The SEC is back in action and the message is clear: they want more private companies to go public. To help facilitate this goal, this week the SEC proposed allowing private companies of all sizes who are thinking of an IPO to “test the waters” before filing their S-1 publicly.
Note: Resulting from the Securities Act of 1933, Form S-1 is an SEC filing used by companies planning to go public as a way to register their securities. The registrant must provide basic business and financial information on the company with respect to specific securities offering.
How does this proposal benefit companies seeking an IPO?
This proposal builds on the 2017 updates to the JOBS Act, which allowed private companies who qualify as “Emerging Growth Companies” (EGCs) to file their S-1 confidentially without public scrutiny. The newly proposed update would effectively, “allow all prospective issuers, not just EGCs, to gauge market interest in a possible initial public offering or other proposed registered securities offering by permitting discussions with certain investors prior to the filing of a registration statement.”
With the number of companies listed on US stock exchanges declining by almost 50% since its peak in 1996, as well as large funding rounds enabling continued growth while still privately held, this not-so-subtle nudge by the SEC will likely embolden private companies who were previously on the fence about going through the riggers and public scrutiny of an IPO.
The opportunity to identify information that is important to key investors and measure market interest will be a tremendous advantage prior to a public announcement.
How do you start the IPO process?
Even though this proposal has not been approved yet by the SEC, if your company is thinking of an IPO down the line, some key considerations as you prepare for your S-1 (whether confidentially or not!) should include:
1. Does my company already qualify to file our S-1 confidentially as an EGC?
As defined in Section 2(a)(19) of the Securities Act, a company may choose to follow disclosure requirements scaled for public companies if it has total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year and, as of December 8, 2011, had not sold common equity securities under a registration statement. To learn more about how the SEC defines an EGC, visit the SEC website.
2. How should each of our departments prepare for an IPO 6, 12, or 18 months before we file?
Not only do you need the right tools, you need an experienced guide to plan your company’s IPO journey.
Check out our IPO Journey Workbook for a complete work-back schedule for each role in the trek to the summit. You’ll know what each team member is responsible for and when.
3. Can my company confidently prepare our S-1 filing using data from our equity administration platform?
Form S-1 is the initial securities registration form and requires both company financial and securities information. Having accurate and easily accessible information that scaled with you as you grew from Seed Stage to pre-IPO is critical for a successful S-1 filing.
Just ask Dropbox, Sonos, Pluralsight, UpWork, or any of the other 80+ companies who have gone through this with Shareworks in the last three years. Your solution should have:
- Auditable financial reporting disclosures and support to answer questions from your auditors
- Defensible 409A valuation from an experienced team to avoid any potential pitfalls surrounding cheap stock at the time of IPO
- A cap table that is easily accessible, intuitive, and an accurate account of your company’s ownership structure and history
- Proxy disclosure reporting for tracking your insiders’ securities
- A stakeholder engagement tool that is easily accessible, easy to use, and fosters a culture of ownership through transparency and education
Heading to Synergy this year? Hear from panelists on their IPO journey at our client conference! You’ll hear from Shareworks IPO graduates as well as learn how you can leverage Shareworks to confidently file your S-1.
If you’d like to receive more information about IPOs, please reach out to our team.
Holly Farlin is the Product and Services Consultant for the Shareworks by Morgan Stanley Private Market team, responsible for providing technical expertise to Sales and Relationship Managers as well as developing educational offerings for existing clients. Holly was previously a Relationship Manager for the private market team, where she oversaw, serviced, cultivated and grew existing corporate client relationships toward mutual partnership and success. Prior to joining the organization, Holly worked as a Communications and English Instructor abroad at Palau Community College and also is an experienced Paralegal. Holly is a Certified Equity Professional (CEP) from Santa Clara University Leavey School of Business and graduated with degrees in Mass Communications and Political Science from the University of California, Berkeley.