Companies that want to go public during the first part of the year are hampered by a key roadblock: The month-long government shutdown has also shuttered the Securities and Exchange Commission (SEC), which usually works with companies for months before approving an IPO.
Now, some companies are considering a little-known rule that could allow them to forego the SEC altogether, according to a report in The Wall Street Journal. For example, biotech companies Gossamer Bio, Inc. and TCR2 Therapeutics, Inc. are exploring a workaround that involves altering the language in the IPO to make it effective after 20 days.
The move is legal, and the SEC told companies that it was an option after the shutdown. The potential move worries the Nasdaq Stock Market, the report said, as these types of deals could possibly be later challenged in court.
It works like this: A company files a registration statement that clearly illustrates business risks and also lists all the required financial info. Then, it can legally sell stocks to the public after 20 days.
Some companies need IPOs to get cash to keep going, so there’s urgency. Biotech companies need capital because drug trials can be expensive. There are about nine biotech companies currently in the process of going public, and some were in talks with the SEC before the shutdown.
There are other downsides to going public without the SEC. For one, companies would have to price their stock at least 20 days before trading. In a traditional IPO, the price is set the day before. The worry is that the price could get stale.
Most companies are looking at a mid-February deadline if they want to go public this year, and some very notable names are looking to do it this year, including ridesharing companies Uber and Lyft.