Orloff's  Instablog

Those who study the history of financial markets learn one thing: When all the "experts" agree, they are wrong.

That's the case with the naysayers who are looking at 2013 to be an even flatter year for Initial Public Offerings. 2012 was down from 2011 and the experts say the financial condition of the United States and the world have not improved enough to make the market pick up.

"Gau, Ritter, and Zhu [authors of a paper "Where Have All the IPOs Gone"] expect the JOBS Act and other regulatory stimulus efforts to have an inconsequential impact on IPO activity and think we are unlikely to see the number of deals return to the levels seen in decades past," states a report in SeekingAlpha.com , an investment website.

What these men almost overlook is the Jumpstart Our Business Startups act. JOBS promises to cut through the red tape that hinders small businesses from going public to raise needed capital. The three authors do acknowledge the JOBS act, but they believe it will have no effect on the IPO market. These men are not accustomed to dealing with smaller businesses. Since their focus is on giant corporations, they are not able to see the small companies. JOBS was specifically created for the small businessman who flies under the radar of the world's financial giants. The innovations they create, which previously had to be shopped to existing giant tech companies, can now be developed and marketed by the creator.

ACCESS MATTERS

While the US led the IPO market by a large margin in 2012, the decline will hold, Hazem Ben-Gacem told the Wall Street Journal in the article "U.S. Has Biggest Slice of Slower Deal Market." Mr. Ben-Gacem is the head of European corporate investment for Investcorp, an investment firm with offices in London, New York and Bahrain. "The one advantage with slow IPO markets is that, typically, only the best companies come forward and give it a try. A successful IPO in current markets requires some good timing and a compelling story for investors."

Again, as a financial firm, Investcorp has little experience in dealing with companies that employ 20, 10 or fewer people, the very kind of company JOBS targets.

Such small companies do not have the existing financial resources to "ante up" to the big tables for an IPO. They simply cannot afford to spend tens of thousands to possibly $1 million on lawyers. They are also not willing to let giant industrial investors buy the stock at a discount and turn around to sell it to the public at a substantial profit.

While good timing and a compelling story are very important, just getting access to investors is more important. You can have the best idea in the world and the timing be perfect, but if you can't get capital, it's not going to matter.

TECH TALK

The WSJ's MarketWatch also talked to Deutsche Bank officials which said tech companies are going to be particularly slow. Chris Dieterich reports "Several factors have cast a pall over technology IPOs, Mr. [Ted] Tobiason said. For one, investors remain soured from a disappointing third-quarter earnings season, even as tech giants gear up to report fourth-quarter numbers in the weeks ahead. Weak earnings in the tech sector could act as a deterrent in the IPO market because potential issuers would likely get lower valuations. Tobiason is managing director of equity capital markets at Deutsche Bank.

The key words here are "tech giants." Again the small picture is lost as the experts stand back to admire the expansive vista created by the giants. In the rush to talk about tech stocks, everyone seems to forget that tech advances come from one person or a small group of people, even from within a giant company.

Look at Apple, Google and other tech giants on the block. They all started small. Steve Jobs and Steve Wozniak almost didn't manage to start Apple because of the problems at the time in attracting capital investors. Today, with the JOBS act and the IPO marketplace the way it is, they'd find raising money a much easier task.

Just as a single candle may not shed much light, a thousand, a million candles can light an opera house. Small business IPOs are going to be those million candles lighting up the financial world in 2013.
We firmly expect the upcoming IPOs of 2013 to turn the negative trend that has been impacting the small-cap IPO market for the past few years. The market needs to work

to understand the JOBS Act and the positive impact it can have on the US equity market

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

After reflecting on the event at Crowdfund Texas, I have come to the firm belief that the upcoming IPO(s) from IPO Village will encourage movement on the rules that will ultimately govern equity crowdfunding. Equity Crowdfunding will bring about a new asset class that will have its own rules and regs from both the SEC and FINRA. The Direct to Public Offerings (DPO) being presented on IPO Village are a natural intermediate step to this new asset class. Unlike the traditional definition of equity crowdfunding, the offerings shown on IPO Village are not private equity offerings. They are in fact companies that are going to be publicly traded and include all the benefits that come with that status. Two of the benefits from the perspective of the investing crowd are the facts that these companies will have filed S-1′s that have been approved by the SEC (standard investor protection as exists under 1933 securities law) and an established secondary market (The issues stock will trade on the OTC market).
This actually resolves two of the biggest concerns surrounding equity crowdfunding, the first of course is the disclosure (investor protection) being offered by companies seeking to acquire capital through equity crowdfunding, the second being, once you own a piece of a privately held company how do you liquidate the holding. There will ultimately be a secondary market for equity crowdfunded offerings, the question is when. Under the JOBS act you are required by law to hold that investment for a minimum of one year, this is not the case with a public offering.
The updated and fully functional version of IPO Village will be available over the next few week. This will include an investor education section and many features to ensure the crowd has access to the same level of detailed information as the "professional" IPO investor. All SEC filings and disclosures will be made available to the crowd in one easy to find location, as well as business plans, video's and financials for the companies being presented for DPO (Direct To Public Offerings). Unlike any IPO we will have seen you will have an open forum to discuss the offering with other members of the crowd and have the opportunity to "Ask the CEO". These questions and answers will be made available to the crowd. You can't get that kind of transparency on any other platform.
Once the power and intelligence of the crowd is proven through the success of IPO Village, it will speed the change to private equity offerings via equity crowdfunding.
The updated site will be available at www.IPOvillage.com , Signup to take your place in line for the democratization of the IPO process. Signing up is not a commitment to invest but it is the only way you will have the opportunity to decide.

2013 Crowdfunding / IPO Market Forecast

As the global economy continues to show signs of improvement, the market for Initial Public Offerings (IPO) is expected to jump by double digits in 2013.

IPOVillage.com and First Line Capital are expecting 15 to 17 percent growth in the number of NASDAQ IPO's in 2013. The growth is being spurred by the JOBS Act - Jump-Start Our Business Start-Ups - and an improving economy.

We are seeing a steady increase in investors interested in IPOs at IPO Village. Now that investors are bringing cash to the table, businesses are going to find a way to get to the capital and put it to work.

First Line Capital is reporting an increase in interest of companies wanting to go public as well. First Line is in a rare position to see IPOs well before the public is aware of a company issuing stock for the first time. First Line is an investment banking consulting firm which guides companies through the IPO process to raise capital in the public markets. First Line is major force in the direct-to-public IPO marketplace.

First Line could not comment on deal specifics, but the number of deals in discussion is up and rising.

First Line recently partnered with IPO Village to provide support and consulting services to companies which need assistance in setting up their IPO. Because First Line is so intimately involved with the public IPO process, it begins working with companies months ahead of an IPO. Work begins up to a year before the company starts the SEC review process.

With 20 years of experience in helping small to large companies go public, First Line has an extensive network of corporations around the globe who have staged IPO's. Their reputation is also attracting new companies to the IPO marketplace.

SMALL COMPANIES TO SURGE IN 2013

"The [JOBS] act … allows 'emerging growth companies,' with less than $1 billion in annual revenues to submit their documents to the SEC for confidential reviews and wait until 21 days before their IPO roadshow to make a public filing," Wall Street Journal Senior Editor Emily Chasan reports in her blog.

Clearly, JOBS is going to have a significant and long lasting impact on the future of business and industry in the United States. Here at IPOVillage.com, we are already seeing an uptick in the queries about companies raising money through an IPO. We attribute this directly and indirectly to JOBS.

THE EFFECT OF THE JOBS ACT

The JOBS Act has eliminated many of the barriers for small companies to go public. It's just that simple.

"The Jumpstart Our Business Startups (JOBS) Act, passed by the U.S. Government in April, provides opportunity for small companies by easing regulations and allowing unaccredited investors to participate in 'crowdfunding' to raise capital," wrote MSN Money reporter Trefis . "Small-to-midcap companies are usually reluctant to go public because they are discouraged by the legal, marketing and accounting costs involved, as well as the requirement to disclose quarterly financial and business information, which poses a competitive threat to their operations. The JOBS Act, however, considerably reduces the regulatory burden on emerging companies and makes it easier for them to go public."

The idea that crowdfunding is the driving force behind new IPOs is being supported by others. Writing in Forbes, Devin Thorpe lists a number of reasons why crowdfunding is going to seriously take off in 2013.

By taking an IPO through a crowdfunding route, a small company accomplishes several things:

• It minimizes the expense of attorneys who charge hefty fees to guide an IPO.

• It sidesteps institutional investors who buy IPO stock at a discounted rate and turn around and sell it at a profit.

• It avoids the hyperbolic publicity buildup as seen when taking an IPO through underwriters and lets the public participate in pre-IPO pricing.

A BETTER ECONOMY

As the global economy gradually improves and the US market with it, smart business owners are looking at expanding their reach. To do that, they need capital and one of the best ways to do that is to sell stock.

Small business is the backbone of the nation, providing the bulk of jobs and re-investment into the economy. Anything that can help small business compete and perform better simply has to lead to a better economy. In the passage of the JOBS act, Congress recognizes this.

"Because of its critical importance to job creation and economic growth, the small business community is a prized constituency in Washington, D.C.," wrote John Kinney for Baker-Donelson. "The JOBS Act could give small long term care companies an additional source of start-up funding and expansion at a time of market uncertainty."

The JOBS act and crowdfunding as offered by IPOVillage and First Line Capital allow small and startup businesses to access capital they would otherwise not be able to reach.

"Crowdfunding enables small or start-up businesses that may not have access to traditional methods of capital financing to raise capital via the Internet and social media, typically from small-dollar investors," write Nicole Jumper and Joel Buckberg for Baker-Donelson.

PAST IPOS

Because smaller companies are typically not going public with a big splash in the major markets, tracking them will have to wait until the SEC closes the IPO books for 2012.

However, IPO growth in 2012 slowed compared to 2011, according to Ernst and Young. The report "Sharp decline in global IPO deal value and volume" also suggests an upswing in 2013. Maria Pinelli, Global Strategic Growth Markets Leader at Ernst & Young, said in the release: "Several large IPO deals are expected by end of 2012 and the market continues to be opportunistic and selective. We expect more volume in first half of 2013. Industries to watch include technology, consumer products and industrials sectors." The whole article may be read here.

The last time IPO rose by any significant extent was in 2010 according to the report "Global IPO Markets" by Forbes.

In 2009, Forbes counted 577 IPOs. In 2010, that number more than doubled to 1,393, an increase of 141 percent. 2011 showed a very slight decline to 1,225 and the numbers for 2012 are still coming in.

Renaissance Capital is tracking US-based IPOs. Through Oct. 26, they report 121 companies went public for the first time.

NASDAQ reported 86 IPOs since the beginning of the year as of Oct. 26. More were in the pipeline. Interestingly the NASDAQ reports also reports the worst IPO performances are dominated by tech and internet stocks. NASDAQ's report is only for IPOs handled in that exchange.

NOT JUST FOR SMALL COMPANIES

While the JOBS Act is aimed at small and startup companies, taking an IPO through crowdfunding can be done by any size business. Even the Internet giant Twitter can go through crowdfunding to go public.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.