Preparing your company for an IPO (initial public offering) can be as strenuous, costly and time- consuming as founding the company.
You’ll need to allocate about 12 to 18 months for this process to allow enough time for due diligence, cross-team collaboration and completing all the necessary documentation.
Why you need to prepare your IPO in advance and thoroughly
You need to prepare for life as a public company months before your public listing with the right resources, technology stack, processes and financial reporting capabilities to ensure regulatory compliance.
The earlier you prepare for your IPO launch, the easier it will be to take advantage of favourable market conditions. Being thoroughly prepared reduces the risk of errors, which could delay your IPO launch, and puts you in a better position to move quickly when the time is right.
Furthermore, being prepared could allow you to launch your IPO before a new competitor gets to market, which could help you achieve a higher valuation. For example, if two new vaccine candidates were to launch and open shares to the market simultaneously, there may not be enough investor appetite for a third candidate right after.
How software can help you with the IPO process
To get ready for life as a public company, you'll need to stress-test your internal financial reporting infrastructure, which will help you comply with SOX (Sarbanes-Oxley) financial reporting requirements if your company trades in the U.S. Also, the UK is expected to introduce compliance requirements like SOX soon. With the right filing software, meeting these requirements in advance and completing your IPO is much easier.
A virtual data room, or VDR, can also help you complete your IPO process faster by facilitating collaboration, accelerating due diligence and helping you prepare to become a listed company.
What is a virtual data room?
Sometimes referred to as a deal room, a virtual data room (VDR) is a secure online data storage facility commonly used by companies preparing for IPOs. VDRs are also widely used for other important transactions, such as mergers & acquisitions, fundraising, SPACs (Special Purchase Acquisition Companies), reverse mergers and other projects that require two or more entities to share data securely.
Put simply, virtual data rooms are secure online environments that store confidential information necessary to complete large and complex financial transactions.
How a data room can help you prepare for your IPO launch
Luke Marshall, Life Science Sales Director at DFIN's EMEA division, says virtual data rooms help companies and their working groups perform due diligence to ensure they comply with IPO registration and disclosure guidelines. VDRs allow companies to uncover important insights and gain a deeper understanding of what could have a positive or negative impact on the success of the IPO, preparing them for their IPO launch and life as a public company.
VDRs also help underwriters and other stakeholders get a transparent view of the company’s organisational structure, financial information, licences, taxes, customers, suppliers, boards, employee information and company property. This makes it easier to identify any roadblocks that should be addressed before the scheduled launch date.
In addition, with a well-structured data room, companies can maximise their IPO valuation and instil confidence in their investors by demonstrating compliance with listing requirements. VDRs can also be used to support a dual-track option, providing the company with alternative options.
Firms that don’t use data room for their IPO processes could face a much higher risk of data and confidentiality breaches, intellectual property theft and identity theft. Therefore, using an IPO data room protects your company from reputational and financial damage.
To protect your firm from security threats, only use an industry- standard virtual data room
According to Marshall, firms often have many weak spots when sharing information via email or other less robust online sharing tools, and not using industry-standard VDR software is 'wildly risky.'
The dangers of using general-purpose file-sharing software include:
- Potential for lesser protection against some of the newer cyber security threats.
- Material risk of your intellectual property getting stolen and landing in a competitor's lap.
- Risk of professional hackers exploiting known security vulnerabilities of software.
For example, a US federal government agency was recently compromised by multiple cybercriminal gangs that took advantage of a known vulnerability in software that had not been updated.
Regulators impose stiff penalties for data breaches
Under GDPR legislation in the UK and the EU, fines for data breaches can be as high as 20 million Euros or up to 4% of a company's global turnover for the preceding tax year.
Despite this, the cybersecurity research firm CyberEdge revealed in its 2022 Cyberthreat Defence Report that over 80% of organisations in the UK had experienced at least one cyber-attack in the year prior to the study, an increase from 71% in the previous year.
Although there is no federal equivalent to GDPR in the US, penalties can be substantial here too. For example, in 2019, the credit agency Equifax was fined $575 million by the U.S Consumer Financial Protection Bureau for its 'failure to take reasonable steps to secure its network', after the personal and financial information of almost 150 million people was lost due to a critical vulnerability being exploited in one of its databases.
How can a data room protect you from some of the newest cyber threats?
Choose a VDR that has 256-bit encryption and 3rd-party-penetration testing, which is the highest level of security testing in the industry.
- This type of testing involves a thorough evaluation of your security systems which emulates how a professional hacker would take advantage of hidden vulnerabilities to gain access to your files and data.
- With information rights management, you can revoke download rights and access to your VDR retrospectively.
- Other security features to look out for when choosing a VDR include multi-factor authentication and automatic watermarking.
As you prepare to launch your IPO, having the right filing software is essential
Using secure financial reporting software ensures a seamless, faster transition from a private to a public company.
What is IPO filing software and why should you use it?
IPO filing software will help you complete and submit your documentation securely and efficiently to make sure your company meets its regulatory requirements before, during and after the IPO.
You'll need to allocate 4 to 6 months for the pre-filing stage, where you'll engage with your lead underwriters and prepare your F-1 (for the US market). However, to ensure a seamless transition to life as a public company and be on top of all the financial reporting compliance requirements, you should allow 12 to 18 months to implement new financial reporting software.
In the US, the Securities and Exchange Commission (SEC) requires foreign private issuers (FPI) preparing for an IPO to submit an F-1 form and other documentation such as a listing application and underwriting agreement. Having software that facilitates the preparation and filing of these documents will help you streamline the entire process.
Without the right software, there may be errors in your filings and your IPO application could be delayed. Choose a filing software that’s purpose-built to meet the latest regulatory requirements and that can perform relevant health checks and validations to ensure key filing requirements are not overlooked.
Jim Bernard, Director, Global Capital Markets at DFIN, says that filing software can streamline the IPO process by providing real-time collaboration and simplifying the reporting of financial data. The chosen software should offer security features to protect confidential information, ensure regulatory compliance and validate financial data in real time. This helps to ensure documents submitted to regulators are error-free.
How filing software can enhance your team collaboration as you prepare to launch your IPO
Preparing for the pre-filing and filing stage of your IPO usually requires the input of a very large number of stakeholders across multiple teams. Because documents may need to be revised at short notice, people will always need access to the latest version of each document.
As a secure virtual office space, filing software allows you to manage and store the entire workflow of your IPO pre-filing and filing stage in one system. Underwriters, lawyers, advisers and other stakeholders can collaborate in real time to accelerate the review and approval process.
This drastically reduces the risk of important information getting misplaced or ending up in the wrong hands.
With simplified reporting, you can be more transparent with your investors to build trust
Filing software can help companies communicate financial and non-financial information (such as Environmental, Social, and Governance (ESG) data) transparently to the external investment world.
It also automatically creates the financial statement filing packages with XBRL tagging. In the US, this will help you comply with the Financial Data Transparency Act (FTDA) designed to make it easier for regulators and investors to assess a company's financial information.
Once you are a listed company, filing software can help you compile regulatory documentation for post-listing SEC requirements, helping you save time.
To make sure your IPO succeeds, start your financial reporting as early as possible and choose the right software with the right capabilities to facilitate and streamline the process. Prepare for your IPO launch thoroughly and in advance, and always use an industry-standard data room to enhance team collaboration, speed up the due diligence and prevent delays. Last but not least, choose a software provider that has a strong track record of helping companies achieve successful IPOs in multiple industries.