The recent furlough at the same time swung 90% of staff at the U.S. Securities and Exchange Commission (SEC) unavailable for duty. This unique predicament has raised alarm bells for corporations looking to chart a course through the initial public offering (IPO) gauntlet. During all this ambiguity, new ventures can still submit their IPO registration, presenting an extraordinary chance for them to capitalize on. This new reality may have a huge impact on the timing and approach of would-be public-market entrants. The implications are far-reaching and dangerous to ignore.
The SEC’s furlough stems from budgetary constraints that have hindered the agency’s operations. Now, most of these employees are home from work, and thus, there is a total cessation of the processing of IPO applications. Consequently, no applications are currently being processed. Startups still have the opportunity to file their paperwork during this window. The SEC staff are not themselves physically present to timely review or approve these applications. The system further lets submissions be filed without any upfront review.
Under existing SEC rules, any filings that startups make will automatically go effective after 20 days. This provision essentially allows these companies to move forward with their business operations without the burden of waiting for a formal approval from the SEC. This is why today, more than ever, startups are best positioned to capture market opportunities and garner investor interest quickly. They skip the typical slowdown of regulatory review, allowing them to gain a sizable competitive advantage.
This default effectiveness may appear to be a boon for the startups looking to disrupt the marketplace. While this is an important step forward, it creates new challenges for investor protection and market stability. Without SEC scrutiny, investors are at much higher risk. They risk losing the detailed answers and confidence often delivered through a more extensive, up-front review process.
Jim McCarthy, an industry veteran and co-founder of the nonprofit Startup Space, described the furlough as a short-term opportunity for the most promising startups. They argue that regulatory oversight is necessary to assure a fair and transparent market. The decision to file during this period requires careful consideration by companies, weighing the potential benefits against the risks involved.
