In April 2012, the Jumpstart Our Business Startups (JOBS) Act was passed to help re-open US capital markets to emerging growth companies, which are job creators. Title III of the JOBS Act will likely come into effect in late 2014, and this section of the act will enable non-accredited investors to invest and partake in investing in start-up businesses and private firms. Such non-accredited crowdfunding will allow larger groups of people to invest smaller amounts of money, and accordingly, has the potential to enhance entrepreneurs' chances of success, improve economies, and increase job availability.
The JOBS Act and IPO volume
According to a study mentioned in an article published by Bloomberg, the JOBS Act has significantly revitalized the IPO market, especially for small companies. This revitalization has occurred for many reasons.
Comparing international and US IPO volume over the past 13 years, US IPO volume seems to have moved along with the international IPO volume. Between April 2013 and March 2014, however, US IPO volume and its share of small business issuers was the largest since 2000, while international IPO volume dropped.
The study also examined whether the post-JOBS Act IPO volume increase was concentrated in a subset of companies, such as emerging growth companies (EGCs), which would benefit most from JOBS Act provisions. The evidence suggests that the post-JOBS Act increase in IPO volume was the largest for EGCs. Specifically, the number of post-JOBS Act IPO filings resulting in successful issuance increased by 48% for EGCs but declined by 7% for non-EGCs. Moreover, firms with high proprietary disclosure costs, such as biotechnology and pharmaceutical firms, increased IPO activity the most. These firms were likely to take advantage of the JOBS Act's de-risking provisions, allowing them to file the IPO confidentially while testing the waters.
Although the evidence presented in this study reveals that the JOBS Act has been successful in encouraging emerging high growth companies to go public, the author also points out that many small firms could still achieve greater operating profits through being acquired rather than depending on organic growth.
Alibaba Group Holding Ltd. recently raised a record-breaking $21.8 billion in its IPO. Many investors were dismayed not being able to get the price they were hoping for on the offer. The next record-breaking start-up may already be seeking investment, which will allow investors to get ahead of the pack.
If you are seeking to invest in businesses before the initial public offering in order to capitalize on high growth firms, you can view the current investment opportunities available now. We offer solutions to help find and analyze the next start-up investment.