Twitter’s short and simple tweet fails to answer key questions

A tweet running to 135 characters was all it took late on Thursday to launch one of the year’s biggest financial stories: that Twitter has taken the first steps towards an initial public offering.

The complete absence of further information about the proposed share sale, however, left potential investors in the dark about key facts such as the state of the company’s business, how it plans to handle the share sale or how much money it hopes to raise.

Twitter’s decision to reveal nothing about its IPO beyond a single tweet marks the most conspicuous use so far of a recent legal change in the US that lets companies keep such information confidential until close to the time they sell the shares.

The move has been greeted by many start-ups and their advisers as a way to reduce pressure on young companies and encourage more to explore a public listing – though it has also attracted criticism for reducing the amount of scrutiny such companies receive.

Also, the new freedom for companies to choose when to disclose that they have filed to go public has made it impossible to tell how close they may be to a share sale.

“[Twitter] may have filed confidentially two months ago,” said Anthony McCusker, a partner at law firm Goodwin Procter. If so, it could spring its IPO on Wall Street as early as next month, leaving little advanced warning for the most hotly anticipated new stock market listing since Facebook.

Passed last year, the Jumpstart our Business Startups Act, dubbed the Jobs Act, lets companies with less than $1bn in revenues file their IPO prospectuses confidentially, beginning the regulatory process of getting clearance from the US Securities and Exchange Commission.

The documents, which are designed to provide investors with a detailed blueprint of their businesses, only need to be made public three weeks before companies embark on the investor “road shows” that immediately precede their share sales.

While reducing the pressure of expectations that companies face after revealing an IPO filing, the main benefit of the delay is to deprive their competitors of the months they would otherwise have to pore over their numbers, especially in newly emerging industries, according to companies and their advisers.

Trulia, an online real estate marketplace that took advantage of the new confidentiality rule last year, said the move had given it the breathing space to time its share sale between the troubled Facebook IPO and US presidential election.

“You can go discreetly and take advantage of windows when they open without people continually asking ‘when are you going to go? When are you going to go?” said Ken Schuman, Trulia’s vice-president of communications.

“It’s been a success, I think it’s encouraged more companies to submit,” Walter van Dorn, a partner at New York law firm Dentons, said of the greater latitude now given to IPO candidates. “What you don’t see and will never see is how many file and then withdraw,” he added.

However, reducing the amount of time between public disclosure and share sale may weaken scrutiny of newly public companies, some warn. It detracts from “the press and analysts really digging into the company and its financials,” said Mr McCusker. “Some of that dialogue was useful,” he added.

Tech blog

Dispatches from the tech world: FT experts in San Francisco, London and Taipei upload their views

In the most conspicuous example of how old disclosure rules may have benefited investors more, internet company Groupon’s path to an IPO two years ago was bedevilled by a series of disputes with the SEC over its controversial accounting practices. The huge attention those received in the months running up to the share sale was a useful warning about the risks of investing in the company, given its later troubles, according to some advisers.

Under the new rules, disputes with the SEC during an IPO approval process are still disclosed, though only as notes in a final filing rather than in “real time”, muting their impact.

In another drawback of the new rules, bankers have also complained that the lack of transparency about the number of IPOs in the pipeline makes it harder to advise companies on the timing of their own share sales.

Though most bankers see confidential filing as a positive, 58 per cent say the overall act is not having a positive impact on IPOs, and two-thirds of those naysayers believe the law will never achieve its goal of increasing the numbers of businesses going public, according to a July study by BDO USA.

“When it comes to the JOBS Act, first impressions were certainly deceiving,” said Wendy Hambleton, partner in the Capital Markets practice at BDO USA. “In practice the law has fallen far short of those lofty expectations.”