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Redfin: Path to IPO

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Charlie Joyce   July 20, 2017

Redfin, the Seattle-based real estate brokerage aiming to reshape the industry, recently priced its upcoming IPO between $12 - $14 per share. At this valuation, Redfin would become the latest tech unicorn on the public market. As the company heads towards its public listing, one big question lingers for investors: Should Redfin be valued as a real estate brokerage or as a tech company?



SEC Expands Confidential Filing to All IPOs

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Shriram Bhashyam   July 06, 2017

Starting July 10, 2017, all companies seeking an IPO, whether or not they qualify as emerging growth companies (“EGCs”), will be permitted to file their draft IPO registration statements confidentially. This is an important development, as it may lead to more IPOs and is a signal of tone shift at the SEC towards capital formation.

The confidential submission process is an accommodation by the SEC in the offering process designed to encourage smaller companies to go public. Provided in the JOBS Act, this accommodation has been available only to EGCs. An EGC is an issuer that has total gross revenues of less than $1 billion during its most recent fiscal year. The confidential filling process has been well-received by markets, with 88% of EGCs that have filed for IPO since the enactment of the JOBS Act taking advantage of this provision, according to Ernst & Young.

To avail itself of the confidential submission process, an issuer must confirm that it will publicly file its registration statement, along with any confidentially filed drafts, at least 15 days prior to its road show or otherwise before the requested effective date of the registration statement. For non-EGC issuers, pursuing an IPO, the SEC will confidentially review an initial draft registration statement and related revisions. For non-EGC issuers pursuing a follow-on offering within 12 months of IPO, the SEC’s confidential review will be limited to the initial submission, and responses to SEC comments must be done via public filing and not with a revised, confidential draft registration statement.

The announcement by the SEC regarding the expansion of confidential submission also provides additional flexibility relating to financial statements for non-EGC issuers. Similar to relief provided to EGCs under the JOBS Act, a confidential submission may omit financial information that the issuer reasonably believes will not be required at the time the registration is publicly filed. Further, the SEC explicitly reminded issuers that it will consider requests for waivers of certain financial information. Additionally, the SEC noted that it would consider reasonable requests to expedite review of a confidential submission.

With the expansion of the confidential submission process, the SEC is encouraging more and larger companies to go public. Confidential submissions give an issuer greater control over its IPO process and timing. The issuer can get a peek into areas of concern for the SEC without having to share their performance, strategies, or intentions with the world (and their competitors). Based on public reports, a few mega-unicorns, such as Uber, Airbnb, and Palantir Technologies would not qualify as EGCs, as their revenues are greater than $1 billion. The availability of confidential submissions may nudge them to explore an IPO sooner. Further, this announcement signals an anticipated tone shift at the SEC under new Chairman Jay Clayton. The SEC will emphasize capital formation and making the US capital markets more competitive. We can expect to see further reforms towards these ends from the SEC.

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Many thanks to Jacob Gerber for his assistance in drafting this blog post. The SEC's announcement included items beyond the scope of this post, such as provisions for foreign private issuers. The SEC announcement is available in its entirety here.

Q&A with Troy Paredes: How the SEC Regulates Silicon Valley (Part 2)


Shriram Bhashyam   April 13, 2017

The change in administrations at the White House has multifold ramifications for startups. Important among those areas is the Securities and Exchange Commission’s (“SEC”) posture towards Silicon Valley and how that agenda may shift under incoming Chair Jay Clayton. We’ve tapped friend of EquityZen, and former Commissioner at the SEC, Troy A. Paredes to shed some light. You can read Part 1 here.

Shri Bhashyam: I’m glad you raised your views on where regulation needs to go.​ Under most recent SEC Chair Mary Jo White, it seemed the drumbeat had grown steadily. It started with Theranos, and then Chair White gave a friendly warning of sorts to Silicon Valley, and then controversies at Hampton Creek and Lending Club came to light, and finally some shareholder lawsuits. How would you contrast a prospective SEC agenda under Chair Jay Clayton (assuming he is confirmed) to that of most recent Chair Mary Jo White?

Troy A. Paredes: SEC Chairs (as well as Commissioners) take enforcement very seriously, even if they have different ways of going about it.  Each and every part of the SEC’s mission – protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation – requires the regulator to identify misconduct and hold wrongdoers accountable. 

In an environment where there often is a lot of disagreement, one item stands out to me for the bi-partisan support it gets – namely, there is widespread agreement that the SEC should use data and technology as part of its examinations, inspections, and enforcement.  Data analytics has become an important part of how the SEC goes after fraud and manipulation.  I expect that to continue, regardless of the SEC’s political makeup.  It will be particularly interesting to see how things like artificial intelligence and machine learning end up factoring in.

Stepping back a bit, I expect this SEC to focus on economic growth by taking sensible steps to make it easier for companies to raise capital – in other words, by giving new life to the SEC’s capital formation mission.  It will take some time to see which exact rules and regulations may be up for reform.  But generally speaking, I think the effort should include a “retrospective” review that evaluates whether and how the regulatory regime has proven too costly and burdensome, working against the best interests of both companies and investors. 

SB: What will the change in administrations mean generally for financial regulation?

TAP: One place to look is the President’s recent Executive Order on Core Principles for Regulating the United States Financial System.  In short, I think attention be will paid to how regulation, notwithstanding the best of intentions, can end up being counterproductive, disadvantaging our markets, companies, investors, and taxpayers.  Cost-benefit analysis and data-based regulatory decision making can help ensure that we do more good than harm.  I advocated for both during my time at the SEC.

SB: What are some big regulatory topics fintech firms should pay attention to in 2017?

TAP: Across our economy – indeed, across our lives – technology will continue to give us new opportunities and new ways of doing things faster and cheaper.  That’s good.  At the same time, precisely because it can be disruptive, innovation can cause dislocations as machines and software are used instead of people to do certain jobs.  We need to take seriously the difficulties people face when they are displaced by technology, even as we appreciate the new jobs that technology creates.

As for fintech specifically, I think we’re still in the early days, with much more ahead of us.  Part of what lies ahead is how regulators respond.  Financial regulators, including the SEC, have been paying more-and-more attention to how fintech affects how parties transact, how capital flows, how advice is given, how trading occurs, how markets are interconnected, and how personal information is vulnerable.  While regulators welcome innovation and the choice, competition, and cost-savings it spawns, they still have to ask a simple question:  Do we need to adapt our rules and regulations to account for the changes fintech is bringing about?  The SEC, for example, held a roundtable on this very question last year.  That was just the beginning of the SEC’s focus, not the end of it.  Fortunately, the predilection isn’t necessarily for more regulation.  In the minds of many, rules and regulations should be updated to facilitate innovation – 21st century regulation for 21st century technology.

In addition, regulators are themselves users of fintech.  Financial regulators will increasingly use technology – algorithms, machine learning, artificial intelligence – to detect misconduct and to develop their enforcement actions.   For those the regulators regulate, then, technology should become a more robust part of their compliance programs.  Traditional written policies and procedures soon will not be enough.  This is the fast-growing field of regtech.  I encourage companies to get on board by evaluating how they can take advantage of technology to bolster compliance.  

Troy A. Paredes is the founder of Paredes Strategies LLC and is a Senior Advisor at CamberView Partners, LLC.  From 2008-2013, Paredes was a Commissioner of the U.S. Securities and Exchange Commission, having been appointed by President George W. Bush.  Paredes advises companies on financial regulation, corporate governance, compliance, political risk, and government investigations.  Before becoming a Commissioner, Paredes was a professor of law at Washington University in St. Louis.  Currently, he is a Distinguished Scholar in Residence at NYU School of Law and a Lecturer on Law at Harvard Law School.  And he is the co-host of a fintech podcast called “Appetite for Disruption.”