IPO Task Force Issues Recommendations to Improve the Capital Markets for Emerging Growth Companies

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Report Provides Detailed Roadmap for Policymakers to Spur Job Creation

Today the IPO Task Force issued a detailed set of recommendations to re-energize U.S. economic growth by improving access to capital for emerging growth companies. The task force’s report, Rebuilding the IPO On-Ramp: Putting Emerging Growth Companies and the Job Market Back on the Road to Growth, provides policymakers with specific and actionable steps for increasing the supply of initial public offerings (IPOs) by creating an on-ramp for emerging growth companies and improving the path to an IPO through enhanced availability of investor information.

Comprised entirely of a group of private sector professionals, the IPO Task Force was formed in response to discussions held during the March 11, 2011, Access to Capital Conference at the U.S. Treasury Department. Kate Mitchell, chairman of the task force and managing director of Scale Venture Partners, remarked on the scope and practicality of the recommendations:

“The mandate of the IPO Task Force was to examine the root causes of the current U.S. IPO crisis and quickly develop reasonable and actionable steps that can restore access for emerging growth companies to the capital they need to create jobs and expand their businesses globally,” said Mitchell. “Our recommendations are extremely targeted, adjusting the scale of current regulations to ease the IPO process without undermining investor protection. Given the urgency to get America back on the path to economic growth, we need to get capital back in the hands of companies that create jobs. History tells us that emerging growth companies do exactly that.”

The IPO Task Force is sharing the On-Ramp report with the Treasury Department, the SEC, legislators, and the Administration, and will encourage them to use its recommendations to enact policies that effect meaningful change.

The Growing Crisis and Root Causes

During the past 15 years, the number of emerging, high-growth companies entering the capital markets through IPOs has plummeted relative to historical norms, transcending economic cycles and hobbling U.S. job creation. In its work, the IPO Task Force reaffirmed that a sequence of regulatory actions – mostly aimed at protecting investors from behaviors and risks posed by the largest public companies -- have driven up costs for emerging growth companies looking to go public, constrained the amount of information available to investors about such companies, and shifted the economics of investment banking away from long-term investing in such companies and toward high-frequency trading of large-cap stocks. These obstacles, if left unaddressed, promise to stifle U.S. economic growth and jeopardize America’s global leadership.

IPO Task Force Recommendations

The IPO Task Force recommendations aim to bring the existing U.S. regulatory structure in line with current market realities while remaining true to the need for ongoing investor protection and increased investor participation. The three recommendations are:

I. Provide an “On-Ramp” for Emerging Growth Companies Using Existing Principles of Scaled Regulation. To reduce costs for companies trying to go public while still adhering to the first principle of investor protection, the task force recommends that companies with total annual gross revenue of less than $1 billion at IPO registration and not recognized by the SEC as “well-known seasoned issuers” be given up to five years from the date of their IPOs to scale up to full compliance. The scaled regulations are limited to those areas of compliance that are high cost and which do not compromise investor protection or disclosure. This On-Ramp status is designed to be temporary for the company and transitional, impacting only an estimated 14 percent of companies and three percent total market capitalization today.

II. Improve the Availability and Flow of Information for Investors. To increase visibility for emerging growth companies while maintaining transparency and consistency for investors, the task force recommends improving the flow of information about emerging growth companies to investors before and after an IPO. These policies should account for modern-day communications channels and practices by recognizing a greater role for research during the capital formation process, enacting modifications to existing restrictions on banking research, and expanding permissible pre-filing communications.

III. Lower The Capital Gains Tax Rate For Investors Who Purchase Shares In An IPO And Hold These Shares For A Minimum Of Two Years. Recent regulations and subsequent changes in related market practices have made it more difficult for long-term investors to gain access to emerging growth company stocks. From the issuer’s perspective, it is especially critical for emerging growth IPOs to attract such long-term investors at the initial allocation because that determines how much capital the company raises through the IPO. The capital gains tax rate has served as an effective tool for encouraging and rewarding long-term investing for decades, so this action would be consistent with current practice.
In addition to the recommendations above, the IPO Task Force will kick off an industry education initiative aimed at helping emerging growth companies become better consumers of investment banking services. The task force will work to increase the education and involvement of management and board members about the choice of the investment banking syndicate and the allocation of IPO shares. The goal is to efficiently connect the appropriate mix of investors to the sellers of emerging company stocks.

Call to Action

The IPO Task Force asserts that the On-Ramp recommendations are not only consistent with the spirit and intent of the current regulatory regime, but also essential to preserving America’s global economic primacy for decades to come. The group pledges continued participation and support of this effort to put emerging companies, investors and the U.S. job market back on the path to growth. The group is calling on Members of Congress, regulators and the Administration to support and enact legislative initiatives and regulatory reform that incorporate its recommendations so that the country can move quickly toward a vibrant and healthy capital markets system.

“As a country, we need to stop debating how to slice a shrinking pie and start working to grow the pie,” said William Sahlman, professor at Harvard Business School and IPO Task Force member. “A vibrant capital markets system is necessary for our economy to expand and the recommendations put forth by the task force offer a viable approach to address the challenges that are before us.  The future of the U.S. economy now hinges upon action - not rhetoric - and its time to move forward and take the necessary steps to smooth the IPO path for these companies which have proven to be critical sources of job creation, innovation and economic growth."

A full copy of the report is available here:

Summary slides are available at:

About the IPO Task Force

In March 2011, the U.S. Treasury Department convened the Access to Capital Conference to gather insights from capital markets participants and solicit recommendations for how to restore access to capital for small companies, including public capital through the IPO market. Arising from of one of the conference’s working group conversations, a small group of professionals representing the entire emerging growth company ecosystem – venture capitalists, experienced CEOs, public investors, securities lawyers, academicians and investment bankers –formed the IPO Task Force. Their report, Rebuilding the IPO On-Ramp: Putting Emerging Growth Companies and the Job Market Back on the Road to Growth, examines the challenges that emerging growth companies face in pursuing an IPO and provides recommendations for helping such companies access the capital they need to generate jobs and growth for the U.S. economy and to expand their businesses globally.


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Carol Sacks
Tenor Communications
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