Many private companies think of an initial public offering (IPO) as a strategic option for boosting their business. But this process is complex and carries significant risk and requires detailed planning and strategic foresight to ensure long-term success.
To prepare for an IPO, the first step is to develop and write down your equity narrative. This will inform investors how you plan to generate value and how your company stands out in the market. This is important for establishing an attractive valuation and attracting the attention of investment bankers, underwriters and analysts.
Next, you need to assess your leadership team and management. You need to ensure that your management team is capable of managing an IPO that is a high risk venture. For instance an IPO could bring additional financial reporting requirements as well as tax implications, which may require the addition of a tax or finance specialist to the executive team. It is also necessary to decide if you want to have dual class stock, which gives founders and other senior managers distinct voting rights.
Having a strong record of financial control and accountability is essential for an IPO. This means having a clearly defined SOX program, which must be in place and revised before the IPO. It is also crucial to examine your current system of records. This includes minutes, capitalizations files material agreements, historical option grants. This is vital for ensuring that you meet SEC requirements and bank underwriters. It is essential to determine if there are any potential “material weaknesses” in the company’s control systems to fix them prior to going public.
