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IPO prep - just starting on that road...

My company just cleared the $30M revenue mark and have visibility to significant growth (continued doubling plus of revenue for the past few years). We can see ourselves hitting $50M before the year is out and being in a good position, knock on wood, to have a successful IPO in mid-2014. I am the CFO and have done countless fundraisings (debt and equity) for my companies over the years, but never an IPO. I'd like to do it right the first time. Any suggestions on what my top priorities should be for IPO prep would be welcome. e.g.: who should I have on my internal F&A team, what advisors should I pull in externally, how soon should I pull bankers, our accounting firm and our law firm into the process, etc.? Also, what are the absolute most important: a)things I should do, and b)things I should avoid doing?

Thanks all.


Topic Expert
Mark Richards
Title: VP of Finance & Operations
Company: RBA Consulting
(VP of Finance & Operations, RBA Consulting) |

This is a pretty broad topic, so I'll start with advice I heard a CFO who has gone through an IPO: "Make sure it's what you really want to do". Besides the work to go public, it is the life after going public that dramatically changes the life of the management team and for smaller firms it can be tough to hold the market interest post launch.

There are some great IPO checklists available. Here are a few areas I've seen companies have struggles.

As for who to call first, it will likely be your lawyer and public accountant, as you need to make sure your house is completely in order before sitting down with an investment banker.

If an IPO is just one route, then make sure you try to prepare for all options (sale, jv, etc.), much of the work is similar.

1. Data Organization

There is an immense amount of data that needs to be completed and organized, so having this in place from the start will help.

2. Fundraising documentation and accounting

With your lawyers, make sure all of the methods used to raise capital need to be fully documented complete with required signatures (options, grants, stock, etc.), board minutes, certificates, registers, etc.

The proper accounting of equity and debt is critical and complicated for public firms and no less so for a firm going public. The best way to do justice to this topic is to talk with an accountant who has taken a firm through a public offering.

3. Governance documentation

All of the documentation of board meetings, board committees, legal, tax, etc. needs to be complete.

4. Audited financials statements

Besides the accounting mentioned above, you will need to ensure your financials can stand more scrutiny that any of else could imagine is possible. There are dozens of stories of IPOs being delayed due to accounting practices that fall short.

5. Read the filing of companies going public

This will give you a good feel for the type of information required and who you will need to work with as you manage the IPO.

Hope this helps.


Topic Expert
Brenda Morris
Title: Board of Directors, Audit Committee Chai..
Company: Boot Barn
(Board of Directors, Audit Committee Chair, Boot Barn) |

This is a BIG question since the preparation for an IPO is intense and time consuming. You are right to question the right timing on choosing your advisors and partners, as too early of an initiative can waste a lot of time for you and your team. My best experience is starting to form the team formally about 2 years out. At that stage you can get a lot of "free" help in preparing your timeline and getting assistance on things you need to think about, such as underwriter advice and market information, IR, financial reporting needs & requirements, diligence items you can start to gather (contracts, org charts, minutes, legal docs, etc). Most advisors are anxious to be on your good side as a precursor to the actual transaction so are usually very helpful if you ask. It also allows you to test them in advance of the big day. I have found getting to know research analysts in your industry while you are still privately held can assist in building alliances and get you access to tons of benchmarking data to help guide your business and to use to help decide if you are truly ready to play in the public markets without getting beat up.

Following is my list of the 5 most important things to consider - which are a combination of do's and don'ts:
1. Make sure you are truly ready - can you execute an IPO flawlessly, continue to run the business and build for future performance that the street will find acceptable. This must include great systems, people and processes in order to execute.
2. Be sure your legal and financial house is in order - can you produce all the financial information that will be needed for the initial filing and for each quarter thereafter within the time frame required?
3. Do you have any sticky situations that will become public once you file? Related party transactions? Unusual compensation plans - all this is open to the public eye once you file - is everyone prepared?
4. Can you forecast and budget very accurately. This needs to be a strong skill, so if you don't have it in house I would source this resource. You can't live without a great FP & A person as a public company.
5. Be prepared for the time that it will take, the reporting, the IR, the road show, the marketing after the IPO and forever after, the calls from investors and analysts. It becomes a fine balance to run the business and manage the public company requirements. Be sure you have great systems to support this and do as much in advance to prepare.

All that being said - it is a thrill to do an IPO or public offering. I would do it again in a heartbeat and have now done six public offerings in my career, but you have to be a little crazy to love it. If you are you will have fun. Find the right partners, be picky about selecting them, be sure your team is ready, your system infrastructure is set and then make sure only a few of you are distracted by the process so the business keeps humming along at the great pace you seem to be! Hope that helps, Brenda

Allen Hobbs
Title: Controller, Sr. Consultant
Company: dba Canaan Consulting
(Controller, Sr. Consultant, dba Canaan Consulting) |

My limited experinece in this was private-to-public transition via reverse merger. The advice about "make sure this is what you really want to do" is emphatically endorsed.

Topic Expert
Peter Freeman
Title: Chairperson - Clean Tech Committee
Company: Keiretsu Forum - Angel Investors
(Chairperson - Clean Tech Committee, Keiretsu Forum - Angel Investors) |

I would suggest you think very carefully before proceeding, the advice to make sure it's what you want is very sound, in my view.

IPO's are not for everyone, and others make good comments about the challenges. I completed one last year, via a reverse merger, and with hindsight conclude that it was a great example of what NOT to do. Yes, the company got some liquidity for the stockholders, but the expense and administrative effort was substantial. The revenue figures you mention, $50mm, are good, but a public company will be looking to add about $1mm, and possibly more per year to its overhead. How does that affect your bottom line?

And there are other alternatives, including the secondary markets for securities such as XPert Financial and Second Market. The latter is well know for their market making for Facebook before its IPO.

Mitchell Cohen
Title: Advisor and Consultant
Company: Various
(Advisor and Consultant, Various) |


Please google the problems sharespost and others are having now due to dealing with the sale of private shares (especially facebook). I believe it will only get worse.

(Director) |

The good thing for you (and sometimes bad thing) is that in your current state a lot of consultants and advisors are willing to give you free advice with the potential upside to be a part of the IPO once you start heading down that road.

Talk to as many folks as possible who have been through the process. Remember the old adage, 'Be careful what you wish for' when deciding to ultimately file your S-1.

Many firm have an offering for IPO-Readiness which starts with an assessment of your business functions. This is often a good way to see where you are and the viability to take the company to the next level.

david ramsdell
Title: President
Company: Granite Operations LLC
(President, Granite Operations LLC) |

Having been down this path a few times, some quick thoughts:
1. I assume you have the ability to produce timely, accurate and meaningful financial statements and projections. If not, you are not ready. Add S/Ox compliance in this mix - best not to defer compliance requirements if possible.
2. Be sure you have a controller that a) is excellent and b) you work really well with. You and he/she will be joined at the hip.
3. The note about looking at similar companies that have already been there is a good done. In their filings you will see the issues they have dealt with. Even better, try to get on some of their quarterly calls just to hear the questions that get asked and how they answer them.
4. You will have an investor communications role that you may not have had in the past. Learn everything you can about IR. Retain a good IR firm to support you. And become practiced at public speaking in this environment. This applies to your CEO as well.
5. Make sure the rest of the management team is up to speed on the rules and regs about what you can and cannot do and say as you go the IPO path. Effective control of information dissemination will go a long way to keeping you out of trouble. Your attorneys and IR folks can help you here.
6. Finally, once you have signed an investment banker, they will drive the process. You will live by their rules. Expect that they will want information turned around yesterday. It is much like the due diligence process you go through when selling a company which, in a way, you are.

There is a lot more on the technical preparation side, much of which has already been alluded to. Hope this is helpful. Dave Ramsdell, Granite Operations LLC

Achaessa James
Title: Product Manager
Company: National Center for Employee Ownership
(Product Manager, National Center for Employee Ownership) |

Ditto on the "make sure this is right for you" decision. Once you've made that decision, one of the first longer-term projects to tackle will be getting all of your equity compensation plans and awards audited and reconciled. It's a good idea to have an outside consultant do this to get a new set of eyes on the data. The person doing the audit and reconciliation should be a CEP (Certified Equity Professional through the CEP Institute).

Your 409A valuations should also be kept current and I have also known pre-IPO companies to stop issuing new equity compensation awards as early as 2 years pre-IPO to avoid the "cheap stock" question.

Once you've got your plans and awards reconciled, you'll need to secure a transfer agent and ensure that your current equity compensation administration platform is broker-enabled, or find a new platform that is and get your data transferred over. If you have an in-house plan administrator, make sure that he or she is or becomes a CEP because there will be significant changes to SEC reporting requirements once the company goes public and your equity comp administrator will be key to keeping the company compliant. If you outsource your equity compensation administration make sure that your service provider has CEPs on staff that can guide you through the IPO process.

(Advisor and Consultant) |

I have been through the IPO process and have completed 2 reverse mergers.

Here are my thoughts:

1. Make sure there is an investment bank that will get behind your company.
2. Are your auditors members of the PCAOB?
3. Do you have 2 years audited financials?
4. Is your company fully staffed to be public??!!
5. Are your lawyers on board and qualified?

As for some of the comments about are you sure you are ready, I would surmise that the decision has been already made or is out of your hands.

That's a start...

Mitchell Cohen
Title: Advisor and Consultant
Company: Various
(Advisor and Consultant, Various) |

I should also add that you need a real Board of Directors, a comp committee, and an audit committee with a financially literate chairman-(financially literate as defined by the exchange you are seeking your listing).

J.G. Collins
Title: Managing Director
Company: The Stuyvesant Square Consultancy
(Managing Director, The Stuyvesant Square Consultancy) |

I would reiterate most of what is said here, particularly by Mark Richards, but I would take things a few steps further.

1. Check the bios and experience of the partner handling your account at your CPA firm and those of his colleagues. Small and mid-size firms often don't have the expertise you require, and you will be paying a lot in fees for them to "learn while they earn". Their backgrounds should be available on their website and if they've done IPO's, they'll usually say so. Don't let on that you're looking at your own IPO because, if they sense you're shopping and not likely to be a continuing client, your level of client service will slip-- not something you want when you're readying an IPO. (Ultimately, you may need to have the firm readying the IPO materials work under the radar from your existing firm for at least a brief period, if you ultimately have to switch firms.)

2. Do the same with your attorneys.

3. If you find the expertise of your current advisors is not up to snuff, ask your contacts at similarly sized companies that have recently done IPOs in the last 3 to 5 years for referrals. They can also give you an idea of how your fees will be both for the IPO and for ongoing reporting after the IPO.

4. Depending on your business and its breadth (regional, national, international), you should probably start talking to the investment bankers sooner rather than later. You're likely to get lost/ignored in a multinational firm, so consider staking out a smaller regional or national firm. Also, there are LOTS of investment bankers looking for work. You can likely cut your fees and ease the process considerably by hiring one on as a consultant to guide you through the process. They can also generate a lot of the modeling that will be required that will assist you when you sit with the bankers. I'd bring someone on now on a consulting basis. He might suggest other alternatives, too, that you might not have considered (e.g., a sale to private equity; a merger; a sale to another company or even a sale of a minority stake.)

5. If you have a family, take that long-deferred vacation now, while you can. Your going to be a stranger to them for the next several months, once the process starts.

Good luck!

Hunter Garcia
Title: CFO
Company: Adams accounting firm
(CFO, Adams accounting firm) |

IPO prep ,a long way need to go.
You need to realize the handicap of the externalities, pay attention to the industry you’re in, whether it’s booming or not, if it’s highly-concentrated, and overlook the current capital market situation.

Examine the inner elements, fully understand your own development strategy, complete the preparation of the stock rights structure, and prepare your patents before coming into the market.

I think the necessary qualities of the CFO should include familiarizing yourself with finance and international capital market operation rules,communicating with the investors on befalf of the company in the capital market and helping to develop strategy, etc.

Barron HUghes
Title: CFO
Company: Snaps, Inc
(CFO, Snaps, Inc) |

Having done an IPO, I think the most

1. Get internal house in order with your team and external auditors. Make sure you have several years of audited financials.
2. Be prepared for lots of public speaking and presenting your financials as well as the organization during the road show.
3. Make sure your attorneys and auditors are selected well in advance of exploring your IPO.
4. Make sure the Management team and Board are clean as a whistle.
5. Have fun and enjoy the ride!

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