They say that the most promising companies have no problem raising money privately and that many of them don’t want to go public.
Besides, investor appetite isn’t there for smaller firms that do, said Jay Ritter, a finance professor at the University of Florida. Small firms with less than $50 million in annual sales have generated dismally low returns in the three years after their IPOs, he said, and that has held true for the past three decades.
Although critics continue to blast those provisions, the most controversial portions of the act are not in place yet.
Among them is one that allows fledgling firms to raise small sums from a large number of people on the Internet. Artists and charity groups have long used this “crowd-funding” method, but it has never been used to offer an ownership interest, or stake, in a company.
Investor advocates fear that crowd-funding will emerge into a platform for frauds making bogus appeals to unsophisticated investors. A group of state securities regulators said it tried to mitigate the potentially disastrous consequences by urging the White House to allow state regulators, who are closest to businesses, to oversee crowd-funding.
But the White House “wouldn’t hear of it,” said Heath Abshure, head of the North American Securities Administrators Association. “Crowd-funding was already part of the president’s platform to help small businesses by then.”
Investor advocates also lost their bid to strip a provision that allows private firms to solicit the public without regulatory oversight for the first time since the 1930s.
Hedge funds, for example, will be able to advertise via e-mail, billboards or Facebook. Before, they could only solicit sophisticated investors, who could presumably withstand potential losses. Now the firms will be left to determine whether an investor meets net-worth and income criteria.
For years, the SEC has considered allowing this type of crowd-funding and lifting the advertising ban. But it grappled with how to do it while balancing investor protections and businesses’ desire to raise money. The agency must act but is struggling with the details.
On Capitol Hill, signs of buyer’s remorse are emerging.
When the advisory board to the Democratic leadership in the Senate released a list of the jobs-boosting measures enacted by the Senate in the past five years, the Jobs Act was not among them.