Since Congress passed the Jumpstart our Business Startups (JOBS) Act last spring, there have been 39 IPOs in the biotech industry – and counting! Today, another provision from the JOBS Act takes effect that will further enhance biotech capital formation.
Pursuant to rules mandated by the JOBS Act, companies are now able to use general solicitation to advertise to investors when conducting an offering under Rule 506 of SEC Regulation D. Rule 506 is a popular capital formation outlet that allows issuers to raise an unlimited amount of capital from accredited investors, and the JOBS Act reforms to the process should further increase its utility.
General solicitation in Rule 506 offerings was prohibited prior to today, but issuers are now allowed to advertise to the general public provided that they sell securities only to accredited investors and take reasonable steps to verify that all purchasers in an offering are accredited. The SEC defines an accredited investor as one with a net worth over $1 million (excluding the investor’s primary residence) or more than $200,000 in annual income ($300,000 for couples). This new offering process is called Rule 506(c) and is designed to increase the investor base and bolster fundraising for growing businesses. Companies may also elect to forgo general solicitation and conduct a Rule 506 offering under the old rules, now called Rule 506(b).
BIO was a strong advocate for the JOBS Act and engaged with the SEC as it drafted these new rules. BIO will continue to monitor the implementation of the new Rule 506(c) and has already submitted comments on an SEC proposal that would add additional disclosures to the process. Watch this blog for further updates on the new opportunities available under Rule 506(c) and the requirements for issuers wishing to take advantage of them.
The SEC’s information page on Rule 506 can be accessed here. Issuers should consult legal counsel before considering an offering.