If Going Public Is a Possibility, Here’s Your Pre-IPO Checklist

Author Bio: Jonathan spent the first five years of his professional insurance career working as a generalist broker at a traditional firm on Long Island. Intrigued by how to leverage technology in the industry, Jonathan joined the Founder Shield team in 2016 and quickly grew into his current leadership role of General Manager. He works to oversee client strategy and communication and has fostered a culture of providing unparalleled service and risk consulting for some of the fastest-growing companies in the world.

Like many things in life, the open market is cyclical, experiencing ups and downs routinely. As a result, companies often fast-track their IPOs or delay them due to the current market environment.

For example, companies like Reddit and Chobani have recently postponed their going public plans — but they’re not merely sitting and waiting for Wall Street to come around. Instead, companies with going public as a possibility get more time to plan and prepare during a market downshift.

So, if you have the slightest aspirations of going public in the future, here’s a useful pre-IPO checklist to help you prepare now.

Have You Achieved Telling Benchmarks?

When a company decides to go public, it will typically be more profitable on the open market than raising capital via private funding. There’s a good chance you’re meeting your revenue goals already. And remember, market success isn’t only about incoming money; it’s more about growth potential and history to back up your equity story.

Sometimes, leaders are keen enough to identify these milestones or what we consider to be “telling benchmarks.” In other words, these elements signal that an IPO is likely in your future.

For example, when the market fit and appetite align, your company could be a viable solution that the open market needs. Also, suppose your team is on a steady path to profitability, with a strong record of the company’s financial intelligence. These are hard-earned and telling benchmarks, potentially impacting your company’s valuation.

Founder Shield’s Customer Success Director, John Olson, put it best, “Companies ready to go public delivery against their forecast time and time again.” In many cases, going public is the only path that makes sense.

Are Your Financial Records SEC-Ready?

The Securities and Exchange Commission (SEC) follows many stringent requirements, such as the US generally accepted accounting principles (GAAP) standards. Private companies typically don’t follow these accounting rules. However, the sooner you develop a more sophisticated handling of financial statements, the more SEC-ready you’ll be. The same goes for complying with the Sarbanes-Oxley Act.

On a similar note, companies with superb earnings before interest, taxes, and amortization (EBITA) achieve a premium valuation than those with below-average EBITA margins. Total debt is also a significant valuation factor, not to mention the compensation plans you establish for your team.

Unsurprisingly, the SEC requires a handful of registration statements as they comb through past budgets and historical performance; however, the record’s time frame varies, as seen below.

In short, companies ready to go public consistently have reports that are on-time and audit-ready. The SEC is no stranger to intense audits, so an excellent approach is to “practice” handling your finances as a public company years before ringing the opening day bell.

Have You Built an IPO Team of “Critical Hires”?

When filing for an IPO, the people surrounding you on your journey to going public will influence how well you perform on the open market. Although it sounds relatively intense, there are several reasons why your IPO team matters so much.

For example, managing the necessary reports, forms, and statements will require a strong group of highly engaged leaders. The following are a few members of an IPO team we call “critical hires.” These people will assist with the private-to-public transition, from choosing a ticker tape symbol to printing financial statements. It’s good to start building this team years before filing for an IPO.

SEC Consulting Team

As your first recommended hires, individuals on an SEC consulting team understand the needs and expectations of SEC registrants. They can provide in-depth guidance and support regarding SEC compliance, audit and tax consultation, and more. These people have been there and done that plenty of times before.

Finance Department

Your finance department consists of individuals with technical accounting and SEC reporting experience. Navigating complex financial transactions will be their primary responsibility. Naturally, the Director of Finance leads this group, managing the budget and financial forecasting. This role assists the CFO in decision-making. Lastly, the right CFO can make all the difference as they typically join the CEO front and center for much of the IPO journey.

Legal Counsel

A general counsel provinces insights about corporate governance and provides much hands-on guidance, such as reviewing contracts, transactions, bylaws, etc. These talented and learned individuals are invaluable in de-risking the process of going public.

Governance

The “trickle-down” effect starts with your board of directors, audit committee, and chief compliance officer as they govern the business. They establish internal controls, make important decisions, oversee bylaws, and monitor the company’s financial state. IPO success typically starts at the top of the trickle.

Information Technology

A Director of Information Technology (IT) or CIO is an increasingly important role nowadays. With global data breaches averaging over $4 million per incident, data protection and cybersecurity must be top-notch.

External Team

Along with your internal IPO team members, consider teaming with the following external professionals:

• Underwriters’ counsel
• Financial printer
• Roadshow consultant
• Capital markets advisor
• External auditors
• Financial advisory and consulting services
• Tax firm
• Various specialty firms

Did You Choose an Underwriting Partner?

Refining your company’s equity story is a pre-IPO task; however, doing so requires strategic engagement with investment banks. These connections will increase your credibility and soften market receptivity. Remember, investment bankers typically have expertise in marketing, financial structuring, pricing, and assisting underwriters during the IPO process.

Finding the right underwriting partner is the tricky part. It would help your odds for your lead investment banker to be an expert in your sector with a solid track record of taking companies public.

Underwriting partners are vital in assessing financial performance and health, ensuring financial transactions and statements are accurate and legal. In evaluating an underwriting partner, consider asking the following questions:

• Do they have in-depth knowledge of your industry and business?
• Can they tell your business story for optimal market reception?
• What’s their reputation and experience?
• How does their team measure up?
• Do they fit in your going public timeframe?

Have You Addressed Insurance Needs?

Each industry faces unique risks, requiring customized risk management plans and insurance products. The transition from a private to a public company will cause your insurance needs and program to change. Regulatory standards, shareholder demands, and your financial projections will require these changes. As a result, here are a few foundational policies soon-to-be-public companies typically need:

• General Liability protects companies against basic business risks.
• Directors & Officers protects corporate directors and officers’ personal assets if they are sued.
• Professional Liability, also known as errors and omissions (E&O), protects companies against lawsuits of inferior work or service.
• Employment Practices Liability protects companies against employment-related lawsuits.
• Cyber Liability protects your company against damages from specific electronic activities.
• Fiduciary Liability protects from legal liability relating to employee benefit plan sponsorship.
• Health & Employee Benefits provides employees with healthcare, vision and dental, retirement plans, and life insurance.

Did You Secure Public D&O Coverage?

Most leaders realize the importance of D&O coverage during private rounds of financing. It’s nearly impossible to receive any financial support without it. However, public companies face increasingly more scrutiny and potential D&O litigation for their leaders. Working with a broker experienced in building public D&O towers is the only way to ensure your company can traverse the open market.

D&O insurance consists of three parts, with each one protecting a specific portion of the company, including:

Side A: Protects individual directors by paying the defense costs and settlements due to a lawsuit. Side A will only pay the individual directors when the entity is unable (i.e., insolvent) or not legally allowed. Typically, respective directors will ensure that the company purchases additional Side A coverage over the traditional A-B-C coverage.

Side B: Indemnifies the entity after the entity has paid the individuals named in the lawsuit.

Side C: This part is entity coverage. If the entity is named along with the individual directors in a lawsuit, this coverage protects the company’s balance sheet and will reimburse the costs and settlements incurred.

Timing is vital when building a solid public D&O tower. In the days and months leading up to your S-1 Form filing, it’s essential to stay on track, as shown in the timeline below.

Going public is usually the most significant milestone in a company’s life cycle. While the open market is nothing to enter haphazardly, it’s the right place to be for many organizations. Ringing the opening day bell is no tiny aspiration — but achievable.

If going public is a possibility in your future, keep this pre-IPO checklist an arm’s length away. And remember the wisdom of mountaineer Conrad Anker, “The summit is what drives us, but the climb itself is what matters.”

For a complete guide on how to take your company public, check out Founder Shield’s Going Public Roadmap!