EGCs lead IPOs due to JOBS Act’s relaxed SEC regs, like secret
review filings, exempt exec. compensation and reduced financial disclosures.

For the record as a TWITTER novice, I had to look up the rules pertaining to the 140 character limit and make several attempts to compose a coherent sentence under the limit.  For a more thorough discussion…keep reading.

The latest news on the IPO market is that TWITTER has
announced it has filed with the SEC. 
Last week, Twitter tweeted (a cannibalistic concept in my mind at least),
“We’ve confidentially submitted an S-1
to the SEC for a planned IPO. This Tweet does not constitute an offer of any
securities for sale.”

 The JOBS
Act
, passed in April 2012, focused in part on easing access to capital for
“smaller” companies. The JOBS act created a new category of issuer, emerging
growth companies
(EGCs), those with revenue
less than $1 billion, and eased the registration regulatory burdens for
IPOs.  (To recap:  “smaller” means less than $1 billion in
revenue.)  The regulatory relief offered
by the JOBS Act allowed for EGCs to (1) submit a confidential draft
registration statement for nonpublic review by the SEC, (2) be exempt from
disclosing for up to 5 years executive compensation and complying with say on
pay votes, and (3) disclose 2 years instead of 3 years of financial statements.

ECG comparison table

 While the number of IPOs in 2013 hasn’t spiked, a
majority of companies participating in IPOs have been EGCs and have taken
advantage of the relaxed regulations available to them. In a report issued by Earnst
& Young
on the one-year anniversary of the JOBS Act, it stated that as
of April 2013”

the IPO market has been dominated by EGCs, representing 83% of IPOs that
went effective since April 2012. The majority of EGCs are taking advantage of
the confidential review accommodation and reduced executive compensation
disclosure relief available to EGCs.

The confidential initial
filings have continued to be utilized by nearly every company that qualifies as
an EGC, and Twitter is no exception.  The
confidential draft registration statements have received some criticism for
keeping the IPO pipeline shrouded in mystery and investors in the dark.  Investors will still have an opportunity to review
the financials before Twitter or any EGC goes public, the timetable is just condensed
under the new law.  Considering the speed
with which the market can absorb, distribute, and analyze information, the
condensed timeline shouldn’t pose too much of a problem, and is (according to
an article in the New Yorker) consistent with the timeline previously
applied to IPOs in the 1980’s like when Apple and Microsoft first went public.  If there is any concern for investors it
should be over eliminating the third year of financial disclosures, not the
ability to submit a confidential draft registration statement. 

 With these relaxed
standards for EGCs, Twitter could mark the beginning of a tech-heavy end to the
2013 and start of the 2014 IPO season. 
The market is watching for the following companies to join the ranks:

Square, Dropbox, Box, Living Social, Atlassian, Autotrader.com, and Coupons.com.

2013 IPO
 For more
information on the 2013 IPO record thus far, see:

2013 IPO #2
 -Anne Tucker

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Photo of Anne Tucker Anne Tucker

Anne Tucker teaches and researches contracts, corporations, securities regulations, and investment funds.

Tucker’s research focuses on three areas of business law. The first is on the regulation and administration of funds (both public and private funds) and how pooled investments can achieve significant…

Anne Tucker teaches and researches contracts, corporations, securities regulations, and investment funds.

Tucker’s research focuses on three areas of business law. The first is on the regulation and administration of funds (both public and private funds) and how pooled investments can achieve significant personal and social ends, such as retirement security and private funding for social entrepreneurship. Second, she focuses on impact investing and contract terms that reinforce impact objectives alongside financial returns. Third, she studies corporate governance, including the role of institutional investors as shareholders. Read More