In an era when public market listings continue to decline, and private capital dominates growth financing, the mechanism by which companies go public deserves fresh scrutiny. University of Kansas Law Professor Alexander Platt has provided precisely that in his groundbreaking paper, “Rethinking the IPO Bureaucracy. “ In it, Platt offers a bold but surprisingly common-sense proposal to abolish the SEC’s pre-IPO comment letter process.
The Origins of a 90-Year Problem
What many might assume is a core statutory requirement of securities regulation turns out to be an administrative invention that has long outlived its purpose. As Professor Platt explained in a recent interview on ICAN’s Capital Ideas podcast, the SEC’s comment letter process wasn’t even part of the Securities Act of 1933. The Act simply required companies to file a registration statement, wait 20 days, and then proceed with their offering—unless the SEC took formal action to block it.
But when the Act took effect, and registration statements began flooding in, the first administrator, Baldwin Bane, faced a dilemma. Rather than bringing formal enforcement actions against deficient filings or letting them proceed, Bane created a third option: sending detailed letters flagging issues and suggesting amendments.
What began as a practical workaround has ballooned into a bureaucratic behemoth that adds an average of five months to the IPO timeline. Companies face not just one round of scrutiny, but typically 4-5 iterations of comments, responses, and amendments—all before institutional investors (the actual buyers of these offerings) even see the documents.
The Modern Impact: A Shrinking Public Market
The costs are substantial. Using newly obtained Freedom of Information Act data on confidential IPO filings, Platt estimates that approximately 40% of companies that begin the IPO process never complete it. Many turn instead to private placements, M&A exits, or simply remain private.
This helps explain the anemic state of today’s IPO market. In 2024, U.S. companies raised just $32 billion through traditional IPOs, well below the ten-year average of $49 billion. When you compare this to the explosive growth in private capital markets—venture capital firms invested approximately $200 billion across 15,000 deals in 2024—the mismatch becomes stark.
Even more concerning is the liquidity bottleneck this creates. Of approximately 1,260 venture capital exits in 2024, only 37 were traditional IPOs. This imbalance between private investment and public market exits threatens the entire innovation ecosystem while denying retail investors access to growth opportunities.
An Obsolete Process for a Different Era
What made sense in 1933 is wildly out of step with today’s markets. When the SEC first began reviewing registration statements:
Companies lacked expertise: Issuers had little guidance on compliance with the new securities laws, making SEC staff involvement necessary.
Enforcement was theoretical: With only a handful of lawsuits filed under Section 11 in the first three decades, front-end prevention was crucial.
Investors were vulnerable retail individuals: The SEC needed to protect ordinary citizens from potentially misleading disclosures.
IPOs were the only game in town: Companies had few alternatives for raising capital.
None of these conditions exist today. Modern IPO filers have access to mountains of precedent, guidance, and professional expertise. A robust securities class action system now imposes a serious deterrent threat, with 10-20% of IPO firms facing litigation. Today’s IPO investors are sophisticated institutions, not vulnerable individuals. And companies have numerous alternatives to traditional public offerings.
A Modest Proposal for Major Impact
Despite how radical it might initially sound, Platt’s proposal is remarkably modest in scope. He isn’t calling for changes to mandatory disclosure requirements or suggesting the SEC stop providing prospective guidance. He’s simply advocating for an end to the line-by-line, months-long review of every registration statement.
As Platt notes, this wouldn’t diminish investor protection. In fact, the greatest protection for investors doesn’t come from reading disclosures—it comes from liquidity and active trading, with numerous sophisticated market participants continuously evaluating companies and incorporating information into prices.
A Bipartisan Opportunity
Encouraging more companies to go public should be a bipartisan priority. Public markets provide transparency, liquidity, and opportunities for Americans to participate in economic growth through diversified portfolios. They also create more robust price discovery and corporate accountability than private markets.
By returning to the original statutory presumption—that registrations become effective after 20 days unless the SEC takes formal action—we could dramatically streamline the IPO process while maintaining investor protections.
As we consider various reforms to revitalize public markets, eliminating an obsolete bureaucratic process that adds significant cost with uncertain benefits should be at the top of the list.
After 90 years, it’s time to get the SEC off the IPO on-ramp and let companies drive.
Nick Morgan is President and Founder of ICAN, the Investor Choice Advocates Network, a nonprofit public interest litigation organization dedicated to serving as a legal advocate and voice for everyday investors and entrepreneurs. He was previously a partner in the Investigations and White Collar Defense Group at Paul Hastings law firm. Morgan previously served as Senior Trial Counsel in the SEC’s Division of Enforcement. Capital Ideas is a series created by Morgan and Dara Albright.