GlyEco Overview
Accredited investors beware...the SEC will now allow the evil marketplace and market forces to decide which companies get private investor money or not. For 80 years our government had prohibited “general solicitation” i.e., the communication of a private investment opportunity to an accredited investor without an “existing business relationship.”
Yes Virginia... The SEC has finally (1.5 years AFTER the change was mandated by the JOBS Act of 2012) amended Regulation D (“Reg D”) of Rule 506 of the Securities Act of 1933. Rule 506 is the primary exception to the requirement for a full SEC registration of securities offering (the process that is of course VERY time consuming, highly onerous and massively expensive for early stage companies to fulfill). The 506 exemption has allowed private placement memorandums that companies could use to privately solicit investments from accredited investors (individuals with $1 million net worth not including their residence, or $200K a year in individual income) where there was a “pre-existing business relationship.”
When this regulation formally enters the federal register in the coming 4-6 weeks the amended ”Reg D” will allow for a new class of 506(c) offerings. These are still “private offerings” but with ONE giant difference: They can now be advertised in print, social media, websites, radio, and any other form of public communication.
Ooooohhhh no...for the first time the government explicitly allows market forces to determine the type and amount of information needed to make investment decisions—we can’t let THAT happen! How will the poor stupid DIY investor live without the government deciding for them? 
For the past 80 years directly communicating with qualified/accredited investors where there was not a pre-existing business relationship was NOT legal—as if the individual could NOT make up their mind what opportunity they found investable without the “help” of the government.
We at NBT Equities Research have LONG believed in the Darwinian power of the free market and the free communication of investment opportunity by entrepreneurs. We have always thought that making their investment case directly to DIY INVESTORS was how capitalism was supposed to work.
In fact I was fired from my 14 year contributorship at Fox News in June because somehow our business at NBT Capital Markets LLC (being paid by public and private emerging growth companies to provide sponsored research and investor awareness campaigns equities research and investor awareness communications) was deemed unsuitable for a paid talking head on Fox News (who is ironically held up as a bastion of free market capitalism).
Maybe I was just a LITTLE ahead of my time. Look…this is GREAT news for capitalists and capitalism. The existing “Reg D” program exemption has already been responsible for $1.3 trillion in funding in 2012, and more than 37,000 Regulation D offerings have been executed since 2009.
By making it easier for private and public companies to communicate their investment opportunity to accredited investors, we can ONLY presume it will grow the amount of growth capital needed by American emerging growth companies.
Once the rules are printed in the Federal Register and are legally in effect companies can start advertising for investors in accordance with the detailed restrictions of the new rules.
First, the SEC has imposed strict “bad actor” restrictions on who can participate in the offerings—great idea. Felons and those with securities convictions cannot be part of these offerings…great!
Second…the SEC requires that companies take reasonable steps to ensure that the individual making the investment is, in fact, an accredited investor. In the past companies could simply rely on representations by the investor. Now they need to verify the information.
Ditto…although most issuers have done this for years.
Third…as before companies are still required to comply with the anti-fraud prohibitions of the Securities Act that prohibits them from making false and misleading statements.
Well jeepers…those rules have been in effect since 1933 and 1940…why did it take us 80 years to come to the conclusion that allowing “general solicitation” would somehow create an environment where law abiding issuers would suddenly feel the need to make fraudulent and misleading statements?
In addition…the SEC is temporarily requiring issuers to send the SEC advance copies of all marketing materials (included social media posts and any other form of communication) for analysis. The commission will not be reviewing or approving the submittals individually, but intends to study them extensively to understand how companies will be putting rescission of the ban on “general solicitation” to use.
THAT process should be quite entertaining.
The Big Picture for Emerging Growth Company Capital Formation
There are at least three upshots to this BIG change in the capital markets.
#1 Publicly listed companies that have gone public via an alternative public offering or APO (reverse merger or Form-10 filing) will NOW be able to raise money private investments in public company deals (aka PIPE) via general solicitation. That is BIG news. It is in fact the reason we are building the NBT Certified Accredited Investor Network from our tens of thousands of subscribers—and soon to be hundreds of thousands of investors.
With a large network of certified accredited investors who UNDERSTADND where Public Venture Capital investments fits in their portfolio, we will be able to vet and attract the BEST deals to our accredited investor subscribers for the TOP emerging growth publicly traded companies that do NOT need tens of $millions in equity capital to execute their business models.
For 12-14 YEARS there has been a HUGE gap in what we call the “Public Venture Capital Markets”—the ability for late stage publicly traded emerging growth companies to raise $3-$5-$10 million in equity to SCALE their company and have the bonus of liquidity for their shareholders via a costly public listing.
Other than the APO route there is no IPO money for companies who do NOT need $50 million+ in equity…that’s tens and tens of thousands of companies btw!
#2 This will bring a LOT more and higher quality APO deals to the public markets. We are big believers in the fact that not ALL emerging growth companies NEED IPOs of $50-$500 million dollars to succeed and create enormous value for their shareholders.
Only 3% of start-up companies that survive to go public are backed by traditional venture capital funds In the 1990s, the number of venture capital-backed companies going public as a percentage of the number financed five years earlier—a measure of the VC industry’s IPO yield—was 18 percent; in the 2000s it was less than 1.5 percent.
This is mostly due to the spectacular UNDER performance of the traditional institutional venture capital industry. Cambridge Associates reported that the net ten-year “end-to-end pooled return” to the industry’s limited partners was only 2.6 percent in September 2011. Investors did better in MONEY MARKET funds!
In the cold cruel harsh world of finance, poor returns lead capital to flow to other asset classes, which it has done with a vengeance.
#3 But for the American economy, a vital venture capital market is crucial. Venture capital-backed companies produce 21 percent of U.S. GDP and 11 percent of employment in the private sector, despite accounting for less than 0.2 percent of all businesses, according to estimates by IMS Global Insight.
And traditional venture capital only touches <.5% of American start-ups. In 2010, venture capitalists invested approximately $22 billion into nearly 2,749 companies. Of these, just 1,001 companies received funding for the first time.
There are tens and tens of thousands of companies that do NOT fit the traditional VC profile--$billion companies in 7-10 years addressing $ten billion+ markets. With a robust APO and PIPE market for public venture capital backed companies THOSE entrepreneurs have a viable funding source too.
Bottom-line: Bringing risk capital to deserving emerging growth companies is what we DO at NBT Capital Markets LLC. and NBTEquitiesResearch.com
While SOME throw stones at “penny stocks” as if a company under $5 share price is somehow a fraudulent enterprise simply because of their share price…I am very confident you are going to see a renaissance of capital formation for “bankable” entrepreneurs and new ideas that will account for MILLIONS of new jobs in the United States and $billions of new shareholder wealth created.
YES…there will be without a doubt losing companies and investments. But with the traditional VC backed companies going failing to return investor capital 75% of the time—and going bust 40% of the time…according to recent Harvard Business School research…I will match the public venture capital companies we research and advertise ANY time.
All hail the JOBS Act!
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Founder and Editor-in-Chief for NBTEquitiesResearch.com. Contributor and Anchor for the Fox News Channel and Fox Business Network 2000-2013. Chairman & CEO of NBT Group, Inc., a boutique private capital investment bank and investor relations organization.
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