FORTUNE — After Twitter disclosed last week that it had confidentially filed IPO registration documents with the SEC, the company suddenly morphed from media darling to a secretive corporation that wanted to sidestep fundamental investor protections. In fact, Dick Costolo might have gotten less guff if he’d publicly paraded around Robin Thicke with a foam finger.
But most of the criticism has been sanctimonious sophistry, focused entirely on the wrong thing. Twitter’s decision to file “secretly” is irrelevant. What really matters is what information it chooses to include upon leaving the confidential womb.
For the uninitiated, Twitter is taking advantage of the Jumpstart Our Business Startups Act (JOBS Act), federal legislation passed last year on a bi-partisan basis and signed into law by a supportive President Obama. One of the bill’s provisions allows “emerging growth companies” with less than $1 billion in annual revenue to begin talking to the SEC about their IPOs outside of the public spotlight. The idea is to encourage private companies to begin the going-public process, without fears of:
- 1.Damaging criticism if the actual offering doesn’t occur for a long time after registration, if at all (i.e. “Something must be wrong with them.”).
- 2. Damaging criticism if the SEC requires substantial revisions to the registration document (i.e. “They don’t know what they’re doing.”).
It’s this second issue the critics have hammered Twitter over, suggesting that it is trying to pull the wool over prospective investor eyes. But here’s the thing:When confidential filers do publicly file their S-1 documents, they also must file all past “confidential” registration documents. In other words, Twitter will not be keeping anything secret by the time that investors need to make their decisions.
For example, take a look at the recent filing history of Violin Memory, which also took advantage of the JOBS Act before filing of public IPO registration on August 26:
The bottom filing there is Violin’s original “secret” registration, from last November. Above it are five revisions (plus an unrelated filing) before the eventual S-1. We’ll ultimately see something similar from Twitter.
To be sure, confidential filers are not required to red-line subsequent registration documents to show investors what has changed, or to explain what changes were prompted by SEC comment. But there also are no such requirements for companies that file for IPOs without JOBS Act protections, and many sophisticated investors have software that can identify changes from one document to the next.
So Twitter isn’t hiding how the sausage is made. It’s simply choosing to show everyone the process and the finished product simultaneously.
And that leads us to the other big complaint: Twitter isn’t giving people enough time to examine its IPO registration.
The JOBS Act requires that companies begin their investor “road-shows” no sooner than three weeks after filing their public registrations, and Twitter is expected to follow that timeline. The road-show will probably take a few days to one week, meaning that its financials will be generally available for just under one month before pricing its IPO.
Yes, this is less time than a “traditional” issuer gives investors, because it must go through the SEC comment period in public. And I’ll certainly stipulate the obvious: More time to review allows for more time to review.
But does that mean that Twitter should have public docs on file for one full month before pricing? Two months? Three years?
I don’t believe that there is necessarily an optimal time period, which means we should be satisfied with an adequate time period. And three weeks fits that bill. Seriously, if you can’t fully digest an IPO registration document in three weeks, then an extra couple of days isn’t going to help you.
So Twitter isn’t filing secretly. And it isn’t trying to con investors by rushing to the trading floor.
But there is one other aspect to the confidential filing that too few folks are paying attention to: Twitter can skimp on the amount of past financial data it discloses.
For example, the JOBS Act allows “emerging growth companies” to disclose only two years of audited financial statements, whereas other issuers must disclose three. There also is an elongated compliance window for certain aspects of Sarbanes-Oxley, and less disclosure of executive compensation details.
Some confidential filers have eschewed these disclosure detours. For example, here is what Workday (WDAY) wrote in its public registration filing:
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”
I have previously expressed opposition to these anti-disclosure provisions of the JOBS Act, and am hoping that Twitter follows Workday’s lead. And I would expect that it will, given that such protections are revoked once a company has at least $700 million worth of shares publicly floated (a threshold Twitter is likely to breach the moment it prices its IPO). But, if I’m wrong, then criticism would certainly be warranted.
But, for now, let’s all take a deep breath and calm down a bit. Yes, Twitter is higher-profile than the more than 250 other companies that have filed confidential IPO registrations. And it’s probably not exactly the type of company Congress had in mind when defining “emerging growth businesses.”
But the only salient question here is if Twitter’s actions will harm prospective investors. And so far there is no reason to believe they will.
Sign up for Dan’s daily email newsletter on deals and deal-makers: GetTermSheet.com