise. But even among the finance professionals for whom the JOBS Act represents a true opportunity to expand and democratize capital formation for small businesses, there is significant doubt that the Act can effectuate the explosion of capital formation the crowdfunding evangelists postulate. Much of the doubt is a result of the “give with one hand and take away with the other” approach that Congress and the SEC have taken in the promulgation and implementation of the Act. In freeing up the public to more widely participate in direct corporate investments, the Feds also sought to strengthen investor protections.

Markets

Q1 Growth EPP Deal Making Sets Strong Pace

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Growth issuers and investors have conducted equity private placements at a brisk pace this year, making the first quarter the most active early-year period in three years. The continued life science bull market and IPO run fueled much of the activity in growth equity private placements (EPPs) – offerings of a least $1 million of stock or equity-linked debt that feature fixed purchase, conversion and warrant exercise price terms, and that are sold by companies with market capitalizations from $10 million to $1 billion. However, mixed messages from the Federal Reserve about interest rates and fears about a market correction, particularly in the life science sector where investors have apparently swung to a “risk off” posture, could temper enthusiasm for EPPs in the coming weeks. While EPP deal making remained resilient through the first half of April, four companies postponed IPOs, including two biotech issuers, as broad selloffs hit the market. Growth companies raised $3.9 billion in 199 common stock, convertible and non-convertible growth EPPs in the first three months of 2014 for an average deal size of $19.6 million, according to PlacementTracker, a division of Sagient Research.