December 19, 2011

Growing Jobs By Reopening Capital Markets To Emerging Companies

Guest column submitted by U.S. Senator Mike Crapo

Innovative, new companies drive job growth, and initial public offerings (IPO) enable many young companies to access the capital needed to expand and create jobs.  However, in the last ten years, venture-backed initial public offerings on U.S. exchanges fell 75 percent.  This decline is troubling as more than 90 percent of company job growth occurs after an IPO.  To encourage job growth, barriers impeding emerging businesses from obtaining capital to expand and increase jobs must be removed.

The Senate Banking, Housing and Urban Affairs Committee, on which I serve, recently held a  hearing to assess current securities laws and regulations and proposed changes intended to help emerging businesses grow jobs while protecting investors.  Scott Cutler, Executive Vice President of NYSE Euronext, detailed the problem with smaller companies decreasingly accessing public equity when he explained that instead of pursuing an IPO, early investors have shifted to selling young companies to larger firms.  These mergers and acquisitions do not generally produce the same rapid job growth as an IPO and often result in job losses over the short term as the acquirer eliminates redundant positions. 

Proposals are being considered to reverse the IPO decline while balancing increased capital market access with investor protections.  The President's Council on Jobs and Competitiveness interim report includes a recommendation that Congress pass legislation to allow shareholders of public companies with market valuations below $1 billion to opt out of some of the morecostly requirements of Sarbanes-Oxley.  Similarly, the IPO Task Force recommended providing an on-ramp that would provide emerging growth companies up to five years to scale up to IPO regulation and disclosure compliance.  The task force estimates it averages $2.5 million to go public and $1.5 million annually to stay public.  The task force found that this flexibility would reduce costs for companies while adhering to investor protection.  These recommendations could result in a larger supply of emerging growth companies going public and increased job creation over the long term.

Following up on the IPO Task Force recommendations, I joined Senators Charles Schumer (D-New York), Pat Toomey (R-Pennsylvania) and Mark Warner (D-Virginia) in introducing S. 1933, the Reopening American Capital markets to Emerging Growth Companies Act, to establish phased-in compliance requirements for emerging growth companies.  Like the recommendations, this bipartisan legislation would provide an on-ramp period of up to five years, depending on the size of the company.  During this period, emerging growth companies could follow streamlined financial statement requirements and minimize compliance costs and be exempted from certain regulatory requirements imposed by Sarbanes-Oxley and Dodd-Frank.  Additionally, I co-sponsored S. 1544, the Small Company Capital Formation Act, introduced by Senators Jon Tester (D-Montana) and Pat Toomey.  The U.S. House of Representatives overwhelmingly passed this bipartisan legislation that would make it easier for private companies to raise capital and grow without costs and delays associated with full-scale securities registration with the U.S. Securities and Exchange Commission.

The IPO Task Force found that the cumulative effect of a sequence of regulatory actions lies at the heart of the IPO crisis and contradicts the intent of more than 75 years of U.S. securities regulation intended to provide investor protection while encouraging broad investor participation through fair and equal access to the public markets.  We have the opportunity to work together to reverse the IPO decline and spur more job creation.  I look forward to enacting necessary changes to promote investment in American job growth while protecting investors.  These much-needed efforts will help put Americans back to work and improve our economy. 

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