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Sunday, September 22, 2013

Strategies: With a Tweet, Twitter Starts a Debate

With a Tweet, Twitter Starts a Debate

“LISTEN, do you want to know a secret? Do you promise not to tell?”

The Beatles put those coy words on vinyl half a century ago. When the song “Do You Want to Know a Secret” went to the top of the charts, any intimate secrets it may have contained were shared with millions of people, but no one seemed to care. It was a charming love song.

Now Twitter is showing that an updated version of the old Beatles playbook can be an effective P.R. strategy, at least for a while. While the company has come under some criticism for being coy, it has managed to spread the news of its initial public offering of stock without revealing much about its plans or its finances. In the process, it has become the most prominent example of a company making use of bipartisan legislation enacted during the 2012 presidential campaign season with promises that it would spur job creation by small businesses.

“We’ve confidentially submitted an S-1 to the S.E.C. for a planned I.P.O.,” Twitter declared publicly on Sept. 12 in a not-so-secret message sent on its own network. And it added some boilerplate: “This Tweet does not constitute an offer of any securities for sale.”

The news of the paradoxically secret I.P.O. went viral.

The company has made no other public comments about the offering, although it has reportedly engaged Goldman Sachs to serve as an underwriter. Except for that one tweet, Twitter has taken advantage of the cone of silence offered by the “Jumpstart Our Business Start-ups Act,” commonly known as the JOBS Act, the 2012 law that also takes innovative approaches to small-business issues other than I.P.O.’s.

The law, for example, includes provisions intended to encourage the crowdfunding of small businesses. And starting this week, it is scheduled to allow hedge funds to advertise to the general public for the first time. But regulations for many of its provisions are not yet in place. The I.P.O.’s nondisclosure provision is the most widely used part of the law so far.

It became law on April 12, 2012, in the middle of a tight presidential campaign that often revolved around the state of the economy and a glaring shortage of jobs. President Obama signed the bill with the explicit promise that it would henceforth be easier for many companies to go public. “That’s a big deal because going public is a major step towards expanding and hiring more workers,” Mr. Obama said during a signing ceremony in the Rose Garden. The bill would be “a game changer,” he said.

“It’s a big deal for investors as well,” he added, “because public companies operate with greater oversight and greater transparency.”

In the initial stages of going public, though, many companies have been using the JOBS Act to limit transparency. That’s because the law allows what it terms emerging growth companies to file an I.P.O. without publicly disclosing details about the business. That’s the provision Twitter used. It defines emerging growth companies as those with annual revenue of less than $1 billion, which is a very broad interpretation.

As of April, on the law’s first anniversary, 63 percent of all companies filling I.P.O.’s during the new law’s life used the confidentiality provision, according to a survey by Ernst & Young. Nearly all companies that have had I.P.O.’s in the last 30 years would have been able to use the provision, had it been in place.

From 1980 to 2012, 94 percent of American companies that have gone public had revenue of under $1 billion when they filed for I.P.O.’s, according to data compiled by Jay Ritter, a University of Florida professor who is a leading expert on initial offerings. “Under that criterion, most I.P.O. companies would be classified as ‘emerging growth companies’ worthy of special help,” said Professor Ritter, who opposed the enactment of the JOBS Act.

THIS part of the legislation was intended to protect tender entrepreneurial firms from prying eyes that might deter them from going public and growing to maturity, said Kate Mitchell, a former chairwoman of the private I.P.O. Task Force, which played a role in the formulation of the legislation. She is also a former chairwoman of the National Venture Capital Association, which lobbied heavily for the measure. “For better and for worse, I helped draft that bill,” she said in an interview.

Under the nondisclosure provision, the financial secrets must eventually be revealed. Companies that offer shares to the public must make an open I.P.O. filing to the Securities and Exchange Commission â€" typically, 21 days before they begin a public-relations campaign to drum up support for their impending offering â€" that will be visible to all investors before they buy shares. Ms. Mitchell said the law was intended to help small, struggling companies expand and have an easier “on-ramp” to an offering.

A version of this article appears in print on September 22, 2013, on page BU1 of the New York edition with the headline: With a Tweet, Twitter Starts a Debate.