Chairwoman Mary Jo White recently presided over an open meeting of the U.S. Securities and Exchange Commission at which the Commission followed the recommendation of the Division of Corporation Finance to adopt final rules implementing Title IV of the JOBS Act (which previously brought us crowdfunding). The JOBS Act requires the Commission to adopt rules to create a new exemption from registration under the Securities Act for small public offerings. The proposed changes to Regulation A were released in December of 2013. The final rules will become effective 60 days following publication in the Federal Register.
The benefits to small privately held medical device companies could be significant. In what is referred to as “Tier 2” of the regulations, companies will be able to raise up to $50 million in equity investment from private investors in a streamlined IPO-like proceeding. Existing shareholders will be allowed to offer up to $15 million of their equity as a part of that $50 million total. This not only provides companies with a new source of equity financing, it grants founders and early investors the opportunity for a liquidity event potentially well before a conventional IPO or other exit would otherwise have occurred. At the same time, it provides an investment opportunity for qualified investors; and all, it appears, at reduced regulatory burden and cost. It will be interesting later this summer to see what appetite might exist for this new financing and liquidity tool.