Survey Shows Crowdfund Investing Will Have Positive Impact on IPO Market
Capital markets executives believe the new crowdfunding provisions of the Jumpstart Our Business Startups Act will have a postive impact on the US IPO market, according to a new study released by BDO USA, LLP, a financial and tax consulting firm in Chicago. BDO’s study is based on a telephone survey that interviewed 100 capital markets executives at leading investment banks.
Fifty-eight percent (58%) of the executives surveyed believe the crowdfunding provision of the JOBS Act, in which small businesses can raised up to $ 1 million in equity offerings per year, should have a postive impact on the U.S. IPO market.
“The JOBS Act was the subject of much debate before it was signed into law and, based on our survey, the investment banking community seems to agree with both the law’s proponents and detractors,” said Brian Eccleston, a Partner in the Capital Markets Practice of BDO USA. A slight majority of the executives surveyed (52%) expressed concern that certain rollbacks of regulatory requiremenents for new public companies under the JOBS Act, such as increasing shareholder thresholds for private companies and five year exemptions from Sarbanes-Oxley mandated audits for internal controls may “open the door to potential scandals.”
The JOBS Act requires the Securities and Exchange Commission to create rules by December 31, 2012 to implement the crowdfunding provisions of the law. The act, among other things, will enable small investments in business through online crowdfunding portals. The Crowdfund Intermediary Regulatory Advocates (CFIRA) announced in May 2012 that it launched an aggressive program to minimize the risk of fraud that may be associated with crowdfunding. CFIRA committed to work with the SEC and the North American Securities Administrators Association to ensure the investors and borrowers are protected from fradulent practices, according to Candace Klein, CFIRA’s chair.
“The available data and evidence simply does not support the conclusion that crowdfunding will engender more fraud than other investment environments. In fact, crowdfunding has the potential to be more transparent and therefore less susceptible to Bad Actors than other current investments,” said D.J. Paul, an executive committee member of CFIRA and Chief Strategy Officer of crowdfunder.com.