The impact of the JOBS Act extends beyond exempt offerings. Moving along the company lifecycle, the JOBS Act also created an “IPO on-ramp” that affords several accommodations for emerging growth companies, or “EGCs” (generally defined as companies with total annual gross revenues of less than $1.07 billion—increased from $1 billion in April 2017, and subject to further adjustment for inflation every five years), in the process of going public. These include accommodations for reduced financial statement, MD&A, and executive compensation disclosure.
More recently, in 2020, the SEC adopted a host of rule amendments designed “to harmonize, simplify, and improve the multilayer and overly complex exempt offering framework.” Those amendments acknowledged that “[f]or many small and medium-sized business[es], our exempt offering framework is the only viable channel for raising capital.” To that end, these amendments increased the offering limits for Regulation A+, Regulation Crowdfunding, and Rule 504 offerings. They also modified the definition of “accredited investor” to expand those eligible for inclusion in this investor status and established a new framework to make it easier for companies to make integration determinations when conducting private offerings in parallel or close in time.
Notwithstanding the evolution of the exemption framework, challenges remain, and the debate continues as to whether additional modifications are necessary to further enhance the current exemption framework. Some contend that navigating the myriad of available exemptions with differing requirements remains unduly challenging. Others have focused more on the funding sources available to entrepreneurs to take advantage of the existing exemption frameworks. For example, when considering trends in capital raising and access to capital, disparity between rural and urban locales is just one topic under discussion. Changes among state regulations of securities are also relevant considerations to this ecosystem and any future adjustments thereto at the federal level. Relatedly, as retail investors come ever into the fore of investing and the types of offered securities become more complex, some have expressed concern about the need for additional protections for these investors, including whether further modifications to the accredited investor definition, or other or different regulatory requirements, are merited.
Much has been done over the years to protect Main Street investors, and enforcement actions and commentary from the SEC have kept them a priority. Nevertheless, there are indeed risks, including those arising from “bad actors,” illustrating the need for continued enforcement in the private offering contexts, which includes its own challenges. In that same vein, the role of gatekeepers remains of critical importance and significant policy interest at the SEC and more broadly in Washington. Recent enforcement actions underscore this point.
Looking forward, these and other questions in the ever-changing environment for private companies will contribute to the evolving discussion around the federal regulation of securities and the future of the SEC and the exempt offering framework. Continued input from all stakeholders will be critically important to supporting the evolution of the exempt offering framework while preserving the core principles upon which it is grounded.