Reg A+ IPOs Lose More Investors’ Money Than They Make

Rules aimed at removing hurdles for small companies to list on the stock market aren’t resulting in much gains for investors.

According to a report in The Wall Street Journal, citing Dealogic, out of the eight companies that went public last year under a provision of the Jumpstart Our Business Startups (JOBS) Act known as Regulation A+, seven are trading below their offer price – an average of 42 percent lower than riced when they went public.

The JOBS program is designed to speed up the time it takes for smaller companies to go public. The 42 percent decline in their value comes as the S&P jumped 18 percent since the beginning of 2017, and the average traditional IPO is up 22 percent since going public in 2017.

When the JOBS Act of 2012 became law, it removed some of the IPO hurdles for companies that have less than $1 billion in sales each year. Last year was the first year that small companies could use the rule to go public, reported WSJ – but the poor performance among the first crop of IPOs is raising more criticism that the Act isn’t having its intended effect.

Under the rules, companies are permitted to raise as much as $50 million by selling shares to any investor, not only those with a certain amount of income or net worth, as required by traditional IPOs. They also don’t have to contend with all of the accounting and disclosure statements that bigger companies face.

In addition to most of the Reg A+ IPOs losing investors’ money last year, the average float of these stocks was 15 percent, which is much lower than the 34 percent float for all IPOs listed in U.S. markets. That makes the Reg A+ IPOs hard to trade and thus more prone to volatility, noted the report.