Twitter IPO and the JOBS Act #Shhh

Tuesday, September 24, 2013, by Tony Lucas

In a tweet, nearly two weeks ago, Twitter announced publicly that it had confidentially submitted IPO registration documents with the Securities and Exchange Commission (SEC).  The tweet reignited a debate over the Jumpstart Our Business Startups (JOBS) Act, signed by the President Obama last April.  However, Twitter is not the first company to publicly announce it has submitted registration documents with the SEC.  In fact, 10 percent of confidential submissions have been publicly announced.

The goal of the JOBS Act is to increase funding for startups by relaxing securities regulations.  The JOBS Act allows a company with under $1 billion in revenues to submit registration statements and amendments to the SEC without revealing anything to the public until 21 days before a roadshow to investors.  Twitter meets the revenue requirement with estimated revenues for 2013 of $600 million.  Furthermore, the JOBS Act allows companies to “test the waters” to determine demand for the stock.  In the first year of the JOBS Act, 63 percent of eligible companies utilized this confidential review provision.

One argument against the confidential review provision is that it keeps the public in the dark about the SEC’s focus during the agency’s review and revision of a company’s submitted financial information.  These reviews alert potential investors about problems at companies.  This was the case for Groupon, concerning its accounting practices, and Facebook, regarding its mobile advertising negatively affecting its revenue, before both companies IPOs.  However, the counterargument is that Twitter is not keeping the public in the dark because it is required to file its confidential registration documents when it files its S-1 documents.  So the public will be able to review the documents and their revisions.

In a tweet, nearly two weeks ago, Twitter announced publicly that it had confidentially submitted IPO registration documents with the Securities and Exchange Commission (SEC).  The tweet reignited a debate over the Jumpstart Our Business Startups (JOBS) Act, signed by the President Obama last April.

It remains to be seen whether Twitter will take advantage of any of the other provisions of the JOBS Act such as the provision allowing it to disclose only two, rather than three, years of audited financial statements.

Yesterday, another rule change from the JOBS Act took effect—the lifting of the SEC’s ban on general solicitation.  This change essentially allows companies to ask for funding in public, rather than behind closed doors.  The ban was implemented after the stock market crash of 1929.  So companies are now able to solicit accredited investors publicly.  Despite this rule change, the average person is not currently able to invest in startups (only the 8.5 million people qualified as accredited investors).  This will change in the upcoming year as the next provision of the JOBS Act will be implemented—equity-based crowdfundingSome have compared this provision to Kickstarter, but instead of receiving mementos, investors receive stock.  It is likely that general solicitation by companies looking for investors will not utilize Twitter or other social media sites to their full potential until the equity-based crowdfunding provision is implemented.

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