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.
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.
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.
