Nothing is more certain than death, taxes and comments back from the SEC on your S-1 registration’s first draft.
It’s part of the vetting process that protects investors from, on the light-side of the spectrum, overly enthusiastic corporate projections and on the dark-side… straight up fraudulent disclosures.
To view an illustration of the process, download this whitepaper.
Comments generally fall into these eight categories:
- Back-up (third party) verification
- Cheap stock
- Executive compensation and executive employment agreements
- Financial & accounting
- Market positioning claims
- Non-GAAP financial measures
- Revenue recognition
- Segment reporting
As you see in the chart below, with data from Proskauer’s 2016 IPO Study, the lowest number of SEC comments received in a first round comment letter was 11, the average was 31 and the highest was 78. One point is clear when you juxtapose the different sectors: financial services companies received the highest number of comments. Click image to enlarge.
All sectors did have fewer overall comments from previous years, which (hopefully) indicates their internal diligence is steadily improving – although the pace from initial filing to final pricing is 20% slower. Market conditions are assumed the cause. Slow and steady wins (raises) the race (capital).