This article is from the Investing Articles: Public Offerings: IPO and DPO series.
The SCOR filing process and performance varies widely among the states. For example, almost 40% (190 of 476) of the approvals have occurred in just four states: Iowa, North Carolina, South Carolina, and Washington. About 55% (60 of 110) of the companies that have successfully raised money are from four states: Iowa, North Carolina, Mississippi, and Washington.
The activity of filings and approvals on a per capita basis varies widely from state to state. The top ten states have 30 to 100 times the activity of the lowest ranking states, such as Pennsylvania. This is a significant and important difference, as the performance of the top states results in many more public companies being created.
For example, if Pennsylvania matched the performance of the top states in the rate of approvals and therefore the number of companies successfully raising money, about 50 to 75 more public companies would have formed in the state over the past four years. In a region like the Pittsburgh area, this would have equated to about 15 new public firms, nearly double the number of public firms that were created in the region over the last four years.
States also vary in regards to how proactive they are in promoting SCOR, educating businesses on its use, and holding pre-filing conferences or meetings to resolve problems before reaching a more formal, potentially adversarial approval process.
This proactive stance directed towards making SCOR work for the benefit of small companies correlates with high performance. Arizona, Iowa, South Carolina, and Washington are among the states cited as the most proactive. Iowa, South Carolina, and Washington rank in the top ten in SCOR approvals per capita, and Arizona ranks 17th; all have per capita approval rates that are four to 15 times the median rate among the states.
Pennsylvania ranks 38th in SCOR approvals on a per capita basis. Its rate of approvals is about one-fourth the median of all the states, and its approval rate is about one-sixtieth that of the top ten states.
Pennsylvania should strive to match the proactive efforts and performance of the best states by implementing the following five actions:
1. Institute face-to-face pre-filing conferences for SCOR applicants. This resolves many informational problems that can turn more adversarial and bureaucratic in the formal review process.
2. Create an educational campaign designed to educate Pennsylvania businessmen on the opportunities that SCOR filings can make available.
3. Train many of those who deal with entrepreneurs within the state. Work with the existing entrepreneurial support infrastructure, including the Small Business Development Council, the Ben Franklin Technology Center, university-run entrepreneurial centers, and organizations such as the Enterprise Corporation, to encourage the use of SCOR offerings.
4. Work to address the marketing problem faced by would-be SCOR filers through the creation of a centralized registry of approved SCOR filings within the state and other efforts to ease the difficulty in marketing these securities.
5. Examine and reconsider all of the merit policies within the state as they pertain to SCOR filing approval. Merit policies may limit the offerings unnecessarily.