Thursday, September 12, 2013

Twitter’s IPO Filing Highlights Another Bad Provision in the JOBS Act

Twitter’s IPO Filing Highlights Another Bad Provision in the JOBS Act

Twitter announced this afternoon that it has filed a registration statement with the SEC to go public.  Under a provision of the Jumpstart Our Business Startups (JOBS) Act, Twitter doesn’t have to disclose its filing to the public because it has less than a $1 billion in revenue.  Based on various private transactions in Twitter shares, it’s clear that the company will have a multibillion valuation.[1]     Since Twitter is going to be a large deal, the public and institutional investors should every opportunity to evaluate the deal before shares are sold to the public.  Moreover, there’s no reason why Twitter and their investment banker Goldman Sachs couldn’t comply with the old law.  Twitter’s confidential filing is merely further proof that the JOBS Act was an ill-conceived piece of legislation.  See, “We Need Acronym Reform: The Jobs Act (March 4, 2013)” for my critique of the JOBS Act.

As you’d expect Twitter made this announcement via a tweet.  Why didn’t they release the entire registration via a series of tweets?  If its initial filing is about as long as Facebook’s S-1, something in the neighborhood of 4,500 tweets would have done the job of providing the public was proper disclosure.[2]

[2] Facebook’s S-1 had 653,153 characters.


  1. The company will still be required to make their filing public at least 3 weeks before they launch their roadshow. What's the problem? They have information they still deem confidential and don't want to quite yet broadcast to the world. When they're ready to hit the road, we'll all get to evaluate the company's finances.

    The last company I worked at used the JOBS Act to simultaneously announce its interest in going public while also evaluating serious PE suitors. The JOBS Act gave breathing room to do this without showing the world our financial information. And since in the end the registration was cancelled because a suitable PE buyer was found, it's hard to say this was a bad thing for anyone.

  2. Notice that Twitter's financial statements were made public today, well before the IPO. So I'm still not sure what the problem is with the JOBS Act with respect to the timing of financial statement release. I believe your concerns here were not valid.

  3. Actually Twitter voluntarily addressed some my concerns by issuing its prior submissions of the S-1 to the SEC. The old process gave potential investors an iterative look at potential competitive, financial and operational issues. As the SEC reacts to each draft, discerning investors get a better picture of the company. In any event, I still think that having more time to dig through the SEC filings is helpful to investors. On those occasions when the IPO window is wide open with emerging companies, the longer filing period would provide more time and transparency to investors. I would guess that most private investors who invested in Twitter probably had more than three weeks to look over the company, so I don't see why Twitter couldn't use the old disclosure procedure.

    I get Joel's concern about the company that is simultaneously entertaining private bids and a potential IPO. No one wants to reveal data if it isn't necessary. On the other hand, under existing law, plenty of S-1s leave out key data points until a company gets closer to going effective in order to protect proprietary data.

    I agree that this provision of the JOBS Act isn't a huge issue one way or the other. I really don't think companies are harmed by the old process and I don't think investors will be systematically blind-sided by the new provision. I simply believe that the value of transparency is enhanced by allowing a lengthier period to view information.