New IPO rules promise a lot less information

NEW YORK — Shhhh — a wave of tech startups are secretly seeking to go public.

Choosing to file confidentially for an initial public offering is fast becoming the norm for young technology companies. On Friday, GoPro, a video camera maker favored by extreme athletes and everyday adventurers, became the latest to file such a “secret IPO.”

Companies like GoPro are taking advantage of a provision in the 2012 JOBS Act that allows a company to file with the Securities and Exchange Commission but withhold from the public significant information about its finances until just before shares are sold to the public.


Several other tech companies, including Box and, have recently filed secret offerings. And there may be more to come. Several other companies that may have less than $1 billion in annual revenue are expected to go public this year, including Gilt, Airbnb, and Square.

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It’s not just technology companies. Roughly 70 to 80 percent of all IPOs in the United States that priced last year began as confidential filings, according to the research firm Renaissance Capital.

“It wasn’t really a hard decision,” said Robert Chesnut, the general counsel of Chegg, an education startup that filed confidentially before it went public last fall. “There were lots of advantages and not much in the way of a downside.”

Yet some question whether such filings benefit investors — or just the companies.

Under the law, whose acronym stands for Jumpstart Our Business Startups, companies with less than $1 billion in revenue, known as “emerging growth companies,” can begin the IPO process in secret, including correspondence with the SEC. They must publicly disclose their offering documents roughly 21 days before embarking on a “road show” for prospective investors, essentially giving the public a month to review their books.


A main benefit cited by proponents of secret filings is that the process allows companies to keep sensitive financial information away from rivals before an IPO.

“It keeps operating information out of the eyes of competitors for a couple months extra,” said Jay R. Ritter, a professor at the University of Florida who tracks IPOs.

Also, it gives companies the opportunity to test the waters for an offering without disclosing their financial data if they decide not to go ahead with the process. By some advisers’ estimates, as many as 75 percent of companies that file for an IPO ultimately do not go public.

According to Chesnut of Chegg, the process allowed his company to focus on putting together its offering documents and make any necessary revisions from the SEC, sparing the wider world a view of “how the sausage was made.”

Chegg went public in November. Since then, its shares have fallen 43 percent below its IPO price.


With secret filings on the rise, and including such prominent companies as Twitter, some view the threshold for emerging growth company status as unreasonably low.

“The rationale for the confidential filing process is that an emerging company that is unsure whether its IPO will fly can file confidentially and test the waters,” said Erik Gordon, a law professor at the University of Michigan. “That makes sense for smaller, relatively unknown companies because there is little public interest or even awareness about them. Unfortunately, the law as enacted by Congress also covers companies like Twitter.”

Since its IPO in November, Twitter’s shares have more than doubled, but they fell sharply after the company’s first earnings report disappointed investors.

Gordon and other critics of confidential filings say that allowing companies to withhold financial data from the public in the runup to an offering can distort the public’s perception of a company’s financial health.

It is unclear, however, whether the confidential filing provision has led to a rise in newly public companies that run into trouble.

Supporters of the more confidential process argue that all the information that would be available in a normal IPO is still there for the public to scrutinize, if not all at once. Indeed, the company must still publish revisions to its prospectus.

(All correspondence with the SEC is published after the initial stock sale, as it was before the JOBS Act.)

According to a study published by Latham & Watkins, one year after the JOBS Act was enacted, companies on average embarked on their road show 49 days after filing their first public document, more than twice the legal minimum.

“Everything is out in the open,” said David Menlow, the president of, a research firm.

The law also allows prospective IPO candidates to meet with big institutions like Fidelity Investments and T. Rowe Price during the quiet period to gauge their interest and collect comments.

“In today’s 24/7, Internet-enabled world, it’s hard to imagine people poring over securities disclosure documents for more than a month before making a decision whether to invest,” said Joel H. Trotter, a partner at Latham & Watkins.

Trotter advised the Treasury Department on the IPO portion of the JOBS Act. He said that the change was meant to make it easier for private companies to go public, rather than taking the easier route of selling themselves.

The new law extended the confidential filing provision that was already available to foreign companies looking to sell stock in the United States.

“Our bias was, we wanted to remove deterrents to going public so that there’s more balance,” Trotter said. “It’s an uphill battle for companies seeking to go public.”