Companies enter the IPO market for a myriad of obvious reasons – as an entrée to capital markets, for higher status and visibility, or to attract talented employees.
If you’re salivating over the prospect of an initial public offering, an IPO program requires analyzing your needs and prospects, and taking the proper steps with substantial lead time.
In a lot of ways, credibility is king.
Here are five steps:
1. Evaluate your situation
You have to view every detail as though it would appear in a business headline.
What do your details look like and how will they be perceived by investment bankers, investors and regulators?
Therefore, you must thoroughly review all your agreements, documents and processes.
Look for details that will have to be corrected, explained or renegotiated – from illogical stock-option pricing to tax issues.
A certain amount of burnishing will be required. Every company has closet skeletons that must scrubbed and polished like old office floors.
In your approach, it’s almost as though you can’t be thorough enough.
2. Assemble your players
Internally, evaluate your current employees. Make certain they have the abilities to perform as you prepare to make the major jump from a privately owned business to a public company.
In other words, look at the big picture – your involvement with investors and regulators will be a much bigger ball game for you.
Sadly, you’ll probably find some loyal employees who can’t make the grade for your company’s next level.
Your accounting and finance staff must be authoritative and credible. Your executives must have deep wisdom and talent.
Externally, your advisors must have public company experience – attorneys, auditors, investment bankers, and valuation professionals should prepare you for IPO, obviously, but also for what comes afterward as well.
3. Learn governance requirements
To go public, you must change your organizational structure. You won’t make it if your board of directors is comprised only of investors and company executives.
You’ll need to take months and months of hard work to recruit the right people as independent directors to satisfy the requirements of a stock exchange.
In a lot of ways, credibility is king
There will be unexpected and undesirable changes. It’s commonplace for a company to have to replace recruited directors en route to an IPO.
One of the biggest needs will be for an audit committee comprised of credentialed, financially savvy members.
All board and committee proceedings will be formal and heavily structured.
4. Build Sophisticated financial systems, processes and controls
Your old accounting and finance functions will greatly accelerate. You must meet new standards of reporting. Your financials will be published quarterly.
Your internal controls in financial reporting will have to be assessed for effectiveness. You’ll encounter stakeholders who will be relentless and unforgiving in eyeballing your financial data – from budgets to forecasts.
You’ll be expected to set and meet expectations in revenue and earnings.
Expect to build systems and processes that will meet all requirements for efficiency, risk management and scalability.
5. Determine the best approach for telling your investment story
Know your core audience. Your IPO will be considered by a sophisticated audience – analysts, customers, employees, brokers, investors, and vendors.
You must develop strong positioning and messaging – key statements about your company, your management team, and prospects for success.
Design your communication tactics. Prepare to maximize every opportunity in your IPO program.
Develop a reputation for candor and transparency. You’ll be aware of some issues, but others will rear their ugly heads during your IPO process. Deal with them effectively and quickly.
As a CEO, you must be ready to tell a compelling story. You must understand it’s not all about numbers. The numbers need a presentation that propels your success. Interview and presentation training is strongly advised.
From the Coach’s Corner, here are other funding considerations:
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Investor Risk: Almost 60% of IPOS Fail to Use GAAP — GAAP – an acronym for generally accepted accounting principles – is vital in financial reporting. But nearly 60 percent of companies fail to provide financials fully based on GAAP, according to a study by PwC US. Entitled, How non-GAAP Measures Can Impact Your IPO, the report analyzes 400 initial public offerings (IPOs) from 2011 to 2013.
Trends in Attracting Start up Tech Capital, Exit Strategies — Good news if you’re concerned about obtaining capital for your startup, as long as you’re in mobile or other technology. Money is available.
Will SEC’s Crowdfunding Rules Jump Start Economy? — Need capital for a startup? Just about anybody can invest in startups now that the Security and Exchange Commission (SEC) has approved equity crowdfunding.
How to Attract an Angel Investor — Now that a UNH study indicates early stage financing by angel investors is more advantageous than venture capital money, what now? An angel investor offers seven tips.
“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.”