Twitter failure to answer key IPO questions blamed on Jobs Act

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.

Reduced pressure
The move has been greeted by many startups 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 $1 billion 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.

So who will get rich from Twitter’s IPO? The short answer is: it’s not clear. Twitter has raised $1.2 billion in venture funding, from nearly two dozen investors, according to the website CrunchBase.

The biggest winners are likely to be those who invested back in 2007, including Facebook backer Marc Andreessen and New York-based Union Square Ventures. Jeff Bezos, whose Bezos Expeditions fund joined a year later, is another who will soon likely be sitting on a large paper gain.

Secondary market
Relative latecomers include Prince Alwaleed bin Talal, the News Corp shareholder who bought a $300 million stake on the secondary market in 2011.

Twitter was valued at about $8 billion when the prince invested, so he would only see a modest paper return if the site floated at a valuation of $10 billion, the bottom of the forecasted valuations to date.

Earlier this year, asset manager BlackRock offered to buy secondary-market shares worth $80 million from Twitter employees, at a valuation of more than $9 billion.

BlackRock also previously bought stock at slightly higher valuations of $10 billion-$11 billion. So if Twitter floated at a valuation of $10 billion – as some have suggested – some of BlackRock’s positions would initially be underwater.

The position of Twitter's founders, Jack Stone (now executive chairman), Biz Stone and Evan Williams (who both left in 2011), is unclear.

They have not said publicly what stakes they own in the company they founded nearly a decade ago, and even Forbes, the publication dedicated to tracking the super-wealthy, has almost given up trying to guess.

Forbes says simply that "most of [Dorsey's] fortune is derived from his roughly 25% stake in Square", the mobile payments venture that was valued at $3.25 billion in 2011.

For all the excitement about the flotation, Mr Dorsey and other Twitter shareholders may make more money after the IPO than before it.

If, however, Twitter’s shares perform as haphazardly as Facebook’s, its backers’ paper valuations may soon go up in flames. – (Copyright The Financial Times Limited 2013)