Testing the Waters and the Roadshow

Since December 3, 2019, SEC Rule 163B has let any issuer gauge interest in a registered offering through oral or written communications with qualified institutional buyers and institutional accredited investors, before or after filing, with no filing or legend requirement. Those communications are still offers, so Section 12(a)(2) and the anti-fraud rules apply, and reporting companies must consider Regulation FD. Emerging growth companies, now defined by a $1.235 billion revenue threshold, have had a similar right under Section 5(d) since the 2012 JOBS Act.

Where the test-the-waters right came from

The Jumpstart Our Business Startups (JOBS) Act of 2012 added Section 5(d) to the Securities Act, allowing an emerging growth company (EGC) and those acting on its behalf to communicate orally or in writing with qualified institutional buyers (QIBs) and institutional accredited investors (IAIs), before or after filing, to gauge interest in a contemplated offering ^[1][2]. Without such an exemption, pre-filing conversations with investors can run into Section 5(c), which prohibits written or oral offers before a registration statement is filed ^[1].

Rule 163B: the right extended to all issuers

On September 26, 2019, the SEC announced it had voted to adopt Rule 163B, extending the test-the-waters accommodation to all issuers ^[2]. The rule became effective December 3, 2019 ^[3]. It covers reporting and non-reporting issuers, EGCs and non-EGCs, well-known seasoned issuers, and registered investment companies and business development companies ^[1].

Under the rule, an issuer or anyone authorized to act on its behalf, including an underwriter, may engage in oral or written communications with potential investors that are, or are reasonably believed to be, QIBs or IAIs, to determine whether they might be interested in a contemplated registered offering, either before or after the registration statement is filed ^[1]. The rule does not prescribe specific steps for establishing that reasonable belief, an approach the SEC compared to Rule 506(b) and Rule 144A ^[1]. The rule is non-exclusive, so issuers may rely on other communications rules at the same time ^[1].

• Rule 163B communications are exempt from Section 5(c) (no offers before filing) and Section 5(b)(1) (written offers after filing limited to a statutory prospectus) ^[1].
• They need not be filed with the SEC, and the rule requires no legends or disclaimers ^[1].
• They are still "offers" under Section 2(a)(3), so Section 12(a)(2) liability applies before and after filing, and the anti-fraud provisions also apply ^[1].
• The SEC has said information in a Rule 163B communication must not conflict with material information in the related registration statement ^[3].

Why the EGC definition still matters

Rule 163B gave every issuer the core test-the-waters right, but EGC status still brings other accommodations. A company qualifies as an EGC if it had total annual gross revenues of less than $1.235 billion in its most recently completed fiscal year, and it generally keeps that status for five fiscal years after its IPO unless revenue reaches $1.235 billion, it issues more than $1 billion of non-convertible debt in three years, or it becomes a large accelerated filer ^[4]. EGCs may present two years of audited financial statements instead of three, provide scaled executive compensation disclosure, and skip the auditor attestation of internal control under Sarbanes-Oxley Section 404(b) ^[4].

The revenue figure is indexed by statute. The SEC must adjust it for inflation every five years using the CPI-U, and its September 2022 rule raised the threshold from $1.07 billion to $1.235 billion, effective September 20, 2022 ^[5]. The SEC's EGC page continues to show $1.235 billion as the threshold ^[4]. Because adjustments come on a five-year cycle, readers should check sec.gov for any newer figure.

The road show

Testing the waters typically happens early and quietly; the road show is the formal marketing campaign after the registration statement is public. If the issuer used confidential review, it must publicly file at least 15 days before the road show begins ^[6]. Under the SEC's 2005 Securities Offering Reform, a live, in-person road show to a live audience is not a written communication, and a webcast that originates live and in real time to a live audience is not a graphic communication ^[7].

Regulation FD, adopted in August 2000, requires an issuer that discloses material nonpublic information to securities market professionals or holders likely to trade on it to make that information public: simultaneously for intentional disclosures and promptly for non-intentional ones ^[8]. For a private company preparing an IPO, Regulation FD generally becomes a live constraint once it is a reporting company, which is why follow-on test-the-waters meetings get closer FD scrutiny than pre-IPO ones.

Putting it together

A typical sequence is to use Rule 163B or Section 5(d) meetings to refine positioning and gauge valuation with a limited set of institutions, submit a confidential draft, respond to SEC comments, publicly file, then launch the road show and bookbuild. The legal throughline is that every one of these conversations is an offer for liability purposes, even when Section 5 does not restrict it, so materials should be held to prospectus-level accuracy.

Key terms

Testing the waters

Communicating with potential investors to gauge interest in a contemplated registered offering before or after filing.

Rule 163B

SEC rule, effective December 3, 2019, letting any issuer test the waters with QIBs and IAIs without filing or legends.

Section 5(d)

Securities Act provision added by the 2012 JOBS Act that lets emerging growth companies test the waters with QIBs and IAIs.

Qualified institutional buyer (QIB)

A category of large institutional investor recognized under SEC rules, eligible for test-the-waters communications.

Institutional accredited investor (IAI)

An institution that meets accredited investor criteria and is eligible for test-the-waters communications.

Emerging growth company (EGC)

An issuer with under $1.235 billion in annual gross revenue that can use scaled disclosure and other accommodations for up to five years after its IPO.

Section 12(a)(2)

Securities Act liability provision for material misstatements or omissions in offers, which applies to test-the-waters communications.

Road show

Management's marketing presentations to investors during an offering; live, in-person presentations are not treated as written communications.

Check your understanding

Sources

1. [1]U.S. Securities and Exchange Commission, “Solicitations of Interest Prior to a Registered Public Offering,” December 3, 2019.
2. [2]U.S. Securities and Exchange Commission, “SEC Adopts New Rule to Allow All Issuers to "Test-the-Waters",” September 26, 2019.
3. [3]U.S. Securities and Exchange Commission, “Solicitations of Interest Prior to a Registered Public Offering (Release No. 33-10699),” September 25, 2019.
4. [4]U.S. Securities and Exchange Commission, “Emerging Growth Companies,” June 21, 2024.
5. [5]U.S. Securities and Exchange Commission, “Inflation Adjustments under Titles I and III of the JOBS Act (Release Nos. 33-11098; 34-95715),” September 9, 2022.
6. [6]U.S. Securities and Exchange Commission, Division of Corporation Finance, “Enhanced Accommodations for Issuers Submitting Draft Registration Statements,” March 3, 2025.
7. [7]U.S. Securities and Exchange Commission, “Securities Offering Reform (Release No. 33-8591),” July 19, 2005.
8. [8]U.S. Securities and Exchange Commission, “Selective Disclosure and Insider Trading (Release Nos. 33-7881, 34-43154),” August 15, 2000.

Educational content only — not legal, tax, or investment advice, or an offer to sell or a solicitation of an offer to buy any security. Rules and data are described as of November 2026 and may change. Securities offered through Umergence LLC, Member FINRA/SIPC.