The Securities and Exchange Commission has been shut down since the shutdown began. Before it went dark, the SEC gave companies seeking an IPO a way forward.
According to the Wall Street Journal, companies seeking to go public are free to "change language in an IPO filing to make it automatically effective after 20 days." Biotechnology companies Gossamer Bio and TCR2 Therapeutics are reportedly exploring this alternate path.
It's an awful idea. When the SEC is open for business, any company seeking an IPO should want the SEC to review its prospectus--to identify and repair any flaws it finds during the review process.
Skipping the SEC review process would expose you to legal challenges. You'd run the risk of setting your IPO price too high or low, just 20 days before the IPO -- with no way to adjust that price to reflect market conditions.
Unless you desperately need the cash in the next 20 days, do not take these risks. If you're still not convinced, here are some more reasons to wait to do your IPO until after the government opens:
Potentially Pouncing Plaintiff Lawyers
If you go ahead without SEC review of your prospectus and your IPO disclosures "are later shown to have shortcomings, plaintiffs' lawyers could pounce and point to the unusual way the deals were done," noted the Wall Street Journal.
Here's what that means. The SEC will eventually reopen, and it'll review your prospectus after the fact. If it determines that you omitted important investment risks -- such as a dependence on a small number of customers, or the risk that a change in regulations could cause it to lose market share -- a plaintiffs' lawyers could sue your company.
That would cost you considerable legal fees and possibly force your company to pay penalties. Why take that risk unless your company is truly desperate for the IPO cash?
Mismatch Between Offering Price And Market Conditions
Normally, in an IPO, companies get the SEC to review their prospectuses. They meet with potential investors around the world, in what's known as a "road show."
During that process, you get a sense of how much demand there is for your shares. You learn whether stocks in your industry are doing well, and the general attitude in your market for taking the risk of buying public shares.
And a day before the offering, companies set the price in a way that they hope will raise the most possible capital for the company while leaving room for a headline-worthy first-day pop.
With the SEC in hibernation, you'll only be able to do your IPO by setting your price at least 20 days in advance of trading. If market conditions get better during those 20 days -- which would normally enable you to raise your offering price -- you'll still be stuck with the lower price.
Conversely, if market conditions deteriorate during those 20 days, you'll be stuck trying to sell your shares at too high a price. And the offering may not attract enough orders to satisfy the company's capital requirements.
If No IPO, What Should You Do?
If you haven't gotten it by now, I'll say it again: Doing the IPO before the SEC is open for business is a bad idea.
This raises the question: How long should you wait before you consider other ways to finance your business? On average, over the past two years, it took tech companies 144 days from first contact with the SEC to selling their shares in an IPO, according to the Wall Street Journal.
If you can't wait at least that long, you should consider other routes. The best option would depend on your goals and your expectations for the company's growth. If you planned to leave the company after the IPO, you should find an acquirer.
If you anticipate sticking around thereafter, you should try to raise enough venture capital to keep the company going for another year -- and then try to to an IPO. Whatever you do, don't take the risks of going public until after the government reopens.