Opinion regarding the proposed amendment to the Public Offering of Securities Act (POSA) concerning the threshold for initial public offerings without the requirement to publish a prospectus

To

Financial Markets Regulation Directorate
Ministry of Finance

For the attention of Ms. Nadya Daskalova and Ms. Elena Petrova

Dear Ms. Daskalova,

Dear Ms. Petrova,

We hereby present to your attention BESCO’s position regarding the proposed amendment to the Public Offering of Securities Act (POSA) concerning the threshold for initial public offerings without the requirement to publish a prospectus, as defined in Articles 89c and 89d of POSA. BESCO is an organization representing over 500 startup, scaleup, and larger technology companies, which are directly interested in the development of BEAM.

The proposed amendment raises the threshold to EUR 5 million, aligning it with the threshold for the total funds raised through crowdfunding offers made by a project owner under Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937.

We propose that this threshold be increased to EUR 8 million, as permitted under Regulation (EU) 2017/1129 of the European Parliament and of the Council.

We believe that BEAM is an extremely successful initiative and is becoming an increasingly key factor in the success of Bulgarian startup, scaleup, and technology SMEs. BEAM serves as an alternative source of investment at the “Series A” stage and transition to “Series B”, which have so far been lacking in the Bulgarian market. Interest in BEAM continues to grow, and expectations are that in 2022 we will see even more companies joining the market.

The development of successful startup and scaleup companies is of key importance for transforming the Bulgarian economy towards high value-added industries. As a foundation for achieving these goals, the SME growth market provides a favorable environment enabling companies to better meet their financial needs and serves as a natural gateway to capital markets. These markets facilitate both a transparent capital-raising process with the participation of numerous institutional and individual investors and continuous dialogue among ecosystem participants, contributing to overall improvement of the environment. The ultimate goal is to achieve the optimal balance between maintaining a liquid, reliable, and efficient capital market and ensuring reduced burden for issuers while maintaining adequate levels of investor protection.

Furthermore, we believe that the SME growth market is subject to a higher level of regulation compared to that applicable to crowdfunding. The BEAM SME growth market is a specialized segment of the multilateral trading facility operated by the Bulgarian Stock Exchange (BSE), which maintains high standards both for admission of issuers and for ongoing disclosure of information. These include requirements for investor protection embedded in company charters, capital increases that prevent dilution, disclosure of financial information at least twice annually, audited annual financial statements, and additional ad hoc disclosures.

We would also like to highlight that issuers on BEAM are subject to the Market Abuse Regulation, which provides additional investor protection. Moreover, each instrument admitted to trading on BEAM has a market price, allowing investors to adjust their holdings at any time in line with their investment strategies.

In addition, BEAM issuers are required to have an agreement with an exchange-approved advisor for at least two years after admission. The advisors’ main role is to assist issuers in complying with BEAM rules and applicable legal requirements. Among the most active advisors are exchange members and major law firms with strong capital markets expertise and proven reputations.

Since the beginning of 2021, six public offerings have been successfully conducted on BEAM, half of which reached the maximum threshold permitted under Article 89c of POSA. These offerings attracted significant investor interest, with an average oversubscription of over 2.7 times, and one company reaching a record level of 4.5 times for the Bulgarian capital market. Active communication between BSE and technology startups indicates that for many companies the current threshold is insufficient for financing their growth and limits their competitiveness within the EU. If the threshold is increased to EUR 8 million, we believe BEAM has strong potential to attract further investor interest and naturally become a primary source of capital for ambitious and innovative companies seeking growth, greater visibility, and expansion of their shareholder base.

We would also like to point out that for companies with larger capital and market valuation, a lower threshold limits the ability to achieve sufficient free float, which is necessary for liquid secondary trading and greater exit opportunities for investors.

Encouraging SME financing through capital markets reduces dependence on bank financing, increases capital sustainability, improves investor diversification, facilitates access to additional capital, and enhances company visibility. It also encourages both retail and institutional investors: SMEs have higher growth potential and allow for greater portfolio diversification. Investors need access to such companies given the lack of sufficiently attractive and fast-growing opportunities currently observed in the capital market. At the same time, as noted above, a high level of investor protection against market abuse, insider trading, and market manipulation is ensured.

Finally, the threshold for public offerings without a prospectus in countries such as Estonia, Lithuania, Latvia, Liechtenstein, Luxembourg, Iceland, Ireland, Norway, and Finland—as well as in more developed capital markets such as Germany, France, and Italy—is set at EUR 8 million.

We would also like to note that the Capital Markets Union (CMU) and the new high-level working group NextCMU propose a number of measures aimed at targeted and proportionate regulation to create an attractive environment for SMEs prior to IPOs and significantly facilitate access to capital markets—specifically SME growth markets and regulated markets. In addition, NextCMU recommends granting SME growth markets the status of a special segment of regulated markets.

In the context of the numerous measures proposed at the European level to support SMEs, we believe that increasing the threshold to the maximum allowed under the Prospectus Regulation for the BEAM growth market would be a highly appropriate measure at national level.