IPO Insights: 7 Considerations for Late-Stage Companies

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Jeff Hirsch

Head of Claims

It’s not uncommon for private companies to set their sights on an initial public offering (IPO) several years in advance. After all, IPOs take plenty of time and preparation. Conversely, we’ve also seen a board of directors request their management team to get ready for an IPO swiftly, leaving little time to prepare for the event. In either case, plenty of complicated work lies ahead — but it doesn’t have to leave you and your team frazzled. In this post, we lay out a handful of pre-IPO factors for companies to consider before going public.

1. Choose Advisors Early 

It would be best to know your legal limits in terms of the IPO process. However, this knowledge isn’t always easy to come by. For that reason, it’s crucial to choose advisors — attorneys and auditors, for example — who can guide you accordingly. Keep in mind that advisors with significant experience in securities matters will serve your mission well. Plus, having public company financial reporting knowledge is beneficial, as well. 

Additionally, try to choose advisors as early as possible. It will take time to sort through potential advisors, and you certainly don’t want to wind up with a greenhorn. Experience matters, weighing heavily on your decision to hire specific advisors. Hiring a professional who’s been through an IPO (or several) will be invaluable to your management team.

2. Strengthen Your Financial Team 

In preparation for an IPO, your CFO, controller, and the financial team will be working closely with auditors to foolproof your company finances. It only makes sense as your finances will be combed through thoroughly during the IPO process. Again, you need experience on your side. If your CFO hasn’t undergone an IPO yet, perhaps place a member on your board with an IPO background.

One of the most common delays in IPO proceedings is undeniably audited financials. And it’s a shame because most S-1 hold-ups are avoidable with adequate preparation. Still, getting your ducks in a row is hard work. Start early. Provide your team with plenty of resources. Improve your accounting system and policies. And, don’t forget about preparing quarterly financial statements; you’ll need at least eight of these, but many private companies put them on the backburner — but regret it later.

Lastly, be aware of your auditor’s independence implications, especially relating to the US Securities and Exchange (SEC) rules. Simply said, now is the time to color inside the lines. 

3. Recruit Experienced Leaders 

Your board of directors is the backbone of an IPO and will be responsible for leading your company to a profitable public presence (and beyond). Haphazardly choosing a board or plucking up family members or IOU friends to serve a role isn’t wise. Now is the time to depend on experience. 

On that same note, you want seasoned individuals to serve as audit committee members. As mentioned above, having at least one board member with IPO experience is invaluable. Your CFO will need loads of support during this endeavor. Experienced leaders are just the ticket your company needs to navigate the IPO process successfully.

4. Corporate Governance 

Many professionals with IPO experience will tell you to start acting like a public company even before going public. It’s a “might as well get used to it” approach, per se. For example, work toward a culture of compliance in your business. Review and improve your corporate policies and codes of conduct.

Examine your executive compensation practices. Take it a step further by consulting with a benefits counselor to learn about these standard structures for public companies. You’ll likely have to compare your current system to a more appropriate one and make the changes.

Besides, now might be the perfect time to review your employment practices liability (EPL) insurance. This coverage responds to accusations regarding your employment practices, such as discrimination, harassment, unfair wages, and your hiring or firing procedures.

5. Improve Public Communications 

Tidy public communications is a pre-IPO must. Furthermore, various guidelines apply to your unique situation. Although your company is in an exciting transition, it’s nearly a limbo-like place when it comes to public communication. You’re not free to post your excitement or even discuss going public online because of the legal ramifications. 

Follow your advisor’s guidelines, of course. However, now is the time to take a more formal stance regarding your public relationships. Stick with factual communication relating to your business’s accomplishments. Doing so will comply with regulations and allow you to remain in the public eye throughout your IPO. 

Another idea is to review your website and give it an overhaul if needed. Professional websites have a habit of getting cluttered quickly. You might not need to renovate it entirely, but tighten up on the overall message at the least.

Lastly, look at your cyber and media liability insurance. These policies work to protect your company against third-party lawsuits that arise from digital activity and cover penalties from regulators.

6. NYSE vs. Nasdaq

A vital part of going public is knowing each stock exchange and choosing your preferred market. The New York Stock Exchange (NYSE) and Nasdaq are the largest equities markets globally; however, they’re not the same. Knowing the differences between the two will help you to negotiate better. 

An excellent approach is understanding what each market wants or requires to see if your company qualifies as a new listing. Remember, you can reserve a stock tick symbol before an IPO, and this symbol can be used on either exchange.

7. Purchase D&O Coverage

It’s not breaking news that directors and officers (D&O) lawsuits are more prevalent now than ever before. Accusations of wrongful acts, negligence of duties, improper management, etc., can add up to a massive pause in your IPO progress.

Legal expenses are no drop in the bucket. Each incident can cost up to $100,000, not including indemnity payments. However, D&O insurance can protect your business from these pricey lawsuits. This policy comes in three parts and covers:

Side A: Suppose directors are personally sued and are forced to pay defense costs and settlements, this portion of D&O insurance kicks in to protect the individual. However, Side A will only pay the individual directors if the entity can’t, such as if the company is insolvent. Many pre-IPO companies opt for additional Side A coverage limits, which is an excellent option. 

Side B: When the company (or entity) indemnifies individuals named in the lawsuit, Side B coverage reimburses those costs. But it only extends to indemnifying insured individuals named in the lawsuit. 

Side C: This coverage provides a balance sheet protection for the company if it is named in a lawsuit alongside an individual director. Side C coverage will reimburse the costs and settlements incurred.

Understanding the details of what coverage your company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you. 

If you’re considering an IPO or interested in learning more about a customized D&O insurance program, please reach a member of our team by phone at 646-956-5140 or email at info@foundershield.com or create an account ​here​ to get started on a quote.

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