Preparing for success: 2015 IPO SEC comment letter trends - Technology

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SEC comment letter trends , PwC US Dec 15, 2015

Our technology sector publication provides a comprehensive analysis of recent SEC staff comments issued to technology companies filing their IPO registration statements.


This year, we have analyzed over 1,000 comments issued by the SEC staff related to domestic companies that completed initial public offerings between July 1, 2014 and June 30, 2015 in the software & internet, computers & networking, and semiconductors subsectors and generated over $40 million in gross proceeds. The average number of comments issued by the SEC staff decreased slightly to 54 comments from 58 a year ago. We have captured the areas that received the most comments from the SEC staff and provided examples of actual comments.

We hope the following analysis of SEC staff comment letters can aid you in the preparation of your registration statements and in preparing comment letter responses.

EGCs continue to dominate the IPO market

In each year since the passing of the JOBS Act, EGCs have comprised between 85 percent and 95 percent of the total number of technology IPOs. Sixty percent of technology companies that went public in the 12 months ended June 30, 2015 had revenues of under $100 million. The JOBS Act was designed to provide such smaller start-up companies with easier and more cost-effective access to capital markets, thereby spurring economic expansion and encouraging job creation. Read our publication to view the statistics with respect to the utilization of the key accommodations available to EGCs, including confidential submissions, scaled disclosure requirements and adoption of new accounting standards on the private company timeline.

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Cheap stock remains a focus area

In early 2014, the SEC staff revised the FRM guidance regarding a company’s critical accounting estimate disclosures related to stock-based compensation in an IPO substantially streamlining the requirements. Following this change, we have seen a decline in comments issued related to stock-based compensation - down to 6% as compared to 11% in last year’s publication. The SEC staff’s view is that a company's IPO pricing range is indicative of the fair value of its stock leading up to the IPO, and they are, therefore, skeptical of valuations in the 12 months prior to the filing that are significantly lower than that range. It is becoming more common for registrants to self-initiate a communication to the SEC staff frequently before receiving a formal comment.

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Best practices for responding to SEC staff comments

Lastly, we provide a brief overview of the structure of the SEC’s Division of Corporation Finance and some best practices for responding to SEC staff comment letters, such as taking ownership of the responses, addressing the question’s intent completely and accurately, and providing planned disclosures, if requested. It is better for a registrant to take its time to respond comprehensively instead of responding too quickly and potentially inviting additional rounds of SEC staff comments, thus adding to the overall deal timeline. And don’t forget that the SEC staff is always willing to have a call to clarify their comments. 

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David Mandelbaum

David Mandelbaum

Partner, National Professional Services Group, PwC US

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