What’s new, Utah? We are about to witness a major tectonic shift in the world of finance. It’s happening beneath our collective feet and it will change the world as we know it.
What is it? The new and controversial stipulations of the JOBS Act, signed by President Obama in April, are about to be tested by an IPO filing by San Francisco-based real estate search service Trulia.
In an effort to make it easier for companies with less than $1 billion in revenues to go public and obtain critical cash for continued growth, the JOBS Act allows these mid-sized companies to circumvent the traditional filing process through the SEC.
This means Trulia is able to quietly file for its IPO without providing an S-1 for the public to review until 21 days prior to a marketing road show.
The good news? With financial restrictions being reduced, many more flourishing companies will qualify for public offerings and receive an infusion of capital. In short, much of the lengthy processes and expenses associated with an IPO that have hindered companies for years have now been restructured and streamlined. The unmistakable goal of this action is to create more jobs and thereby facilitate a stronger and faster-growing economy.
The concerns? A less rigorous process means that unsophisticated investors, particularly smaller shareholders, will have to be much more vigilant before they provide funds to a company. Every investor should also keep in mind that the time available to review a prospectus and complete due diligence will be much shorter than before. As such, unethical company leadership may be tempted to hide under-performance. As with any investment, buyer beware.
Trulia management hopes to raise approximately $75 million in a space that is highly dynamic and volatile (the space is occupied by least one strong competitor in Zillow). All investors should keep in mind that the successful use of real estate research information on mobile consumer devices is not assured.
Facebook’s precipitous stock price decline since its IPO has generated lawsuits from infuriated investors. With more relaxed requirements under the JOBS Act, how will investors respond to Trulia’s IPO? Will investors step forward? Will this singular occasion represent a significant bellwether event for new IPO laws? Personally, I am hoping this historic moment is a winning game changer leading to many more successful IPOs in the next several years.
Regardless, one thing is certain: smaller and non-accredited investors will need to be very proactive in understanding potential blue sky investment opportunities in this new Wild West setting.
What will this mean for Utah’s high-growth companies? There could be more than a dozen exceptional local companies that might become public entities. With the SEC’s IPO-lite initiative of easier, quicker and cheaper, the CEOs of many Utah firms might be tempted to go for the gold to raise needed cash. I can think of several firms that I know and have given money to that fit this category.
If they take the plunge, my hope is that their growth will accelerate and create a vast pool of job openings for those looking for work. Nothing would be better for the residents and communities of Utah.
As for Utah investors of all sizes, I look forward to the regulations forthcoming from the IRS on Crowd Funding. This other major component of the JOBS Act will allow any citizen to invest in startup companies without having to be an accredited investor (someone with a wage over $250,000 a year and a net worth of more than $1 million.) This means an individual can invest in a fast-growing company at a set amount of money, established by the IRS, and potentially enjoy a return of over 100 percent or more.
On the other hand, due to the very nature of investments in speculative opportunities, the small investor could also lose money. But at least he or she had the chance to invest alongside serious, professional investors.
A portion of this article originally appeared in Alan Hall’s Forbes column. How do you feel about this act of Congress? Are you in favor or against it? I would like to hear from you on this topic. I can be reached at www.AlanEHall.com or via @AskAlanEHall.