The JOBS Act

Speakers  Greg Davidson, Partner, Gibson, Dunn & Crutcher LLP  Bill Hambrecht, Founder, Chairman and CEO, WR Hambrecht+Co  Marshall Hawks, Deal Team Leader, Silicon Valley Bank  Brian Lane, Partner, Gibson, Dunn & Crutcher LLP 2

Agenda What does the JOBS Act do? Why did Congress pass it? What’s all the fuss about? What will the JOBS Act mean for early stage startups? How will it help later stage companies? Q&A 3

What Does the JOBS Act Do? Makes it easier to raise Allows general advertising capital from for sophisticated investors Reg D private placements Creates an IPO “on ramp” Makes it easier to go Revises “Reg A” rules to permit public offerings up to $50M annually Makes it easier to stay Raises 500 shareholder private “cap” Makes it easier to raise Allows crowdfunding for capital from a broad base equity raises of “normal” investors 4

Why Did Congress Pass It? IPOs in the United States by Size - Number of DealsDeal Size 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0-$25 million 9 10 6 7 19 12 9 2 1 3 1 1 $25-$50 million 8 7 4 33 19 22 12 1 0 4 7 2 $50-$100 million 20 16 20 52 44 38 44 7 7 32 17 16 $100+ million 43 35 38 82 79 78 91 13 31 55 66 20Total 80 68 68 174 161 150 156 23 39 94 91 39 IPOs in the United States by Size - Related Percentage of Total Number of Deals 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0-$25 million 11% 15% 9% 4% 12% 8% 6% 9% 3% 3% 1% 3% $25-$50 million 10% 10% 6% 19% 12% 15% 8% 4% 0% 4% 8% 5% $50-$100 million 25% 24% 29% 30% 27% 25% 28% 30% 18% 34% 19% 41% $100+ million 54% 51% 56% 47% 49% 52% 58% 57% 79% 59% 73% 51% Sources: Dealogic, excludes ADRs and foreign US Listing Trend issuers. Current as of April 11, 2012. Number of Percentage Year Listings Decrease 2000 9,100 - 2010 6,450 -29% 2012 5,165 -20% 5

Entrepreneurs Care More than 700 entrepreneurs from more than 200 cities signed a letter to Congress supporting the IPO on-ramp bill* More than 5,000 angel investors, entrepreneurs and venture capitalists signed a petition urging the Senate to pass the JOBS Act* Startups who participated in SVB’s 2012 Startup Outlook Survey consistently supported the types of reforms included in the JOBS Act * Source: National Venture Capital Association 6 6

What’s All The Fuss About? 8

What Will the JOBS Act Meanfor Early Stage Startups? 9

New Sources of Capital for High Growth Startups VCs Angels Early Stage Startups Crowd- Corporate funding Investors High-End Investors 10

Crowdfunding: The JOBS Act’s Biggest Unknown How is it different from existing sites, such as Kickstarter? Is it real? Will the SEC let it happen? Will it work for high growth companies and professional investors? CROWDFUNDING BASICS• Can raise up to $1M per year• Must go through “funding portals”• Information requirements vary by amount of capital raised• Limits on how much each individual can invest annually, which vary by income/net worth• One-year restriction on transfer of shares 11

Private Placements: Adapting to Modern Communications New rules focus on who you sell securities to, not who sees the solicitation  You can now make general solicitations and use broad-based advertising, as long you sell securities only to accredited investors (Reg. D) or to those you “reasonably believe” are qualified institutional buyers (Rule 144A)  No more password-protected websites or strict restrictions on ads and press releases Not yet in place until SEC adopts regulations 12

What Will the JOBS ActMean for Later StageCompanies?• Those who want to go public• Those who want to stay private• Those who aren’t sure 13

What’s New? Want to go • IPO on-ramp: • Spend more time and money building your business public? • Increase your probability of a successful IPO • Reg “A+” reforms: Can they re-create the small cap IPO? Want to stay • Changes to the “500 shareholder” rule give you more control over when and whether to go public private? • Revised Reg “A+” and Reg D provide additional alternative sources for growth capital • IPO on-ramp Not sure? • No need to disclose confidential business info until you’re sure • “Testing the waters” can let you assess demand • Other provisions make staying private a more viable option 14

The IPO On-Ramp: A Quick Tutorial • Two years of audited financials for IPO (instead of three years for full financials and five years for selected financial data) Financial Disclosure • More limited financial data for post-IPO filings • Will markets accept the reduced disclosures? • Longer time to comply with new and revised accounting standards Accounting & Audit • No audit firm rotation or “auditor discussion and rotation” (if adopted) SOX Internal • Don’t need to pay auditors to audit SOX 404(b) internal controls Controls • …But yes, you still have to have these controls • Fewer disclosures, covering fewer execs, for fewer years Executive Comp. • No CD&A or say-on-pay • Confidential preliminary registration statements => greater control over sensitive IPO Filings & information • “Test the water” communications => better insights for pricing, book building, etc. Communications • More flexible rules for research coverage => better investor/analyst communications • Spend more time and money building your business, less paying lawyers and auditors • Test the waters before committing to an IPO, and keep your business info Bottom Line confidential until you’re ready to go • Improve communications to bring in the right shareholders and the right coverage for your long term growth 15

Who Can Use It? Less than $1B inEmerging Growth Public less than 5 trailing annual yearsCompanies gross revenuesA new category of issuers,subject to less rigorous Less than $1B in Not a “largeregulation non-convertible accelerated filer” debt over 3 yrs Went public after Dec. 8, 2011 16

What’s Left? All offerings will remain subject to “core” investor protections  Makes things easier, but not easy Doesn’t address other root causes of the IPO decline, such as decimalization Still unclear: How will investors and bulge bracket investment banks react? 17

Reg A+: Re-Inventing Small Cap IPOs? • Old limit: $5 million annually Offering Size • New limit: $50 million annually • Limited public offerings – essentially a “mini” registration process • An issuer can use Reg A+ and still opt to remain private Offering Process • Can use general solicitations and general advertising • Can “test the waters” before incurring significant expenses • Can sell securities to investors who are not “accredited investors” Restrictions on Sale? • Securities are not “restricted securities” – can be freely re-sold State “Blue Sky” • Revised law makes it more feasible to avoid state-by-state filings Laws • Exempt from state filings if listed on an exchange or sold to “qualified purchasers” • Must file audited financial statements annually Required Disclosures • Additional requirements to be determined by SEC (which could impact practical use) • An alternative path for fundraising • Can offer debt, equity, and convertible debt • More flexible than private placements Bottom Line • Less costly than a true IPO • Leaner process could mean significantly more proceeds to company • Doesn’t preclude company from later using the IPO on-ramp 18

What If I Want to Stay Private? You must register with the SEC and begin filing financial statements if you have: • $10M in assets, and Old Rule • 500 shareholders • Includes employee shareholders • $10M in assets, and • 2000 shareholders (max. 500 who aren’t New Rule accredited investors) • Excludes employee shareholders and crowdfunding shareholders Will make it easier to provide liquidity to employees and investors through secondary transactions and use options to compensate a growing employee base … without fear of crossing the line. 19

When Can I Use the JOBS Act? New financial reporting and Immediately auditing standards for EGCs New compensation disclosure Immediately, for most and corporate governance rules SEC needs to adopt rules to cover exemption from “pay-for-performance” and “pay- for EGCs ratio” disclosure obligations Pre- and post-filing “test the Immediately waters” communications for EGCs Publication of research reports by participating underwriters Immediately for EGCs Immediately, as a matter of law Securities analyst conflict rules for EGCs But as a practical matter this may not happen until FINRA/stock exchanges weigh in and the effect of the JOBS Act on the “global settlement agreement” is clearer Timing of publication of research reports for EGCs and appearances Immediately by broker-dealers But there may be risks until FINRA weighs in 20

When Can I Use the JOBS Act? (con’t) Confidential submission of draft registration statements by EGCs Immediately Elimination of prohibitions on general solicitation and Requires implementation rules to be issued by the SEC advertising (Reg D) Stated deadline for rules: July 4, 2012 Crowdfunding Requires implementation rules to be issued by the SEC Stated deadline for rules: December 31, 2012 New Reg A rules Requires implementation rules to be issued by the SEC; no deadline established Immediately Increased shareholder limits for public company reporting SEC will need to adopt rules for some provisions 21

Questions? 22

Biographies 23

Gregory T. Davidson is a partner in Gibson, Dunn & Crutchers Palo Alto office and Co-Chair of the firms Emerging Technologies Practice Group. Mr. Davidsons corporate practice includes extensive experience in mergers and acquisitions, private equity, joint ventures, corporate finance and general business law matters. He regularly advises public company clients in connection with SEC filings, public disclosure, corporate governance and other securities laws matters. Mr. Davidson also represents venture capitalists and corporate strategic investors, as well as companies, in connection with private placements of equity and debt, and he counsels start-up and emerging growth companies in all aspects of their corporate legal requirements.Gregory T. Davidson In addition to co-chairing the Emerging Technologies Practice Group, Mr.Partner Davidson is a member of each of Gibson, Dunn’s Corporate Transactions, M&A,Gibson, Dunn & Crutcher LLP Capital Markets, and Private Equity Practice Groups. His work also has includedgdavidson@gibsondunn.com significant executive compensation and equity plan matters.650.849.5350 Mr. Davidson is named in Chambers USA – American Leading Lawyers for Business as a Leader for his mergers and acquisitions practice and his venture capital practice. Mr. Davidson joined Gibson, Dunn & Crutcher in 1988 after earning his law degree from the University of California at Berkeley (Boalt Hall). He received his Bachelors degree with distinction in political science and economics from Stanford University in 1985. Mr. Davidson worked for four years in Gibson, Dunn & Crutchers Orange County office before moving to the San Francisco Bay Area. He is Vice Chairman of the Board of Directors of United Way Silicon Valley. 24

In 1968, Bill co-founded Hambrecht & Quist, an investment banking firm specializing in emerging high-growth technology companies. He founded WR Hambrecht + Co in 1998, introducing OpenIPO® as a means to level the playing field for both investors and issuers. Bill has served as a director for numerous private and public companies. In October, 2006, Bill was inducted to the American Academy of Arts and Sciences. He was appointed to the board of the Presidio Trust in 2010. Bill graduated from Princeton University.William R. HambrechtFounder, Chairman and CEOWR Hambrecht + Co 25

Marshall is a deal team leader in growth ($5-$75M in revenues) focused on Hardware and Infrastructure Software companies in the San Francisco Bay Area. Areas of focus include Networking, Security, Cloud Platforms/Infrastructure, EDA, Consumer Devices and Big Data.Marshall HawksDeal Team LeaderSilicon Valley Bankmhawks@svb.com415.504.2957 26

Brian Lane, a partner with Gibson, Dunn & Crutcher, is a corporate securities lawyer with extensive expertise in a wide range of SEC issues. He counsels companies on the most sophisticated corporate governance and regulatory issues under the federal securities laws. He is a nationally recognized expert in his field as an author, media commentator, and conference speaker. BTI Consulting Group named Mr. Lane as a 2011 BTI Client Service All-Star for delivering “outstanding legal skills enveloped in a rare combination of practical business knowledge, extraordinary attention to client needs and noteworthy responsiveness.” He was also: Listed in the 2012 edition of The Best Lawyers in America® for securities law,Brian Lane corporate governance and compliance law.Partner Selected by Chambers and Partners as a Leading Lawyer in Securities Regulation inGibson, Dunn & Crutcher LLP its Chambers USA: America’s Leading Lawyers for Business Guide for 2011.blane@gibsondunn.com Named by Washingtonian Magazine as one of Washington’s Top Lawyers for202.887.3646 securities law in 2009. Named the Leading Lawyer for Corporate Governance: Internal Investigations in the Washington D.C. area by Legal Times in 2008. Mr. Lane ended a 16 year career with the Securities and Exchange Commission (“SEC”) as the Director of the Division of Corporate Finance where he supervised over 300 attorneys and accountants in all matters related to disclosure and accounting by public companies (e.g. M&A, capital raising, disclosure in periodic reports and proxy statements). In his practice, Mr. Lane advises a number of companies undergoing investigations relating to accounting and disclosure issues. . 27

Disclosures This material, including without limitation the statistical information herein, is provided for informational purposes only. The material isbased in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and,as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal orother advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advicebefore making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, toacquire or dispose of any investment or to engage in any other transaction.©2012 SVB Financial Group. All rights reserved. Member Federal Reserve System. SVB>, SVB>Find a way, SVB Financial Group, andSilicon Valley Bank are registered trademarks.Silicon Valley Bank Financial Group is not affiliated with WR Hambrecht & Company and Gibson, Dunn and Crutcher LLP 0612-0077 28 28

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The JOBS Act

by SVB Financial Group on Jun 28, 2012

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The JOBS Act Presentation Transcript