The document provides a summary of the JOBS Act, a US regulation intended to encourage companies to raise capital. Key provisions include increasing the number of shareholders before requiring SEC registration, allowing $1 million to be raised from crowdfunding, and reducing disclosure requirements for emerging growth companies for 5 years after an IPO. The act also lifts bans on general solicitation, raises Regulation A limits to $50 million, and increases thresholds for private company registration. Implementation of various titles is ongoing as the SEC develops new rules.

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JOBS Act : Summary of the new US regulation
November 25, 2012
www.growvcgroup.com - © Grow VC Group
2012

2. :: :: JOBS Act :: ::

3. Summary of the JOBS Act
 The Purpose: The JOBS Act is intended to encourage a wide range of companies to raise
capital.
 The JOBS Act includes provisions that:
1. Increase the number of shareholders a company with assets in excess of $10 million
may have before being required to register with the SEC from 500 shareholders of
record to 500 “unaccredited" shareholders or 2,000 total shareholders.
2. Create a new exemption whereby a company may raise up to $1 million during any
12 month period by selling securities through “crowdfunding,” (i.e. raising a small
amount of money from a large number of unaccredited investors via a website (or a
“funding portal”)).
3. Create a new category of issuer called an “emerging growth company” with
reduced disclosure requirements and greater regulatory flexibility for a 5 year
period after an IPO/registration.
4. Lift the current ban on “general solicitation” and “general advertising” in specific
kinds of private placements.
5. Raise the limit for securities offerings exempted under Regulation A from $5 million
to $50 million.
Grow VC Group 2012

4. Title I: The “IPO on ramp” and Emerging
Growth Companies (EGC’s)
 The Goal of Title I: Title I creates the “IPO on ramp” to encourage more companies to go public.
 Target Audience: Title I is tailored to larger, more well established companies considering an IPO
in the short/medium term. See, for example, the Manchester United IPO.
 Definition of an EGC: EGCs are issuers that have total annual gross revenues of less than $1 billion.
 “On Ramp" Incentives: EGCs are exempt from certain regulatory requirements for at most 5
years from the date of its IPO.
 EGC regulatory relief provisions include:
- Internal controls: An EGC is not be required to have an auditor attest to the effectiveness of its
internal controls (as required by SOX).
- Disclosure of executive compensation: An EGC does not need to disclose certain information
concerning execution compensation or to hold the "say on pay" votes.
- Accounting rules: Any new GAAP accounting rules which are introduced would only apply to an
EGC once and if they are also applicable to unlisted companies.
- Audited Financial Statements: EGCs would be required to provide audited financial statements
for the 2 yrs prior to registration rather than 3 yrs as currently required.
- Research Reports: The research regime is amended in a number of important ways, including
allowing underwriting banks to publish research on EGCs, removing certain “black out” periods
and amending or removing certain informational barriers within banks.
- Confidential submissions: An EGC’s submission of its prospectus to the SEC may be confidential
until 21 days before it begins its “road show”.
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5. Title II: Removing Prohibitions on “General
Advertising” and “General Solicitation”
 Goal of Title II: To increase the potential for issuer to market offerings to new accredited investors and
expand the potential pool of capital for any given offering.
 Prior to the JOBS Act (and until enactment of this provision):
- Participants in an offering of securities pursuant to Rule 506 (i.e. “private placements” that are not
registered with the SEC) are prohibited from using any form of "general solicitation" or "general
advertising“.
- General soliciation and general advertising includes placing advertisements about the offering on
television or in newspapers, simply offering the deal to a number of people that don’t have a
relationship with the issuer or offering party and, certainly, placing details about the offering on a
website that is accessible by investors in the US.
- Therefore, private placements in the U.S. are typically marketed to a fairly restricted number of
sophisticated investors that the issuer or securities broker already knew.
 Following the JOBS Act: Rule 506(c) will allow issuers to offer securities by means of general
solicitation/advertising (e.g. via a web platform) so long as:
- The Issuer has taken reasonable steps to verify that all purchasers are accredited investors;
- Each purchaser is an accredited investor; and
- Other requirements are met (e.g. other recent offerings must have been done correctly; resales are
limited)
 Impact of Title II: Securities brokers and issuers will be able to use web platforms and other means (e.g.
calling accredited investors that they don’t know) to offer securities. This should allow securities
brokers, in particular, to grow their client base.
Grow VC Group 2012

6. Title III: Crowdfunding
 The Goal of Title III: Encourage start-ups and entrepreneurs to raise capital while still protecting investors
from fraud and highly risky investments.
 Timeline: Implementation was expected at the start of 2013 but it might be significantly later than that as
the SEC is behind in the rule-making process.
 Upon Implementation: Title III will exempt crowdfunding offerings from the normal registration and
disclosure requirements and will create special registration and disclosure requirements for the offer or
sale of securities by an issuer through a “broker or funding portal”
 Qualifications to be a Crowdfunding Issuer: To qualify for the crowdfunding exemption, the issuer must
be a U.S. company and the aggregate amount of securities sold by the issuer within the previous 12-
month period (including prior crowdfunding) cannot exceed $1 million.
 Investor Limits: To qualify for the crowdfunding exemption, the aggregate amount sold to any one
investor by a crowdfunding issuer, including any amount sold in reliance on the exemption during the
preceding 12-month period, cannot exceed:
- The greater of $2,000 or 5 percent of the annual income or net worth of such investor if either the
annual income or the net worth of the investor is less than $100,000; and
- 10 percent of the annual income or net worth of such investor (not to exceed an aggregate amount of
$100,000) if either the annual income or net worth of the investor is equal to or more than $100,000.
Grow VC Group 2012

7. Title III: Crowdfunding (con’t)
 Website Portal and Broker Registration: A "funding portal" is defined as any person
engaged in the business of effecting securities transactions for the account of others
pursuant to the crowdfunding exemption that does not:
- Offer investment advice or recommendations;
- Solicit purchases, sales, or offers to buy the securities offered or displayed on its website or
portal;
- Compensate employees, agents, or other third parties for such solicitation or based on the
sale of securities displayed or references on its website or portal;
- Hold, manage, possess, or otherwise handle investor funds or securities; or
- Engage in other activities determined by the SEC.
Grow VC Group 2012

8. Title III: Crowdfunding (con’t)
Broker/Funding Portal Requirements: The intermediary broker or funding portal is required to:
1. Register with the SEC and any applicable self-regulatory organization (FINRA);
2. Provide disclosures related to risks and other investor education materials required by the SEC;
3. Ensure that each investor reviews and acknowledges investor-education information, including
knowledge of the risks of such investment;
4. Take measures to reduce the risk of fraud with respect to such transactions, including obtaining
background and securities enforcement regulatory history check on each officer, director, and person
holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by
such person;
5. Not later than 21 days prior to the first day on which securities are sold to any investor (or period of time
set by the SEC), make the issuer’s disclosure available to the SEC and to potential investors;
6. Provide the offering proceeds to the issuer only once the fundraising target is reached, allow investors to
cancel their commitments; and ensure that no investor exceeds the individual investor limits in a 12-
month period; and
7. Not compensate promoters, finders, or lead generators for providing the broker or funding portal with
the personal identifying information of any potential investor.
Grow VC Group 2012

9. Title III: Crowdfunding (con’t)
Crowdfunding Issuer Registration and Disclosure Requirements: To make a crowdfunding offering, an issuer
must:
1. File with the SEC and disclose to investors and the relevant broker or funding portal prospectus
information regarding the issuer's business description, business plan, financial condition, prior
crowdfunding offerings within the preceding year, and pricing of securities and valuation.
2. Not advertise the terms of the offering, except for notices which direct investors to the funding portal or
broker;
3. Not compensate or commit to compensate, directly or indirectly, any person to promote its offerings
through communication channels provided by a broker or funding portal (though certain exceptions
apply); and
4. Provide annual disclosure regarding the results of operations and financial statements of the issuer in
accordance with rules to be issued by the SEC
Note: Issuers will be liable (presumably along with funding portals and broker-dealers) for any material
misstatements or omissions from the disclosure they provide to the market.
- This could increase the risk associated with crowdfunding significantly, as investor law suits are
expensive and time consuming.
Grow VC Group 2012

10. Title IV: Small Company Capital Formations
(Regulation A)
 Title IV's Purpose: To help small issuers, such as venture-capital backed companies, gain access to
funding without the costs and delays associated with the full-scale securities registration process.
 Current Law: Regulation A exempts from SEC registration offerings of up to $5 million if the offering
meets certain requirements.
 Provision: Title IV would increase the offering threshold under Regulation A to $50 million if the issuances
meet certain conditions, including filing an audited financial statement.
 Timing: It is unclear when the SEC will fully implement Title IV, but mid-2013 seems likely.
 Title IV:
1. Provides that the aggregate amount of securities issued under the exemption shall not exceed $50 million
in any 12 month period. The SEC may increase this amount every two yrs.
2. Permits an issuer to market the deal before it files its prospectus with the SEC.
3. Requires issuers to file audited financial statements with the SEC annually.
4. Relates only to equity securities, debt securities, debt convertible into equity and guarantees of these
securities.
5. Does not relieve issuers or others involved in the offering from liability/risk of shareholder suits for
material misstatements or omissions in the information provided to investors.
Note: The SEC may also implement “bad actor” provisions, specific disclosure requirements, and other
requirements for the new Regulation A. Grow VC Group 2012

11. TITLE V -- Private Company Flexibility and Growth
 Title IV's Purpose: The perception in the business community has been that the reporting requirements
and obligations of being a public company is expensive and constrains the activities of companies forced
to register with the SEC.
 Provision: A company had been required to register with the SEC if it had more than 500 shareholders of
record and $10 m in assets. The threshold has been changed to $10 m in assets plus 500 “unaccredited"
shareholders of record or 2,000 total shareholders of record.
 Exceptions and Exemptions:
- Beneficial holders (i.e. ultimate holders, perhaps those holding through a fund) must be counted as
record holders if the issuer knows or has reason to know that the form of ownership of securities is
being used to circumvent the record holder calculation.
- An issuer can exclude from its calculation of holders of record those holders that received shares
through an employee compensation plan, whether or not those holders are current employees.
- Securities issued under the crowdfunding exemption are excluded from the threshold/registration
requirement.
Note: Title VI applies a similar principal to bank and bank holding companies. Such entities must register if
they have have total assets of more than $10 million and a class of equity security held of record by 2,000
or more persons. There is no distinction made regarding the number of “unaccredited” shareholders.
Grow VC Group 2012

12. Effective Dates of the JOBS Act
Title I (Creation of EGCs; “IPO on ramp”) Largely effective on enforcement
Title II (Amendments to General The SEC had been schedule to propose
Solicitation/Advertising) new rules by 4 July but did not do so until
29 August. Final rules not likely before end
of 1st quarter 2013.
Title III (Crowdfunding) The SEC is required to adopt new rules by
31 December but most expect these
changes to be implement in mid/late 2013
Title IV (Increasing Reg A offerings to up to Not yet effective, date unclear.
$50 million)
Title V (Increased thresholds for Largely effective on enforcement.
registration with SEC)
Title VI (Increased thresholds for Largely effective on enforcement.
registration with SEC for banks)
Grow VC Group 2012

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www.growvcgroup.com :: ::
Jouko Ahvenainen :: ::
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