Everyone loves an IPO. Investors see the first issuing of public stock as a way to get in on the ground floor of the next Apple or Tesla. For tech startups, an IPO represents the ultimate validation of their vision — not to mention a prime opportunity to raise enough capital to turbocharge growth.
Considering Going Public? Here’s How to Prepare for an IPO
As it turns out, we love IPOs so much that the pandemic did not affect the number of companies going public. The reality is just the opposite: 2020 saw a multitude of high-profile tech businesses go public, including Unity Technologies, Palantir, and Snowflake. In fact, 494 IPOs collectively raised $174 billion last year, with both numbers representing new records.
Low-interest rates, idle capital, and ambitious private companies itching for investors should keep IPO activity brisk through 2021 and beyond.
Regardless, any tech company with its own ambition to reach public markets needs to get itself IPO-ready first. Here’s what you need to know:
Measuring IPO Readiness
Tech startups go to great lengths to prove they’re viable companies. Through multiple rounds of investment (pre-seed funding; seed rounds; and series A, B, and C), startups expose their inner workings for evaluation and analysis.
Investors want to know whether a company merits their support and to what extent. When someone hands over a check, it’s easy to interpret that as confirmation the company has its house in order.
However, just because a tech startup successfully courts investors doesn’t mean it’s ready for an IPO.
At a minimum, a tech company on the cusp of an IPO needs to be closing its books consistently and systematically month after month. There must be close alignment between executives and business objectives.
Similarly, the company also needs the wherewithal to pay for an avalanche of pre-IPO costs: audit fees and financial reporting documents on top of the costs associated with creating an investor relations department and accounting oversight committee.
At the same time, although knowing how to prepare for an IPO is the start, reaching that, “I’m prepared,” state is much harder.
Obstacles to the IPO
Without an IPO readiness road map, promising companies can miss important details that delay the IPO or cause a weak debut on public markets. Too many companies focus narrowly on accounting and finance, for instance. Important as those are, the entire company needs to be ready to go public, from the C-suite to the front lines.
Realistically, it takes one to two years between when a tech company decides to go public and when it reaches true IPO readiness. That window of preparation and readiness gives the entire operation time to learn how to behave like a public company.
Perhaps unsurprisingly, leaders at 98% of organizations that had recently completed the IPO process admitted they wished their assessment process and framework were more formal. It takes a dedicated IPO readiness road map and team to check off all the boxes, and thoroughness matters.
If every aspect of the company isn’t IPO ready — no aspect of the company is.
It’s all or nothing when it comes to your company actually being ready to be a public company.
Creating an IPO Readiness Road Map
Keep your IPO on track by starting the journey with a comprehensive plan built around these priorities:
1. Establishing a world-class close
Public companies are subject to strict financial reporting requirements, and meeting those requirements starts by conducting an efficient, accurate close. Plus, a quality closing process gives decision-makers access to quality financial insights faster.
These quality financial insights are invaluable for making smart choices about going public and leveraging an influx of capital.
While the speed of this close matters, so does control, accountability, and first-time accuracy.
As part of the IPO plan, work to systematize the close and eliminate bottlenecks and unnecessary complexities. Going public with a seamless closing process in place makes it vastly easier to hit the ground running.
2. Aligning planning, reporting, and analytics
Public or otherwise, successful companies run on data. The pre-IPO phase is a great time to begin collecting, integrating, and leveraging more data sources. Additional data improves the depth and breadth of the reporting process while enabling automation to replace basic manual processes.
To some degree, every IPO readiness plan should explore how the company uses data and what it could do better.
Much like a strong close process, this information will smooth out the road toward the IPO and everything after.
3. Preparing for public reporting
Public companies are accountable to shareholders first and foremost. With that obligation comes new demands for transparency, accuracy, speed, and consistency — along with tougher penalties when it comes to mistakes. The demands of public accounting require prior experience. If you don’t have prior experience that exists on the accounting team already — include a recruiting effort in your IPO readiness road map.
Similarly, good technology is also critical. Connecting accountants, data, and process controls requires the best of today’s workflow and collaboration technology.
As with the other entries on this list, getting started before the IPO also makes more sense (and returns more value) than waiting until after going public.
Moving Forward With Your IPO
Many tech startups with the potential to go public have enjoyed runaway success from the start. They haven’t had to plan very far forward because they’ve been propelled by their own potential and increasing infusions of investor cash.
If there was ever a time to plan, prepare, and proceed cautiously — it’s essential before the IPO. Make the most of this time instead of rushing to get through the process.
Image Credit: nataliya vaitkevich; pexels
Chen Amit
Co-founder and CEO of Tipalti
Chen Amit is the co-founder and CEO of Tipalti, a payment automation software that helps businesses manage their entire supplier payments operations.
