Levine's MicroCap Investor; "Widen the IPO Playing Field"

New York, NY - January 18, 2011 (Investorideas.com Newswire) - Wall Street and the business media are buzzing about the prospects of an IPO for social networking site Facebook, as well as other Internet sensations such as Zynga, Groupon, Twitter and LinkedIn. For any investor hungering for hot new-offerings, this group may whet your appetite.

But these deals will cater to the institutional investors already with big stakes, and will not be readily available to the investing public. According to secondary transaction service provider Nyppex, the five companies have all passed the billion-dollar valuation threshold. It was reported recently that Facebook got valued at a whopping $50 billion.
The IPO surely isn't what it used to be.
For a little perspective, venture capital veteran Alan Patricof points out (http://www.businessinsider.com/alan-patricof-greycroft-ipo-market-2011-1?slop=1) when Intel went public in October 1971, it sold 350,000 shares at $23.50 for a total of $8.2 million and for a post money valuation of $58 million. It's notable that in the previous six months Intel had revenues of less than $4 million and profit before extraordinary items of $93,000.
We've come a long way, baby! Today, the game has changed enormously and the challenges for small IPOs continue to loom large. Patricof highlights a few of them:
1) Many of the firms who underwrote small companies are no longer in existence.
2) The investment bankers who remain cannot afford, in today's institutional world, to provide research coverage for companies with small capitalizations as it is not economic. The Global Research Settlement and Rule FD exacerbates this issue as it greatly restricts how research departments can operate.
3) The allowed spreads on trades is too small to cover trades in low activity stocks, and
4) As a result of Sarbanes Oxley and other associated costs, going public and being public has become prohibitively expensive for small companies.
In the same article, Bill Hambrecht, an investment banker who's been around the IPO block about as much as anyone, is quoted saying:
"There is a backlog of 45,000 small companies which in, circumstances more favorable for young small companies, would access the public market if it were available to them. They would like to sell 20% stakes to the public raising $10-20M capital for future growth.”
Patricof adds: "But these companies' needs and appropriate valuations would suggest market capitalizations which are far below the realistic minimum in today's IPO market where $50M or greater offerings are needed and $250M or greater market caps to be viable.”
Will "Reg A' Swing to the IPO Rhythm?
As I recently wrote (http://levinesmicrocapinvestor.com/blog/2010/12-10-10.aspx), there is a proposal not yet introduced as legislation that would raise the dollar limit under the exemption, known as Reg A, to $30 million. While that is clearly too small to have a big impact, it represents a good first step because it will open the IPO playing field to hundreds of viable companies.
Yet the higher cap will not be worth very much unless Congress also pre-empts state regulation of these offerings the way they have in Regulation D offerings. David Feldman, an attorney and expert on reverse mergers (http://www.reversemergerblog.com/) suggests three things to make Reg A more attractive:
1) Increase the maximum offering amount to $30 million at least.
2) Pre-empt state regulation of these offerings.
3) Allow a fast track to full reporting status to speed uplisting.
But it's preemption that is the key issue for Feldman:
"Presumably this would require an act of Congress, but since the House is already looking at this, presumably that's potentially doable. One major reason people stayed away from Reg A offerings all these years is that they must be approved by each state in which the offering takes place. Offerings on major exchanges (Nasdaq, NYSE AMEX, etc.) have been exempt from state review since 1996.”
He concludes that Reg A will not be more attractive unless state review is eliminated.
A new Reg A done right can make a big difference for the microsphere, where IPOs have not been a factor for more than a decade. As we witnessed in the dot-com era, the IPO market has the potential to get absolutely insane at times. But it's still one of the best mechanisms for financing small, innovative companies and helping them to build capital and increase awareness for brand and products.
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MicroCap Investor delves deep into the world of small stocks to identify big winners. Levine targets innovative companies on the path of the new and revolutionary, developing technologies that disrupt entrenched markets to create tremendous value.
About Josh Levine and Levine's MicroCap Investorwww.levinesmicrocapinvestor.com
Josh Levine has 25 years of senior-level experience in analyzing technology trends and investing in top-performing micro- and small-cap stocks. He excels at assessing management teams and evaluating new innovations and their impact on corporate valuations.
In 2002 he joined independent investment-research boutique ChangeWave Research, where he was editor of ChangeWave MicroCap Investor since 2004, becoming Levine's MicroCap Investor in 2010. He has been editor of the flagship ChangeWave Investing since 2007.
Levine is also senior analyst for ChangeWave Research. Through its survey network comprised of 25,000 members, ChangeWave tracks the rate of change in corporate and consumer demand trends and provides the results through an institutional research subscription service. Its macroeconomic research is among the best on Wall Street.
More on Levine's bio: http://www.levinesmicrocapinvestor.com/aboutus/
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