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“BOOM! Nothing will ever be the same” – an interview with David Weild, the George Washington of the JOBS Act

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“BOOM! Nothing will ever be the same” – an interview with David Weild, the George Washington of the JOBS Act

By: Steve Sadler, CEO

March 26, 2016

It’s been a monumental month in Allegiancy’s history. I launched from South by Southwest (SXSW) on March 14 the $30 million Allegiancy mini-IPO, making the announcement at the world-renowned festival in Austin, TX.

The JOBS Act created a whole new landscape and Allegiancy is taking a very innovative approach. Ours is an aggressive, multi-prong IPO “direct : advised : pro” strategy. We are raising the capital directly, through crowdfunding; advised with Financial Advisers, RIAs and broker-dealers; and with institutional investors, or pros. Allegiancy is tapping the energy and momentum of crowdfunding with the expertise and connections that come with the broker-dealer and institutional channels.

Our partner on the institutional part of our IPO is David Weild of Weild & Co. As former Vice Chairman of NASDAQ, an MBA with years of experience in equity capital markets, he is respected for his expertise and insight on market structure, capital access, market efficiency and regulatory issues. We sat down with Weild recently to glean some of his wisdom for this month’s issue of The Currency of Savvy. If our experience is like yours, we’re confident that you will learn a lot from the conversation.

We have just seen Elio Motors complete the first new Reg A+ offering in February and what are your thoughts on that considering that you are widely called the “Father” of the JOBS Act?

Weild: Maybe more important for this discussion than being called the “Father” of the JOBS Act is that Congress adopted recommendations from our testimony on Reg A+ (see Congressional testimony here).

Elio Motors is a good first proof point for Reg A+. But, Elio has key advantages that many companies lack:  Elio is a consumer product company that captures the interest and imagination of the masses. That natural “affinity group” can be translated into investor interest. The bigger challenge going forward will be, “Can we get heavy intellectual property companies (e.g. biotech) that lack a natural affinity group to succeed in these markets.” We’re still in the very early innings. The industry will need to develop an increasingly more effective marketing and distribution.

Editor’s Note: Allegiancy, as the second company in the nation to go to mini-IPO under these new regulations will be the first to prove that these more intellectual companies Weild refers to can make it, and help companies grow and investors see returns.

Is the Reg A+ `mini-IPO’ totally new, or is this more like ‘back to the future’?

Weild: This country had a great tradition of taking smaller companies public back in the 1970s and 1980s. Reg. A+ is a step in getting the country back to this great tradition. To give perspective, the Intel Corporation at the time of its 1971 IPO would be a perfect Reg A+ candidate today: Intel was 3 years old at the time of its IPO and losing money on an operating basis. Its $8 million IPO when adjusted for inflation would constitute an approximately $25 million IPO today – right in the sweet spot of a Tier II Reg A+ IPO.

Investors need to understand two things:

High quality companies will find it attractive to go public via Reg A+ – it saves them money and that is a benefit to shareholders. But, low quality companies with little to no operating history and unqualified management teams will also try and leverage Reg A+. Thus, investors must do their homework!

Aftermarket support will vary dramatically by choice of market (OTC vs. NASDAQ or NYSE), type of company (branded vs. unbranded; consumer vs. non-consumer) and the aftermarket support plan that management puts in place. Back in the 1970s and 1980s, when Intel and Microsoft went public, the stock market structure heavily incentivized stock brokers to go out and continuously market (support) stocks. That’s all gone. Today’s investors should drill into the aftermarket support plan of management and determine whether or not that plan has a shot at sustaining valuation.

Stocks perform because of a combination of business execution and stock market execution. If management drops the ball on either one, investors suffer. If management holds onto the ball for both, investors do well.

What does the entrepreneur need to know about new Reg A+?

Weild: This is a technically complicated and emerging practice area. Weild & Co. is an ECM (equity capital markets) advisor that sits on management’s side of the table to allow management to make better decisions about book runners, co-managers, institutional and retail distribution, direct marketing, research coverage and anything else that will help companies drive to a better result. Many of the biggest private equity firms hire ECM and DCM (debt capital markets) advisors. They understand the need even though IPOs for bigger offerings under Form S-1 take a much more developed path. If private equity firms see value in hiring independent advisors then it should be clear that Reg A+ issuers need to find a knowledgeable, unconflicted advisor.

Why is the new Reg A+ arena important to everyday Americans?

Weild: Small cap growth markets are essential to reigniting the “American Dream” and bringing back American prosperity. We will solve global warming, find cures to cancer, feed growing populations and raise poor people out of poverty by putting more capital into the hands of scientists, engineers and entrepreneurs. To that end, those of us that believe in “growing the pie” for humanity will win out over the many special interest groups that seek to line their own pockets at the expense of our great nation and the next generation.

We now represent a movement that was begun by the JOBS Act and is adding many new voices to the crescendo of support for a bigger entrepreneurial economy. We established Weild & Co. in 2014 to create tools and services to enable better outcomes for entrepreneurs while we continue to make our expertise available to policymakers.

While it may take another eight or nine years — we published our first paper on the subject in 2008 — we should expect to see a steady increase in investments and innovations in the ecosystem to support small cap stocks. This rate of increase will depend on Congress and the SEC. But, it is our hope to gradually drive the U.S. IPO market from its currently depressed levels of 150 IPOs a year to nearly 1,000 IPOs a year. While 1,000 IPOs a year may seem unrealistic at first glance, it isn’t: It represents a GDP adjusted equivalent to what the United States enjoyed in the early 1990s, prior to the internet bubble. That higher rate of IPO activity is worth an incremental 10 million jobs to the US economy over a decade. We think that’s worth fighting for.

What is better, pure crowdfunding (like ELIO) or using established broker-dealer channels?

Weild: Elio Motors was heavily marketed and enjoys a consumer-following for its cars. Any time a company has an identifiable customer base or a “sexy” product, the customer base or product appeal can be leveraged for direct-to-investor capital raising. However, that doesn’t mean that even more money couldn’t have been raised by tapping broker-dealer and institutional channels. I’m an experienced equity syndicate manager who successfully marketed more than 500 IPOs and ran ECM for a top 10 underwriter. The advice I gave then is the same sound advice I’ll give now: “Pull out all stops and market like you must get 100 percent of the deal sold to each and every channel.”

The distribution model that will emerge as the best practice will combine direct marketing, retail brokerage and institutional distribution.

Can anyone succeed in a Reg A+ offering?

Weild: A good company with strong prospects. A strong management team. An attractive and easily defended valuation. An exciting, easy to communicate story. A great distribution plan. A great aftermarket support plan.

How important is it for the first wave of Reg A+ style offerings to succeed?

Weild: It isn’t critical. However, a successful first wave of offerings will accelerate interest in Reg A+ offerings. Ultimately, if a good quality company chooses to go public via Reg A+, and the “IPO window is open,” there will be a market. It is just up to the company and its service providers to reach that market.

What did we miss?

Weild: Don’t take your capital markets for granted. Capital markets work when the incentives and disincentives are properly structured. Structuring the incentives and disincentives is the purview of Congress and the SEC. That means that each of you needs to weigh in and do your part to make our capital markets better. Send letters to Congress and the SEC. They actually do read them and they can make a difference!

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About David Weild:

David Weild is Chairman and CEO of Weild & Co., which develops and applies distribution technologies to help companies and investment banks improve their access to equity capital and, more recently, debt capital. He is a leading world expert in how market structure and regulation impacts equity capital formation and aftermarket support. Weild has been called “The father of the JOBS Act” for a series of studies and recommendations that he co-authored that uncovered a dramatic collapse in small IPOs and the number of listed companies that began in 1997 and 1998, well before the implementation of Sarbanes Oxley and Decimalization. In 1997, the U.S. implemented the Order Handling Rules. In 1998, the United States implement Reg. ATS (Alternative Trading Systems). The combination precipitated a rapid shift to low-cost electronic markets that collapsed trading economics and eliminated the incentives required to sustain research, sales, information effects and institutional-caliber liquidity in smaller stocks.   He believes that this collapse cost the U.S. economy more than 10 million jobs over the course of a decade. Subsequent work for the OECD suggests that low-cost trading trends in electronic market structure, while less dramatic outside the U.S., are now global in nature and are undermining the potential for economic growth outside of the United States. He continues to recommend ways to reverse these trends in order to accelerate economic growth and improve competitiveness.

Weild’s work has been referred to by the White House, U.S. Congress, U.S. Securities and Exchange Commission (SEC), the European Commission, the Organization of Economic Cooperation and Development (OECD), the Federation of European Securities Exchanges (FESE), the G-20, the Budapest Economic Forum and numerous stock exchanges in North and South America, Europe and Asia..

Weild is a former vice chairman of NASDAQ and head of corporate finance and equity capital markets at a major Wall Street firm. Weild holds an MBA from the Stern School of Business and a BA in Biology from Wesleyan University, where he did graduate work in molecular genetics. He studied on exchange at The Sorbonne, Ecole des Haute Etudes Commerciales and The Stockholm School of Economics. He is also Chairman of the Board of Tuesday’s Children (www.tuesdayschildren.org), the noted 9/11 charity that also provides support to U.S. military families of the fallen first responders and set up the Resiliency Center of Newtown.

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