JOBS Act Deconstructed: Regulation D

More than 40 biotech companies have gone public using provisions made available to emerging growth companies through the JOBS Act.  BIOtechNOW’s JOBS Act Deconstructed series will explore why it has had such an impact on biotech offerings and how emerging companies can leverage the new law to their best advantage. 

Since the JOBS Act passed, attention has focused mostly on the law’s effects on the IPO market.  This is largely because the IPO On-Ramp was the only part that was self-effectuating – that is, it did not require SEC action to be fully implemented.  The IPO provisions went into effect on day one, and the public market has clearly seen the benefits.

In a nutshell: New SEC rules recently took effect implementing Title II of the JOBS Act, which mandates reforms to Rule 506 of SEC Regulation D to increase its utility for capital formation.  Rule 506 is a popular fundraising outlet that allows issuers to raise an unlimited amount of capital from accredited investors.

The JOBS Act directed the SEC to lift the ban on general solicitation for offerings conducted under Rule 506, provided that issuers A.) sell securities only to accredited investors and B.) take reasonable steps to verify that all purchasers in an offering are accredited.  The SEC implemented this reform by creating a new Rule 506(c) that allows general solicitation in offerings to accredited investors.

Why you should care: Issuers conducting Rule 506(c) offerings can now advertise to the general public, subject to certain conditions.  This is a significant change from the pre-existing Rule 506(b), which prohibits general solicitation entirely.  Though there are no specified limits on the reach of general solicitation under Rule 506(c), only accredited investors are permitted to purchase in an offering.  The issuer must take reasonable steps to verify that each investor in the offering is accredited.

More details: BIO has prepared an overview of the new opportunities available under Rule 506(c) and the requirements for issuers wishing to take advantage of them.  Please click here to access this FAQ document.

This policy overview is not intended to, and does not, constitute legal counsel – issuers should consult their own legal teams before considering an offering and should not rely on this overview when considering such an offering.

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