Exits & Liquidity
Deficiency Letter
SEC correspondence identifying issues in a company's regulatory filing that must be addressed before approval.
A deficiency letter is a formal communication from the SEC identifying problems, omissions, or needed clarifications in a regulatory filing such as an S-1 registration statement for IPO. Companies must address all deficiency letter items before the SEC will declare their filing effective. Multiple rounds of deficiency letters can significantly delay an IPO timeline.
In Practice
Three weeks after filing its S-1, a company receives a deficiency letter with 45 comments requesting additional risk disclosures, clarification on revenue recognition policies, and more detail on related-party transactions.
Why It Matters
Deficiency letters are a normal part of the IPO process but their volume and severity can signal regulatory concerns. Experienced counsel helps anticipate and minimize deficiency issues.
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