Getting All Your Ducks in a Row to IPO: Remarks at the Small Business Capital Formation Advisory Committee Meeting

Good morning, and thank you all for attending today's meeting. Before diving into the topic du jour I would like to take a moment to commend this Committee on its recently approved recommendation on finders, which builds on past Committee work.[1] In particular, I appreciate the recommendation's principles-based approach. High-level ideas can be more effective at informing commission thinking as we work through the minutiae of potential new rules. Your in-the-weeds discussions of recommendations are, however, very helpful. Over the weekend, I went back and watched the Committee's most recent discussion on finders. What stood out is the recognition that a broker-dealer framework is inapt for small raises in which a community member is making introductions. This activity is distinct from broker-dealer activity.

Turning now to the topic of today's meeting, when I think about IPO activity, ducks in a pond come to mind. A duck gliding gently across a still pond exudes calmness. But what you don't see, just under the water's surface, are two webbed feet paddling like crazy. IPOs are much the same. What we typically see is a polished, smiling set of executives ringing the bell to celebrate a corporate milestone. What we do not see is the lead-up to that celebratory moment: the hard work, late nights, and general chaos that often characterize the IPO experience. If you have ever worked on an IPO, you know all the foot paddling that went into what appears to others a smooth glide into the public markets. Whether you are the lawyer working on disclosure, the accountant or auditor working on financials, or the underwriter working on deal execution, the majority of your work is invisible to those not a part of your working group. Meanwhile, management, those lucky ducks, get to work on all of the above.

Going public entails a lot of work from a lot of people. The process is expensive and time-consuming. We would do well to remember all that pre-IPO activity the next time we watch the bell ringing on Wall Street. For small companies with fewer resources the process can be particularly taxing.

While some accommodations for small companies exist now, we can do more for companies of all sizes to help make going and remaining public more attractive. Some of that work is already underway. For example, at the Chairman's direction, the staff is taking a fresh look at Regulation S-K.[2] Reducing ongoing compliance costs that do not provide a commensurate investor protection benefit is a common-sense exercise. We also have made clear that the presence of a mandatory arbitration provision in a company's governing documents will not affect decisions regarding whether to accelerate the effectiveness of a registration statement.[3]

But, we have more work to do. To that end, I would like you to consider several questions during today's meeting:

1. Does the anticipated size of an IPO affect a company's ability to engage an underwriter generally? Does it affect which underwriters may be interested in participating in the offering or the terms on which an underwriter will agree to participate?
2. While conducting an IPO, what percentage of management's time is diverted away from running the business to attend to IPO-related matters? Does this percentage vary based on the size of the company or the size of the offering?
3. How long should companies expect an IPO to take? How much deal execution risk is attributable to the length of time required to complete an IPO?
4. How could the Commission shorten the IPO process without losing the beneficial discipline and rigor that comes from going through the process? Could shortening the IPO process nudge companies considering an IPO toward our public markets?
5. What aspects of going and being public are most difficult to anticipate?