The Securities and Exchange Commission is considering a proposal that could fundamentally reshape how companies go public in the United States — and potentially revive an IPO market that has spent the better part of three years in a deep freeze. The idea, still in its early stages, would allow companies to conduct small “test-the-waters” offerings before committing to a full-scale initial public offering, according to a report from The Information. If enacted, it would mark one of the most significant changes to the public listing process in decades.
The concept isn’t entirely new. Since the JOBS Act of 2012, emerging growth companies — generally those with less than $1.07 billion in annual revenue — have been permitted to privately gauge institutional investor interest before filing their IPO paperwork publicly. What the SEC is now weighing would extend that privilege far more broadly, potentially to companies of all sizes, and would let them sell a limited number of shares to institutional investors as a kind of dress rehearsal before the main event.
Think of it as a soft launch for going public.
The implications are significant. For years, the traditional IPO process has been criticized as expensive, risky, and increasingly unattractive to the very companies investors most want access to. The number of publicly listed companies in the U.S. has been declining steadily since the late 1990s. In 1996, there were more than 8,000 listed companies on American exchanges. Today, that number hovers around 4,000. Companies are staying private longer, raising enormous sums in private markets where disclosure requirements are lighter and the scrutiny less intense. The SEC’s proposal appears designed to address this imbalance head-on.
SEC Chair Gary Gensler’s tenure, which ended in January 2025, was characterized by aggressive rulemaking and enforcement. His successor, acting chair Mark Uyeda and now confirmed chair Paul Atkins, has signaled a markedly different approach — one friendlier to capital formation and less focused on expanding regulatory reach. The test-the-waters expansion fits squarely within that shift. Atkins, a former SEC commissioner himself, has long argued that overly burdensome regulations have driven companies away from public markets. This proposal would be a tangible manifestation of that philosophy.
The mechanics matter here. Under the current system, an IPO is essentially an all-or-nothing bet. A company spends months preparing its S-1 registration statement, hires underwriters, conducts a roadshow, and then prices its shares — all before knowing with any certainty whether public investors will show up at the price it wants. If market conditions deteriorate during that window, or if investor appetite is lukewarm, the company faces an ugly choice: price below expectations or pull the deal entirely. Both outcomes are costly. Both are embarrassing. And both have become more common in recent years.
A test-the-waters mechanism for all companies would change that calculus. By allowing firms to sell a small tranche of shares to qualified institutional buyers before formally launching an IPO, the SEC would effectively let companies take the market’s temperature without the full commitment. If demand is strong, the company proceeds with confidence. If it’s weak, the company can quietly step back without the reputational damage of a pulled offering.
Wall Street’s investment banks have reason to pay close attention. The IPO advisory business has been battered. According to data tracked by Renaissance Capital, U.S. IPO proceeds in 2023 totaled roughly $22 billion — a fraction of the $142 billion raised in 2021’s frenzied market. While 2024 saw a modest recovery, the pipeline remains thin compared to historical norms. Banks like Goldman Sachs, Morgan Stanley, and JPMorgan Chase, which dominate the IPO underwriting league tables, have watched a lucrative revenue stream shrink. Anything that encourages more companies to test the public markets is good news for their equity capital markets divisions.
But there are skeptics.
Some securities lawyers and investor advocates worry that expanding test-the-waters provisions could create new opportunities for selective disclosure. Under the current framework, the information shared during these confidential conversations with institutional investors isn’t available to retail investors. If a company gauges demand privately and then proceeds to a public offering, individual investors are effectively buying shares without the same informational foundation that large institutions had weeks or months earlier. That asymmetry already exists under the JOBS Act framework, but broadening it to larger, more prominent companies would amplify the concern.
There’s also a question of whether this alone would be enough to meaningfully change behavior. Companies like Stripe, Databricks, and SpaceX have remained private not just because the IPO process is cumbersome, but because private capital is abundant, liquid secondary markets for private shares have matured, and the regulatory obligations of being public — quarterly reporting, Sarbanes-Oxley compliance, shareholder lawsuits — remain significant. A test-the-waters provision reduces one friction point. It doesn’t eliminate the others.
Still, the signal matters. The SEC under Atkins appears to be assembling a broader package of reforms aimed at making public markets more accessible. In addition to the test-the-waters expansion, the commission has been exploring changes to the accredited investor definition, revisiting certain disclosure requirements, and reconsidering some of the Gensler-era rules that industry groups had lobbied against. The test-the-waters idea is one piece of a larger mosaic.
The timing is also notable. The IPO market in the first half of 2025 has shown signs of life but remains well below the pace that bankers and venture capitalists had hoped for. Macroeconomic uncertainty, driven by tariff policy shifts and interest rate ambiguity, has kept many would-be issuers on the sideline. A regulatory tailwind — even a modest one — could provide the nudge that some companies need to move forward with their public listing plans.
Private equity firms are watching this closely too. Many PE-backed companies that were expected to IPO in 2022 or 2023 have been stuck in a holding pattern, unable to exit at valuations their sponsors find acceptable. A mechanism that reduces the risk of a botched IPO could accelerate the exit timeline for dozens of portfolio companies. That, in turn, would free up capital for new investments and help restart a virtuous cycle that has been stalled.
Venture capital stands to benefit as well. The so-called “IPO window” — the narrow periods when market conditions are favorable enough to support new listings — has become increasingly unpredictable. A test-the-waters regime would, in theory, widen that window by giving companies more control over their timing. Instead of racing to price an offering before sentiment shifts, a company could engage in an ongoing dialogue with institutional investors and launch its IPO when conditions are genuinely ripe.
There are international precedents worth examining. The London Stock Exchange and certain Asian markets have long permitted variations of pre-IPO investor engagement that go beyond what U.S. rules currently allow. The UK’s Financial Conduct Authority, for instance, permits “early look” meetings between issuers and potential investors well before a formal prospectus is published. Proponents of the SEC’s proposal argue that the U.S. is simply catching up to global best practices. Critics counter that the American system’s stricter disclosure regime is precisely what gives U.S. capital markets their credibility and depth.
The proposal also intersects with the ongoing debate about direct listings and SPACs, two alternative pathways to the public markets that gained prominence in recent years. Direct listings, pioneered by companies like Spotify and Slack, allow firms to list their shares without raising new capital or using traditional underwriters. SPACs — special purpose acquisition companies — exploded in popularity in 2020 and 2021 before collapsing under the weight of poor performance and regulatory scrutiny. Both alternatives emerged, at least in part, because the traditional IPO process was seen as broken. If the SEC can make conventional IPOs less risky and more flexible, it could reduce the appeal of these workarounds.
So where does this go from here? The SEC hasn’t yet issued a formal rule proposal, and the timeline remains uncertain. Any rulemaking would require a public comment period, and the commission would need to carefully calibrate the size and scope of permissible test-the-waters offerings to avoid creating a de facto unregistered securities market. The details — how many shares could be sold, to whom, under what disclosure conditions, and with what cooling-off period before a full IPO — will determine whether this becomes a meaningful reform or a marginal tweak.
One thing is clear. The status quo isn’t working. The U.S. public markets are losing ground to private alternatives, and the companies that do go public often face a process that feels designed for a different era. The SEC’s willingness to rethink the IPO framework is a welcome development for bankers, issuers, and investors alike. Whether the commission can translate that willingness into effective policy — without creating new risks or undermining investor protections — is the question that will define the next chapter of American capital markets reform.
And for the hundreds of private companies sitting on the IPO fence, quietly watching from their boardrooms in San Francisco, New York, and Austin, the answer can’t come soon enough.
WebProNews is an iEntry Publication