New IPO law cuts costs and public disclosures

  • San Francisco investment banker Bill Hambrecht is taking Healdsburg winery Truett-Hurst public. (KENT PORTER/Press Democrat)

In the last two weeks, a Sonoma County high-tech developer and a winery have filed plans to take their companies public and raise millions of dollars from investors.

They have something in common beyond their geography.

Truett-Hurst, a Healdsburg wine company, and Cyan Inc., a Petaluma technology firm, both chose to file as “emerging growth companies,” a new category that was created under the JOBS Act — short for Jumpstart Our Business Startups.

Enacted a year ago, the JOBS Act was designed to ease companies' access to capital markets by making it less expensive and onerous to comply with the regulations required of public companies. It was pushed by Silicon Valley venture capitalists, who argued it would spur economic growth by enabling companies to raise the funds they need to expand and create new jobs.

But critics say the JOBS Act hasn't accomplished that goal. They say it risks eroding important protections that were put in place after the Enron scandal by reducing the amount of information public companies have to file with regulators, and by relieving companies of requirements like giving shareholders a say on executive compensation and “golden parachutes.”

The Council of Institutional Investors, a nonprofit association of pension funds, endowments and foundations with combined assets that exceed $3 trillion, warned investors that they would find significant erosion of mandatory disclosures and shareowner rights when dealing with companies that filed as “emerging growth companies.”

But backers of the act like Bill Hambrecht, whose San Francisco firm WR Hambrecht + Co. is underwriting Truett-Hurst's public filing, say something needed to be done to simplify the IPO process to help smaller, venture-backed companies access capital markets in a way that isn't cost-prohibitive.

“The motivation of the JOBS Act was to allow smaller companies to go public,” said Hambrecht, who is a co-owner at Truett-Hurst. “And the rationale was pretty simple. There's been thousands and thousands of small companies started by VC investors and angel investors ... and for the last decade, about 95 percent of them would end up — when they came to going public or selling out — would end up selling out.”

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