Newspaper article International New York Times

The New Normal: Filing I.P.O.S in Secret

Newspaper article International New York Times

The New Normal: Filing I.P.O.S in Secret

Article excerpt

Choosing to file confidentially for an initial public offering is fast becoming the norm for young technology companies.

Shhhh: A wave of tech start-ups 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, the video camera maker favored by extreme athletes and everyday adventurers, became the latest to file such a "secret I.P.O."

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 Care.com, have recently filed secret offerings. And there may be more to come. Several other companies that may have under the $1 billion threshold in annual revenue for such filings are expected to go public this year, including Gilt, Airbnb and Square.

It's not just technology companies. Roughly 70 to 80 percent of all I.P.O.s 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 start-up 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 -- the acronym stands for Jumpstart Our Business Startups -- companies with less than $1 billion in revenue, known as emerging growth companies, can begin the I.P.O. process in secret, including correspondence with the S.E.C. 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 I.P.O.

"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 I.P.O.s.

Additionally, 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 I.P.O. ultimately do not go public.

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 I. …

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