On April 5, 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act, enacting it into law. The JOBS Act is intended to make it easier for smaller and earlier stage companies to raise capital and also to revitalize the U.S. market for initial public offerings, which has been in decline since the beginning of the last decade.
The provisions of the JOBS Act represent a watershed change to the laws and regulations governing capital raising for private companies. Some of the provisions – such as the “IPO on-ramp” provisions and the increase in the number of holders triggering mandatory registration and public reporting under the Securities Exchange Act of 1934, are effective immediately. Others, including the new crowdfunding exemption, the removal of the ban on general solicitation for offerings under Rule 506 to accredited investors and Rule 144A to QIBs, and the new exemption modeled on Regulation A, will require SEC rulemaking before they come into force.
The U.S. House of Representatives passed the Act (H.R. 3606) on March 8, 2012 by a vote of 390-23. Despite opposition from SEC Chairman Mary Schapiro and many organizations, the Senate bypassed its normal committee process and passed the JOBS Act, with a substantially revised section on crowdfunding, on March 22, 2012. The Senate vote was 73-26. On March 26, 2012, the House passed the Senate version of the bill by a vote of 380-41. As noted above, President Obama signed the Act into law on April 5, 2012.
The JOBS Act is organized in Titles. The major titles are summarized below
Title I – IPO on-ramp provisions
- New category of issuer: emerging growth company (EGC)
- Allows EGCs to file registration statement confidentially and “test the waters” with large institutional investors
- Eliminates most restrictions on research publications
- Reduces financial reporting and executive compensation disclosure obligations for EGCs
Implemenation: Effective immediately
Title II – Relief from ban on general solicitation
- Removal of ban on general solicitation for Rule 506 offerings provided all purchasers are accredited
- Removal of ban on general solicitation for Rule 144A offerings provided all purchasers are reasonably believed to be QIBs
Implementation: Exemption from broker-dealer registration for operation of a general solicitation portal (subject to conditions) SEC directed to revise Regulation D rules within 90 days; broker-dealer registration provisions effective immediately.
Title III – Crowdfunding
- Crowdfunding exemption through funding portals for offerings up to $1 million
Implementation: SEC directed to issue rules within 270 days.
Title IV – New “mini-public offering exemption
- New exemption for private offerings up to $50 million, modeled on Regulation A
Implementation: SEC directed to issue rules to create exemption. No deadline set.
Titles V and VI – Relaxation of mandatory Exchange Act registration standard for record holders
- Increases number of record holders triggering mandatory registration to 2,000, no more than 500 of which may be unaccredited
- Excludes holders of employee benefit plan securities
- Increases thresholds for bank holding companies
Implementation: Effective immediately.
What are the IPO on-ramp provisions?
The JOBS Act creates a new category of issuer — an emerging growth company, or EGC. An EGC is a company that has had its first registered sale of securities within its five prior fiscal years and has total annual gross revenues of less than $1 billion (subject to inflationary adjustment by the SEC every five years) and less than $700 million in publicly traded shares. Issuers that had their first registered sale of securities on or before December 8, 2011 are not eligible to be an EGC.
The JOBS Act provides the following relief from disclosure, compliance and governance obligations for EGCs:
- Registration statements can be submitted confidentially to the SEC and need not be publicly available until 21 days prior to the first road show. The SEC has indicated it will shortly publish guidelines for confidential submission. Note that if an offering is going to proceed to a road show, the initial confidential filings will still become public, which will allow public comparisons between the initial filed documents and later filed documents.
- Publication of research about an EGC by a broker-dealer is not considered an offer of securities, even if the broker-dealer is participating in the IPO. Broker-dealers have been restricted from publishing research reports during a “quiet period” following an IPO, and that quiet period will no longer apply to EGCs.
- SEC and stock exchange rules limiting communications by analysts with companies and potential IPO investors must be repealed.
- “Testing the waters” communications between companies and qualified institutional buyers (QIBs) are permitted at any time during the IPO process.
- The IPO registration statement need only include audited financial statements (and corresponding management discussion and analysis) for the two prior fiscal years rather than the three prior fiscal years required for companies other than smaller reporting companies, and subsequent reports under the Exchange Act need not include years earlier than those required in the IPO registration statement.
- Exchange Act reports and registration statements after the IPO registration statement will require summary financial information only for the periods starting with the earliest year of audited financial statements presented in the IPO registration statement. Until now, such information has been required for the five prior fiscal years.
- Say-on-pay and say-on-golden-parachute votes are not required during the period that the company qualifies as an EGC. Smaller reporting companies are currently exempt from these votes until 2013.
- EGCs may use the scaled executive compensation disclosures currently permitted for smaller reporting companies. They may therefore include compensation information for fewer executive officers, omit the Compensation Discussion & Analysis (CD&A) and omit some of the compensation tables, including the burdensome table of Golden Parachute Compensation.
- Compliance with the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act is not required for the period that a company remains an EGC. This extends the relief from attestation from the current two years post-IPO to up to five years. EGCs are still required to maintain adequate internal control over financial reporting and to report the assessment of their principal executive officer and principal financial officer as to the effectiveness of such internal control.
- EGCs may pick and choose (opt-in) amongst the scaled disclosure provisions.
- Compliance with new accounting standards is not required until such standards apply to companies that are not subject to Exchange Act reporting.
- The SEC is ordered to conduct a study of the effect of decimal quoting of securities on IPOs and liquidity for smaller companies and report to Congress within 90 days.
- The SEC is ordered to conduct a review of Regulation S-K to “determine how such requirements can be updated to modernize and simplify the registration process and reduce the costs and other burdens associated with these requirements for issuers who are emerging growth companies,” and then report its findings to Congress 180 days after enactment.
What will the IPO on-ramp provisions mean to companies considering going public and the market new offerings?
The IPO market is characterized not only by legal requirements but also market realities and long-standing customs. Markets can change rapidly and unpredictably. Customs are typically slow to change in response to relaxation of legal requirements. It is not clear at this point what effect the relaxation of these rules will have an companies proposing to go public via a traditional IPO. Some of the uncertainties include:
- Will confidential filing increase the willingness of companies to file for an IPO in more uncertain market conditions?
- Will confidential filing affect the timing for clearance of SEC comments?
- Will companies eschew confidential filings because of the loss of public exposure that can lead to acquisition offers (the "dual track")?
- Will broker-dealers involved in an IPO be comfortable publishing research close in time to an IPO? Will investors consider those reports to be credible?
- How will the test the waters provisions interface with the confidential filing provisions?
- What controls will issuers and underwriters develop to protect themselves from liability that might be associated with test the waters communications?
- Will the market be comfortable with only two years of audited financial statements and no unaudited financial data for prior years?
- Will the market be comfortable with the scaled executive compensation disclosures?
- Will the relaxation of these rules meaningfully reduce the costs and risks of going public?
- Will the elimination of the “ethical wall” between investment bankers and analysts, and possible future changes to decimalization quotation of securities, encourage boutique investment banks to re-enter the IPO business?
- Will the market accept public offerings from smaller and/or earlier stage issuers, which tend to have a higher risk profile?
What is the elimination of the prohibition on general solicitation?
Currently, a company wishing to raise capital through the exemption from registration provided in Rule 506 of Regulation D cannot offer its securities by any form of general solicitation or advertising. The prohibition on general solicitation requires investors to be recruited based on pre-existing relationships with the issuer or an agent of the issuer that creates a reasonable basis to believe that a person would be interested in an investment of the type offered. This rule has represented the fundamental divide between registered public offerings, such as IPOs, and exempt offerings, commonly known as private placements.
The JOBS Act requires the SEC, within 90 days of enactment, to remove the prohibition on general solicitation in Rule 506 private placements provided that all the investors are accredited. The JOBS Act directs the SEC to adopt regulations to require the issuer to take reasonable steps to verify that the purchasers in Rule 506 private placements are accredited. The reform applies only to offerings under Rule 506 and does not directly affect offerings under other exemptions afforded by Regulation D or Section 4(2) of the Securities Act of 1933.
Rule 506 offerings are exempt from state blue sky qualification requirements under the National Securities Markets Improvement Act of 1996 (NSMIA), so the general solicitation that is permitted by the JOBS Act cannot be restricted by states.
In addition, the JOBS Act directs the SEC, within 90 days of enactment, to amend Rule 144A to permit general solicitations of securities sold under Rule 144A that reach investors who are reasonably believed to be QIBs.
What types of exchanges are non-broker-dealers permitted to operate for the sale of Rule 506 securities?
The JOBS Act creates an exception to broker-dealer registration rules, effective immediately, for operating a platform or mechanism to offer, sell and purchase securities sold under Rule 506 and for providing certain ancillary services associated with such securities. The permitted ancillary services are due diligence services and providing standardized transaction documents. The exception applies to online and other types of exchanges.
This exception applies only if the operator and associated persons receive no compensation in connection with the purchase or sale of securities, do not take possession of customer funds and have not been subject to a “bad boy” disqualification from a self-regulatory organization such as FINRA.
What will the elimination of the prohibition on general solicitation and requirements for broker-dealer registration for Rule 506 portals mean?
As noted above, the prohibition on general solicitation has been the fundamental divide between public and private offerings. There will remain important differences between public offerings and private placements, but the line of contrast will be significantly blurrier.
Public offerings generally have significantly greater investor protection mechanisms, including SEC review, involvement of at least one (and usually many) underwriter intermediaries, due diligence performed by both the issuer’s and the underwriters’ legal counsel, audited financial statements, and strict liability under the securities laws for issuers, and, subject to a due diligence defense, for underwriters and directors.
These investor protection mechanisms are in part responsible for the high costs of IPOs – a problem the JOBS Act has tried to address. The JOBS Act will therefore allow companies that have raised money under Rule 506 (i.e., most funded emerging growth companies) to greatly expand the audience of potential investors. That may make it easier for such companies to raise capital, particularly those whose business is interesting to the public at large. That may also make it more practical for emerging growth companies to accept smaller investments from accredited investors, which may incentivize more people to invest. However, it remains to be seen whether accredited investors recruited via general solicitation will be willing to invest, on the whole, substantial sums in riskier companies that are, for the most part, issuing illiquid securities. If investors have an appetite for these securities, early stage companies will benefit greatly from this provision of the JOBS Act.
The JOBS Act requires the SEC rules to address verification of the accredited status of investors who are generally solicited. It is not clear how burdensome those rules will be or what will be the consequences if issuers fail to observe all of the requirements or if investors lie about their status and the lie is not detected. We note that the JOBS Act language relating to Regulation D, Rule 506 requires investors "are accredited," whereas the corresponding language for general solicitation of Rule 144A offerings requires only that the issuer "reasonably believe" that the investors are QIBs. The rules the SEC adopts here may become important to the practical utility of general solicitation in Regulation D offerings.
Sophisticated angel investors and venture capital funds usually negotiate for certain control rights in connection with their investments. It is unclear what types of investor control mechanisms might occur in private placements solicited generally or what effect those might have on issuers or investors.
There are a number of potential downsides to the elimination of the prohibition on general solicitation and the opening of portals to firms that are not broker-dealers.
All other things equal, companies that have been through a “capital markets scrub” (i.e., the due diligence performed by multiple intermediaries in the IPO process) are less risky than ones that have not. Moreover, the manner of soliciting public offerings is significantly restricted in the securities laws, whereas the means of general solicitation for Rule 506 offerings under the JOBS Act are unrestricted. Absent SEC rules that restrict the manner of general solicitation (which the SEC might not be able to adopt or enforce) or further lawmaking, telemarketing, infomercials and other practices historically associated with extreme investor risk and fraud. Communities of persons who are more likely to be accredited but not necessarily sophisticated investors, like retirees, would seem particularly vulnerable.
FINRA has recently been enforcing rules it believes require broker-dealers to conduct extensive due diligence in private placement transactions. These FINRA positions may help eliminate some of the abuses many fear from the JOBS Act to the extent broker-dealers are involved in private transactions. However, Title II of the JOBS Act expressly allows portals for the general solicitation of Rule 506 offerings to be operated by firms that are not registered broker-dealers. The JOBS Act imposes no due diligence requirements on these firms (compare to the requirements for funding portals for crowdfunding offerings, discussed below).
It is not clear that the change to Regulation D, Rule 506 required by the JOBS Act will change many SEC rules and interpretations that might limit general solicitations. These include rules and interpretations intended to ensure that offerings started as private finish as private and offerings started as public finish as public.
All of this means that on one hand, some and possibly many emerging growth companies will find it easier to raise capital from accredited investors, while on the other hand the public will likely receive many more and varied solicitations for investment opportunities that are riskier and more susceptible to fraud than has been the case for many decades.
What is crowdfunding, and what activities does the JOBS Act permit?
Crowdfunding is a form of capital raising where groups of people pool money and other resources to achieve a goal, including to fund a small business. As a result of the prohibition on general solicitation and the prior requirement for companies to register under the Exchange Act if they have over 500 holders of a class of equity securities and over $10 million of assets, crowdfunding in the U.S. through websites and social networks has generally been limited to activities where the investor does not receive securities in exchange for its final contribution.
The JOBS Act establishes the new crowdfunding exemption, which is designated as Section 4(6) of the Securities Act, with the following parameters:
- The aggregate proceeds from all investments in the issuer, including amounts sold under the crowdfunding exemption during the preceding 12 months, must be less than $1,000,000.
- The aggregate amount invested by any investor in all issuers pursuant to the crowdfunding exemption must not exceed a limit determined on a sliding scale based on net worth or annual income. The limit is 5% of net worth or annual income that is less than $100,000 (or $2,000, if greater than the 5% calculation), and 10% of net worth or annual income that is $100,000 or more. No investor may invest more than $100,000 in an issuer pursuant to the crowdfunding exemption. Income and net worth are to be calculated in the same fashion as the tests for accredited investors. Accordingly, equity in a principal residence is excluded from net worth.
- The transaction must be conducted through an intermediary that is either a registered broker-dealer or “funding portal.”
- Funding portals are not required to register as broker-dealers, but are subject to SEC registration and must be members of a national securities association, such as FINRA.
- The intermediary must provide disclosures, including disclosures related to risks and other investor education materials (as determined by SEC rules).
- The intermediary must ensure that investors review investor-education information (as determined by SEC rules).
- The intermediary must ensure that investors answer questions demonstrating that they understand the risks of investing in startups, including the risk of loss of the entire investment, and that each investor can afford such loss.
- The intermediary must provide the disclosures to the SEC and to investors at least 21 days prior to accepting any investments.
- The intermediary must take fraud-prevention measures to be determined by SEC rules, including background checks of officers, directors and 20% holders.
- The intermediary must ensure that proceeds are not released to issuers until a set target amount is reached and must allow investors to withdraw their commitment in accordance with SEC rules.
- The intermediary must take steps to be determined by SEC rules to ensure that each investor has not exceeded its crowdfunding limit in a 12-month period, which as noted above applies to all investments in all issuers under the crowdfunding exemption.
- The intermediary must take steps to ensure the privacy of information collected from investors in accordance with SEC rules.
- Intermediaries cannot pay finders fees.
- Directors, officers and partners of the intermediary may not have a financial interest in the issuer.
- The issuer must make the following mandatory disclosures to the SEC, the intermediary and investors:
- identifying information about the issuer, including its website
- the names of officers, directors and 20% shareholders
- a description of the business and the anticipated business plan
- a description of the financial condition of the issuer, with scaled requirements depending on the target amount of the offering.
- For offerings of $100,000 or less, the income tax return for the last completed year and financial statements certified by the principal executive officer to be true and correct
- For offerings of $100,000 to $499,999, financial statements reviewed by an independent public accountant
- For offerings over $500,000, financial statements audited by an independent public accountant
- the intended use of proceeds
- the target offering amount, the deadline to meet the target offering amount, and regular updates regarding the progress of the issuer toward the target
- the price or the method of determining the price, and if the price is not fixed, a reasonable opportunity for the investor to rescind its commitment once the price is determined
- detailed information about the capital structure of the issuer, the securities being offered and the risks associated with those securities
- how the securities being offered are being valued, and how they might be valued in the future in connection with a corporate transaction
- The issuer may not advertise the terms of the offering except for notices which direct investors to the intermediary.
- The issuer may not compensate finders except in accordance with SEC rules that will ensure the recipient clearly discloses such compensation.
- The issuer must file annual reports of results of operations and financial statements with the SEC and provide to investors, in accordance with SEC rules.
- No resales are permitted for one year except to the issuer, an accredited investor, a member of the investor’s family or pursuant to a registered offering.
- The exemption is available only for U.S. issuers that are not investment companies and are not subject to periodic reporting under the Exchange Act.
- The issuer and its directors, partners, principal executive officer, principal financial officers and controller/principal accounting officer will be liable to investors for any material omissions or misstatements unless they can sustain the burden of proof that they did not know, and in the exercise of reasonable care, could not have known, of such untruth or omission.
It appears that securities sold under the crowdfunding exemption will be “restricted securities” and will therefore subject to Rule 144 restrictions for public resales. It appears that the one-year restriction on resale described above applies to private as well as public resales.
Investors who purchase securities in transactions under the crowdfunding exemption do not count against the holders of record test that triggers reporting obligations for companies under Section 12(g) of the Exchange Act. Moreover, offerings under the crowdfunding exemption pre-empt state blue-sky qualification laws (though the SEC must make information available to the states to facilitate state enforcement of anti-fraud laws). States may require notice filings, but only a state in which purchasers of an aggregate of 50% or more of the securities being offered reside may charge a fee in connection with such notice. States also may not regulate funding portals except for enforcement of anti-fraud laws.
Within 270 days after the enactment of the JOBS Act, the SEC is required to adopt rules for the crowdfunding exemption, including rules disqualifying “bad boys” from using the exemption.
Will crowdfunding be a viable means for emerging growth companies to raise capital?
The crowdfunding exemption ultimately passed into law is more restrictive in many ways than existing Rule 504 under Regulation D. Rule 504 permits an issuer to raise up to $1 million during a 12-month period with no mandatory disclosures, no investor qualifications and no limits on individual investments. Rule 504 also has no limits on general solicitation and does not restrict resales so long as the offer is qualified in at least one state. Offerings under Rule 504 are not pre-empted from state regulation.
The crowdfunding exemption in the JOBS Act appears more restrictive than Rule 504 in every respect except:
- the $1,000,000 limit in the crowdfunding exemption may not be subject to integration with future offerings, whereas the Rule 504 limit is subject to integration with future offerings;
- Rule 504 offerings are subject to state regulation, so offerings need to be qualified or determined to be exempt in each state in which the offering will occur; and
- shareholders who purchase securities under Rule 504 are included in the count of record holders for mandatory Exchange Act registration.
In our experience, few emerging growth companies use Rule 504 because the $1,000,000 limit is too low to meet anticipated funding needs and because of the costs and delays of the blue-sky process. We question whether emerging growth companies would find the crowdfunding exemption attractive, and whether intermediaries will find the business sufficiently profitable to justify the regulatory burden.
What is the new Regulation A-like exemption and what does it mean?
Regulation A currently provides an exemption from registration for offerings of up to $5 million per year by non-reporting companies. Regulation A requires the submission of a simplified offering document to the SEC, which the SEC comments upon. Regulation A permits “testing the waters” communications. Securities sold under Regulation A are not “restricted securities,” so the investor may immediately sell such securities publicly, at least theoretically. Issuers who sell securities under Regulation A do not automatically become subject to reporting under the Exchange Act. Regulation A offerings are subject to state blue-sky qualification laws. Regulation A is rarely used because of the low $5 million offering cap and the associated regulatory burdens.
The JOBS Act requires the SEC to amend Regulation A or adopt a new exemption to increase the offering cap to $50,000,000 of securities sold in the prior 12 months in reliance on the exemption. Within 2 years of the enactment of the JOBS Act, and for every 2 years thereafter, the JOBS Act directs the SEC to review the offering cap and allows the SEC to increase it. The exemption permits “testing the waters” communications and permits offering the securities publicly, providing that securities sold in the offering are not restricted securities. The exemption requires issuers availing themselves of the modified exemption to file audited financial statements with the SEC annually and allows the SEC to impose additional conditions, including periodic reporting requirements. The exemption is available for equity securities, debt securities, convertible debt securities and guarantees.
Securities sold under the modified exemption are added to the list of covered securities under NSMIA, but only if they are offered and sold on a national securities exchange or offered and sold only to “qualified persons” as the term is defined by the SEC. NSMIA was adopted in 1996 and pre-empted state blue-sky qualification laws for securities sold to qualified persons. The SEC proposed a definition for “qualified persons” in 2001, but never adopted a definition. If the SEC does not adopt a definition in connection with the amendments to Regulation A required by the JOBS Act, issuers would have to choose between blue-sky compliance and becoming listed on a stock exchange, assuming they qualify for listing. Becoming listed on a stock exchange would in turn require issuers to report under the Exchange Act, which may eliminate many of the advantages of Regulation A over a registered public offering. The JOBS Act does however require the Comptroller General to conduct a study on the impact of blue-sky laws on Regulation A offerings and report on its findings within three months after enactment of the JOBS Act.
Depending on the regulations the SEC adopts, this new exemption may become a viable means for a company to conduct a “mini-public offering” and have a public trading market in its securities. The continuing market for reverse mergers into public shell companies, sometimes referred to as alternative public offerings, demonstrates a demand for small companies to establish public markets in their securities. The ability to raise up to $50 million publicly and the potential not to be subject to Exchange Act reporting could make the new Regulation A-type exemption a superior alternative public offering method.
Note however that the JOBS Act does not exclude holders of securities sold under this exemption from the count of holders for Exchange Act registration. Unless the SEC adopts rules to do so, companies that use this exemption may find that they quickly become subject to Exchange Act reporting. Many companies may impose contractual trading restrictions to prevent this from happening.
What are the changes to the triggers for Exchange Act registration and what do they mean?
Section 12(g) of the Exchange Act and its related rules required a company with more than $10 million in assets and more than 500 holders of record of any class of its equity securities to register under the Exchange Act and begin complying with disclosure and financial reporting compliance obligations applicable to public companies.
Effective immediately, the JOBS Act increases the holder threshold to 2,000 holders, provided no more than 500 are unaccredited investors. The JOBS Act also excludes from the “held of record” test securities held by persons who received them pursuant to employee compensation plans and securities held by persons who purchased them in transactions under the crowdfunding exemption. Within 120 days after enactment of the JOBS Act, the SEC must determine if new enforcement tools are needed to enforce the anti-evasion provisions of the rule, and report its recommendation to Congress.
The holder of record threshold for banks and bank holding companies has increased to 2,000, with no limit on the number of unaccredited investors.
As a result of these changes, the many companies that have in recent years come close to or exceeded the prior 500-holder limit will have substantial room to add more investors without needing to accelerate an IPO or register under the Exchange Act without an IPO. This change will also expand the practicality of the more liberal private offering rules under the JOBS Act.
With companies able to maintain their status as non-reporting companies for longer, and with more holders that may want liquidity, we may see more demand for secondary markets trading in private placement securities.
What should I do now?
Companies and entrepreneurs who rely on outside capital should immediately consider what these legal changes might mean to their capital raising plans. The considerations are complex and will be different for every company. We urge companies and entrepreneurs to consult with legal counsel before changing any of their plans and actions in response to the JOBS Act. Companies that believe they will benefit from attracting a larger number of investors will need to consider the disadvantages of a large shareholder base, including increased administrative cost, more difficulty with certain fundamental transactions like sale of the company or restructuring, and potentially becoming less attractive to traditional investors like venture capital funds.
Private companies that already have a substantial shareholder base should think about what possibilities are now open to them given more headroom on the number of holders. In some cases, changes may be needed to shareholder and investor agreements either to facilitate or prevent secondary markets in their shares.
Given some of the delays for required rulemaking and uncertainties as to how markets will react to these changes, the provisions of the JOBS Act will generally mean evolutionary rather than revolutionary changes to capital raising plans for most issuers for the time being. But revolutionary changes may not be far off.
What if you have questions?
For any questions or more information on these or any related matters, please contact any attorney in the firm’s corporate practice group. A list of such attorneys can be found by clicking Lawyers on this page.
John Tishler (858-720-8943, firstname.lastname@example.org), Louis Lehot (650-815-2640, email@example.com), Edwin Astudillo (858-720-7468, firstname.lastname@example.org), Jason Schendel (650-815-2621, email@example.com), Camille Formosa (650-815-2631, firstname.lastname@example.org) and Nina Karalis (858-720-7466, email@example.com) participated in drafting this posting.
This update has been prepared by Sheppard, Mullin, Richter & Hampton LLP for informational purposes only and does not constitute advertising, a solicitation, or legal advice, is not promised or guaranteed to be correct or complete and may or may not reflect the most current legal developments. Sheppard, Mullin, Richter & Hampton LLP expressly disclaims all liability in respect to actions taken or not taken based on the contents of this update.
 The JOBS Act is not clear whether the relief from summary financial information applies to the IPO registration statement, though such relief seems consistent with Congressional intent given the provisions relating to later registration statements and Exchange Act reports.We note that public companies also rely on Rule 506 to issue securities in PIPE transactions, and PIPE transactions could opened to general solicitation, with investors in those transactions receiving securities that have a safer and generally shorter path to liquidity.