Securities laws in the U.S. governing company behavior before, during and after an IPO leave many comms leaders wondering what activities are restricted. A quick guide via Arena’s Jason Golz.
There is growing consensus by capital markets experts that the pace of initial public offerings will ramp in 2025. As a result, VCs and their investors are nudging portfolio company founders to list their shares. If your late-stage startup is on this track, now is the time to begin preparations.
The dearth of IPOs has created an IPO-experience vacuum for late-stage start-ups. Communications leaders at these companies will want to start strategizing well ahead of their listing, ideally six to 12 months out. Given this will likely be before your company hires an investor relations lead, many planning aspects may fall to the head communicator. Necessary activities include preparing colleagues for the process, crafting the investment story in the IPO materials, starting to act like a public company, thinking through how to make the most of the visibility the IPO brings and managing listing day interviews and activities.
As you may have guessed, the period leading up to an IPO is an exciting, but disruptive time for a company. As the internal leader of the process, communicators will be expected to make a number of consequential decisions and be called upon to answer questions from your CEO such as: Can The Wall Street Journal interview me before the IPO quiet period begins? How much can we communicate to employees about the process or their equity? What can I tell investors at the upcoming investment bank conference?
If you’re not sure of the answers, you’re not alone. The patchwork of securities rules and laws in the U.S. governing company behavior before, during and after an IPO leaves many communications leaders wondering what activities are restricted versus permitted throughout this process.
Generally, any communications restrictions are designed to prevent companies pitching the IPO to potential investors in the absence of, and ability to digest, any information that would be considered important in making an informed investment decision. This is what a registration statement is for.
During the IPO process, a company, aka “issuer,” hires legal counsel and an investment banker, or the “underwriter,” to help draft a registration statement, which includes numerous documents, the most important of which is the Form S-1.” The registration statement must be the sole source material for the IPO, which is reviewed by the U.S. regulator that oversees these offerings, the Securities and Exchange Commission. The registration statement is designed to educate investors about the company so they can make an informed investment decision.
The primary rule that governs this process is Section 5 of the Securities Act. Violating its provisions means the IPO could be delayed, called a “cooling off period,” or if the IPO has already happened, allows investors to rescind their purchases and return their stock to the company at the IPO price. Both actions are highly punitive to the company.
Fortunately, over the last couple of decades, the SEC has taken steps to modernize these rules, and in doing so reduced the communications restrictions during the IPO process. These changes clarified what communications are permitted, shortened the duration companies must restrict communications and allowed company executives to test the waters with institutional investors. It is critical that corporate communicators understand these boundaries as their IPO process gets underway.
For communicators, knowing the details of the IPO quiet period, what safe harbors have been created by the SEC to expand areas of communications, and how to navigate the process, help put those in our profession on a similar playing field as the expert advisors, like investment bankers and legal advisors, in providing strategic counsel to key executives.
Jason Golz, CFA is a senior advisor at Arena, formerly head of communications at Prologis, the SoftBank Vision Fund, and was previously a partner at Brunswick.