David Weild (http://en.wikipedia.org/wiki/David_Weild_IV) is the founder, Chairman and CEO of IssuWorks. He is considered to be one of the foremost stock market experts in the world and is known as the “Father of the JOBS Act” - the most important piece of pro-capital formation legislation in the United States in over a generation. He is a former vice chairman of NASDAQ who ran a number of businesses at a major Wall Street firm where he oversaw more than 1,000 equity offerings. He is also Chairman of the Board of Tuesday’s Children, the charity that was founded in the wake of 9/11. He can be reached at email@example.com.
What led you to be called the “Father” of the JOBS Act? Ed Kim and I wrote a series of studies that woke Washington up to how destructive our equity markets had become for corporations. We documented a shocking decline in small IPOs starting in 1998 – it was hidden because the decline occurred during the height of the Dot Com Bubble. This was four years before the implementation of Sarbanes Oxley (the popular culprit) and coincides with Reg. ATS (Alternative Trading Systems) which is really the dawn of electronic markets. We also identified a collapse in the number of listed companies (NASDAQ and NYSE) from 9,000 down to under 5,000. We showed that China was growing and the United States was in decline. Congressmen were shocked. This collapse cost the US more than 10 million jobs.
As a result, a number of Congressmen started drafting legislation and before you knew it, there was a smattering of bills in both the U.S. House of Representatives and the U.S. Senate. I testified in Washington and our work was cited by the IPO Task Force Report to the U.S. Treasury and by the Chairman of the House Oversight Committee. —Then, in early September 2011, President Obama gave a speech to a Joint Session of Congress in which he said, “We’re also planning to cut away the red tape that prevents too many rapidly growing startup companies from raising capital and going public.”
While many people were amazed that the JOBS Act was passed, it was actually heavily bipartisan and had the President’s support. While most of the Act was authored by the Republican-controlled House, I understand that the Executive Branch communicated to the U.S. Senate Democrats that the President wanted the Bill passed. The rest is history. On April 5, 2012, I was in the Rose Garden of the White House for the signing.
For those who want to read the two key studies that led to the JOBS Act, they can be found on the IssuWorks website (www.IssuWorks.com) at:
- Market Structure is Causing the IPO Crisis – and more (http://media.wix.com/ugd/c4bcbd_b3e7b1879ee04914d3e0379239ff68a0.pdf)
- A Wake Up Call for America (http://media.wix.com/ugd/c4bcbd_06fe6672597e846d0cc82559624ad5bb.pdf)
How is the JOBS Act improving the financing prospects for microcap companies?
So far, the JOBS Act is doing nothing for already public companies. This is why we have pushed two ideas – a pilot to increase “tick sizes” (the minimum price that a stock is quoted – currently 1 cent) to 5 cents and 10 cents. We have also argued for specialized exchanges for smaller companies because we believe that the one-size-fits-all stock markets of today are optimized for large and liquid stocks and not small and illiquid companies. We have left a lot of entrepreneurship, innovation and jobs needlessly on the table by depriving small companies of real aftermarket support.
The good news is that the JOBS Act has really helped the IPO market: The “Confidential Filings” provision gives companies the courage to go public by eliminating the risk of premature disclosure or reputation damage in the event of a failed deal. “Testing the Waters” allows companies to pre-market their offerings to institutional investors, which is critical for complicated investments, high-risk investments and heavy intellectual-property investments; it is having a particularly profound impact for biotech companies looking to go public.
How is the IPO market doing?
We’ll do 280 or so IPOs in 2014, the best number since 2000, but this number is pathetic in absolute terms. The U.S. was churning out over 500 IPOs a year in the early 1990s before the Dot Com Bubble, which, weighted for growth in the U.S. economy, would be over 900 a year today. Moreover, about 50% of IPOs will be “small” IPOs up from 30% last year, but before the move to electronic markets in 1998 the small IPO was consistently 80% of all IPOs.
How is IssuWorks helping small- and micro-cap companies?
We increase demand for small-, micro-cap and even larger public companies who are chronically unable to systematically reach large numbers of the right investors (because of the misaligned incentives of Wall Street). Our unique process uses large amounts of data to identify more of the right investors; we use marketing and communications technologies to reach these investors and we follow-up with registered sales people. We are the first and only company-aligned capital markets firm (we don’t take commissions from investors) and are holistically positioned to serve the needs of our corporate clients. Early results (we opened our first office this past May) have been pretty remarkable. We have more than doubled demand on offerings.
What types of companies does IssuWorks work with?
We work across all industries. Our clients include companies in financial services, technology, media, biotech, and the REIT industries, which generally range from $100 to $500 million in equity market value. We are exclusively focused on reaching institutional investors at the moment, but eventually, we may adapt our model to provide innovative retail distribution capability and could help even smaller companies.
How does IssuWorks work?
We are a FINRA-registered investment bank. Companies engage us directly and we are also now being “White Labeled” and engaged by our first investment banks. Investment banks quickly realize that our reach is complementary to theirs and they see us as a cost-effective capability to bolt onto their syndicate department during a transaction. Our revenue model is a combination of retainer fees and deal fees.
The SEC recently announced that it was moving ahead with a tick-size pilot program with the exchanges and I understand that you were the “Father” of this idea as well. Yes, in the sense that it was an idea that I proposed at a dinner with the then-vice chairman of the House Subcommittee on Capital Markets a number of years ago.
- Can companies submit their names for consideration? No, not under the current plan. It is a randomized study that will include a control group and three test groups. Each group will have 400 stocks in it for a total of 1200 stocks not including control stocks (which will be traded as usual). All stocks will have share prices greater than $2 per share, market caps below $5 billion and average daily trading volumes below 1 million shares.
- What is the timing of the Pilot? The SEC is currently in a comment period and the plan is controversial. As a result, there will be quite a bit of comment and the SEC will need to respond to that comment and likely adjust the structure of the Pilot. So, I suspect that the Pilot won’t get underway until the second quarter of 2015, at the earliest.
- How will this program impact microcap companies? The intent is to figure out how to increase the incentives to support microcap stocks. We believe that greater incentives would lead to greater investment in, and support for, small- and micro-cap stocks and the small- and micro-cap “ecosystem." Combined, this would also lead to higher numbers of IPOs, economic growth and millions and millions of jobs over the next decade – but not overnight.
- What do you like/not like about the proposed plan for the Pilot? The Pilot should be 5 years long, not 1 year long. It should also test 10 cent tick sizes (not just 5 cents). In one of our studies we found that you really needed tick sizes larger than 1% of share price to support the long-term IPO market. At 5 cent tick sizes, most of the stocks in the Pilot will have tick sizes that are materially smaller than 1% of share price.
What about “Venture Exchanges?”
To have a one-size-fits-all stock market, which is what we have in the United States, optimized to trade S&P 500 stocks and apply it to micro-cap stocks is idiotic. On October 27, 2011, the Wall Street Journal published my Op-ed entitled, “How to Revive Small-Cap IPOs” in which I stated, “What's needed now is a new, parallel market for public companies under $2 billion in value. Trading rules in this new market would allow for higher commissions, which would provide adequate incentives for small investment firms to get back into the business of underwriting and supporting small-cap companies. The SEC could use its authority under securities laws to exempt this market from rules standing in the way, or Congress can step in.” Since then, the SEC Advisory Committee on Small and Emerging Companies has endorsed the need for “Venture Exchanges” as has SEC Commissioner Daniel M. Gallagher, who has a very solid grasp of the issues.
I believe that 2015 will be a watershed year for the small- and micro-cap markets. I expect that we’ll see a “JOBS Act 2” and hopefully we’ll see a bill for “Venture Exchanges.” As we’ve seen with the original JOBS Act, it can take years to implement Congress’s wishes. But, as our parents have taught us, “Patience is a virtue.”
We have been on a bender undermining our small- and micro-cap markets for fourteen years (since 1998 and Reg. ATS) and the JOBS Act was only passed in 2012. Seen in that light, we’re making remarkable progress (I started this fight in 2007) in reviving the U.S. IPO market to again be the envy of markets throughout the World.
What can your readers do? Write their Congressman. Write the SEC. Push for a market that drives capital formation and economic growth again. At IssuWorks, we’re in it to win it. We plan to stop at nothing less than leaving a better legacy for the next generation. For more information, reach us at firstname.lastname@example.org.
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