Earlier today, Fortune reported that Rep. David Schweikert (R-AZ) will introduce legislation that would give private companies much more flexibility over their own future. Specifically, it would effectively eliminate SEC regulations that can compel private companies to go public, once they have distributed shares to a certain number of people.
The bi-partisan bill is expected to be formally filed later this afternoon, with co-sponsors including Reps. Jim Himes (D-CT), Mike Quigley (D-IL), Walter Jones (R-NC), Quico Canseco (R-TX) and Ed Perlmutter (D-CO).
What follows is an edited transcript of a phone conversation I had earlier today with Schweikert, who believes this bill could become law by year-end.
Fortune: What was the genesis of this bill?
Schweikert: It came from a bunch of little companies. I’m blessed to have Scottsdale in my district, and it has a number of companies looking to build themselves up to the level where they can go public. This, coupled with our Reg A bill, should help some of them do that.
But, outside of the Facebooks and Zyngas of the world, aren’t very few companies bumping up against the 500-shareholder limit?
They don’t bump up against it because they avoid it. They know the existing structure when finding qualified investors, so they mostly finance themselves through venture capitalists. I think this would provide more options.
You mentioned your Reg A bill. Could you elaborate on that?
There is a sort of archaic process called Reg A that the SEC originally developed as a streamlined process to go public. It capped the amount [a company could raise] at $5 million, so no one is going to go through the process now. It’s 30 years out of date. We’re trying to raise it to $50 million, because that’s the base number to actually get listed. Both of these bills, coupled with some other things we’re doing, as designed to help companies expand.
One concern about this type of bill is that it could further concentrate wealth. For example, it could let Facebook stay private, with its shares just trading among wealthy investors.
I think that argument borders on silly. Those who are holders of those companies may be able to make some money on the private companies, but their ability to truly cash in – the jackpot – is in the public markets.
Also, I hate to talk about Facebook because it’s such a unique case. For every Facebook there’s a thousand others out there struggling along that don’t have the types of investment opportunities Facebook does.
So you’d be okay if one byproduct of this bill was Facebook opting to remain private?
Ultimately that’s not the government’s decision. That is [the company’s] decision. The idea that we’re going to micromanage the markets is a little objectionable.
Do you believe this bill will move on its own, or will it get bundled with other legislation?
My instinct is that it may move substantially on its own, and then ultimately get bundled with other bills, like the Reg A bill. Both are designed for capital formation and getting small businesses to market to help them grow.
We keep hearing over and over how much private capital is sitting on the sidelines. This could create conduits to access that capital and create velocity in the marketplace.
Have you received any political pushback yet?
So far, almost none. And once we go through the finite details, I expect even more people to embrace the concept. Even the exchanges like it.
Why?
I believe it’s because it allows companies to grow sufficiently enough to have the prospect of being listed.
Isn’t it also possible, however, that you’ll actually reduce the number of companies being listed?
Over the past 10 years, the number of companies going public has crashed, so that’s already baked into the cake. And, remember, we’re also doing the Reg A bill which is directly aimed at new listings.
If there’s a company out there creating jobs and gaining economic velocity, I want them to exist. And if their business model is not to go public, that’s fine.
Do you have a champion yet in the Senate?
We’re working on it. This is a bi-partisan bill, and I believe the Reg A bill has already moved out of subcommittee. Senator Toomey has [expressed some interest].
Could this become law by June of next year?
My goal is before the end of this calendar year. Maybe I’m just pathologically optimistic.
