7 Critical Areas for IPO Success

In one of our most watched on-demand webinars, Getting IPO Ready: Preparing Your Strategy and Equity Plan, experts discuss what it takes to gear up for your IPO and outline essential success factors across the finance organization. Preparing for an IPO takes resources, expertise, and coordination across departments, and the best time to begin the preparation process is now! Below you will find seven key areas affected by an IPO as presented by Nicole Irvin, Vice President, Morgan Stanley Investment Banking Division.  Irvin provides detailed information about who from your organization should be involved, what key things you need to be thinking about, and what can you do now – even if you are well in advance of an IPO – to start to prepare.

  • Accounting – This is an area which most often delays the IPO process.
    • Key Players: Auditors, company management in the finance organization
    • Top Concerns: Development of internal controls; delays with end of period adjustments; revenue recognition and stock based compensation (with regard to SEC requirements)
    • Action Items: Complete historical audits; perform a routine quarterly close; invest in Enterprise IT systems and controls – critical for reporting and getting through the audit – you want something in place that will be able to handle the next 3-5 years comfortably

  • Modeling Metrics and Guidance – The ability to articulate to investors your forward model and where it’s headed. This affects predictability and what level of growth investors will believe your company can achieve.
    • Key Players: Company management, CFO / finance organization, lead book runner
    • Top Concerns: Balance transparency to investors with the desire to manage investors for the long term; setting precedents for proving predictability and revenue growth
    • Action Items: Determine key metrics to evaluate and explore how they have proven in the past; look at business holistically and identify appropriate metrics; take steps to be providing analytical evidence during IPO marketing (if required); perform quarterly dry-runs of disclosing and validating metrics and guidance (mock quarterly earnings).

  • Equity Incentive Programs – Perform a valuation of options (409A valuation).
    • Key Players: Company management, valuation specialist.
    • Top Concerns: Be aware of pricing compared to your valuation and what you have offered employees in the past as a stock valuation as this can result in a potential accounting charge. There are times when companies have to report a cheap stock charge when the differential is great.
    • Action Items: Document your most recent equity grant along with evidence supporting fair value, gather and assemble all grant agreements, and obtain periodic 409A valuations.

  • Legal
    • Key Players: Internal counsel, external counsel
    • Top Concerns: Any outstanding lawsuits or IP patent infringement claims
    • Action Items: Make sure you have a solid process for filing patents and patent applications, and use external counsel to perform IP/Patent investigations to identify areas of potential concern.

  • Corporate Governance
    • Key Players: Board of Directors
    • Top Concerns: Be sure to develop audit committees and name a chair – remember, exchanges require independent director.
    • Action Items: Identify candidates for your board. Professionalize your board; an effective board will help to keep you accountable for quarterly updates and metrics.

  • Research Analyst Education – Do your best to send third party research out into the market.
    • Key Players: Company management, underwriters
    • Top Concerns: Clearly explain your business model and key drivers by providing sufficient metrics and guidance for reasonable forecasts.
    • Action Items: Start establishing relationships with key Wall Street analysts and provide updates and access to the management team; identify and begin internal reporting of key metrics – have these conversations early.

  • Prospectus Drafting – Don’t be afraid to start this process up to a year before the IPO.
    • Key Players: Company management, book runner, external counsel, accountants
    • Top Concerns: Business section revisions; auditor readiness (if outstanding audits need to be done or you don’t have efficient processes in place this can cause delays); identifying 3rd party key market information.
    • Action Items: Depending on where you are in the IPO process, start to work on your prospectus as early as a year out or sometimes even more. Also, it helps to put out key company storylines for marketing purposes.

These seven areas are a good place to start when gearing up for your company’s IPO. Gather the key stakeholders for each piece and draft up a plan starting with a few of the key action items.  Be sure to discuss the top concerns and identify opportunities to reduce risk. For even more information about preparing for an IPO, be sure to watch the on-demand webinar, Getting IPO Ready.