The new JOBS Act, intended to make it easier for smaller companies to raise capital, was signed into law by the President on April 5th.
First, let me say that I welcome the reduction in the regulatory burden on smaller companies. I hope this spirit of deregulation will be extended to existing small cap public companies which continue to operate under the old burdens.
However, some needed changes to encourage capital formation by smaller companies aren’t as easily handled through legislation. For example, thin liquidity in many small cap stocks has several causes and would require several fixes. Lack of liquidity, therefore, will likely continue to plague smaller cap stocks.
Also, we can’t legislate good judgment. Even under the former, so-called stricter rules, investors shoveled money into Chinese stocks, many of which proved to be unwise investments. The new JOBS Act places even greater responsibility on investors to exert good judgment.
Experience tells me that companies considering raising capital should take advantage of these relaxed rules as soon as possible before some visible blow-ups or disasters trigger re-tightening of the rules.
The following links provide helpful summaries and analyses of the JOBS Act. Thank you.