Many private companies consider an initial public offering (IPO) as a viable option to grow their business. But this process is complex and carries significant risk and requires meticulous planning and strategic planning to ensure long-term success.
The first step in planning an IPO is to formulate and present your equity story that explains to investors your plan for value creation and helps differentiate your company from competitors. This is crucial for establishing an attractive valuation and getting the attention of investment bankers, underwriters and analysts.
The next step is evaluating the management team and leadership. An IPO is a risky venture therefore you need to ensure that your management team can handle it. For instance, an IPO can bring on additional financial reporting requirements and tax implications. This could require the addition of an expert in tax or finance to the executive team. You’ll also have to decide whether you want to use dual class stock, which gives founders and other executives different voting rights.
A strong track 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 updated before the IPO. It’s also important to check your current records system such as minutes, capitalization files, material agreements and the old option grants. This is vital to meet SEC and bank underwriter requirements. It’s crucial to determine whether there are any « material weaknesses » in the controls of your company so you can fix these prior to going public.
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