A small internet startup is quietly filing for its IPO. You may have heard of it -- a microblogging site called Twitter. The company reported the news via tweet (what else?) on Thursday:
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.
— Twitter (@twitter) September 12, 2013
Twitter announced in 135 characters that it had filed S-1 papers with the Securities and Exchange Commission, but in all the breathless chatter over the much-anticipated stock offering, it can be easy to ignore one key word in that tweet that will mean a dearth of news in coming weeks: "confidential."
Twitter clearly made no secret about the fact that it filed its first papers, but further information could be tough to come by in the coming weeks. Thanks to a provision in the 2012 JOBS Act, smaller firms, known as "emerging growth companies," may file for their IPOs confidentially. That means the company can keep its SEC filings, with their bevies of financial data, secret until 21 days before the company goes hunting for investors in what is commonly called a "road show" (and once it does release that data, it will only have to release two years' worth, instead of the standard three).
The JOBS Act aimed to boost startups in the public marketplace, and the title "emerging growth companies" might bring to mind a new startup run by grad students and fresh from a tech startup incubator. But as it turns out, the act puts companies with under $1 billion in revenue in this category – a category that includes widely recognized and successful tech companies like LinkedIn, Yelp, and Pandora. As Businessweek pointed out last year. Twitter, for all its millions of users, falls under that heading as well. (Twitter declined to comment for this article.)
Filing for an IPO confidentially can have its drawbacks, like keeping the broader investing public in the dark. But it can also afford a business plenty of benefits, as TechCrunch reported in May 2012, like being able to quietly test out investor sentiment before taking the IPO plunge. In addition, a company can watch for stock market volatility before offering its stock.
So what does it mean? There's the obvious: First off, it means no information on Twitter's IPO until three weeks before its financial gurus go out to make investor presentations. It also means Twitter has under $1 billion in annual revenues – eMarketer predicts that Twitter will break the $1 billion revenue mark in 2014.
But more importantly, it also speaks to the very broad definition that the JOBS Act applied to "emerging" businesses. When a large company like Twitter qualifies for that kind of special provision, it poses the question of what companies wouldn't qualify – not to mention whether Twitter wouldn't have filed for its IPO without the special JOBS Act provision.
Blurry definitions of which businesses are small and therefore get boosts from Washington is not a new phenomenon. Government and trade groups likewise apply shifting and often sweeping definitions to what makes a "small business."
Then again, Twitter may be smart to take the cautious approach to going public. As Facebook proved, even the best-known and largest social media sites can go public without making a splash.