Banner Year
You may have noticed on some of our recent Monday morning vlogs that we’ve talked about how many more companies are going public. This year should be a banner year for that. Most of the companies are building technologies such as things like how you buy your groceries, how you purchase various products and how you get to and from the airport. We all have felt the impact of how those things have changed recently. It’s going to be interesting to see this year with a lot companies going public how it will give consumers a lot more energy and confidence in markets.
Test The Waters
After the financial crisis in 2008, the Securities and Exchange Commission (SEC) wanted to make it easier, to help the economy, and to help some of the emerging companies get to the market faster. The idea was that by getting into the market they would be able to raise capitalization to buy more product or do whatever they need to do such as hire workers, etc. Back in 2012, four years after the financial crisis, there was a piece of legislation called the 2012 Jobs Act that was focused on those emerging company with sales less than a billion dollars. The reason they targeted those companies is that that’s where a lot of the employment growth was after the financial crisis. You weren’t seeing as much online manufacturing but were continuing in a high-tech environment. The way they did it is they put into place a “testing the waters” legal provision that worked very well. If you were an emerging company below one billion dollars, that meant you could go out and talk to institutional investors about what your idea was and about going public. This allowed you to just “test the waters” before you spent a lot of money and time. This way was highly effective and we’re beginning to see this year the fruits of that coming in. A lot of those companies that were favored by that in 2012 are coming into public markets this year to raise capital and become larger. The point we wanted to make to you is that this process has worked so well and it’s a piece of deregulation that has helped to the point that last week the SEC decided that they would take the sales level off and open it to any type of company in terms of this “test the water” provision. For example, if I’m a more boring type of manufacturer and I’m making pens, I can still do the same thing that a high-tech manufacturer is doing so that I can “test the waters”. I can go to my institutional investors and propose that my pen is going to revolutionize pens and we want to go to the public market to raise money and build a plant to make this pen. It used to be that companies with lower level technology couldn’t do that however, with the 2012 Jobs Act and the test the waters provision, you now can. The whole point of that is regardless of what level of sales you’re at, and regardless of the type of company you have, you can utilize the “test the waters” provision and get to public markets faster.
Why Does It Matter?
Why is going to public markets important? It’s a way to raise capital and for Americans to invest in companies. It’s also a great way for companies to get funding. What would a company do with the funding? Those companies typically get larger. They purchase products, buy equipment and maybe hire other people. It’s also generally helpful to the economy. The faster you can raise money, candidly, the faster your company can grow, and you get money back out into the system that consumers can spend and rely on, which in turn, helps markets.
Ashley Page, JD, MBA
Senior Vice President
Wealth Consultant
Email Ashley Page here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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