Deciding to “go public” involves careful consideration of various benefits and risks as well as the future of the company, in general. Once you’ve landed on a green light, however, preparing for an Initial Public Offering (IPO) becomes more real-life than ever. It’s essential to have all your ducks in a row as you move forward. For that reason, we’ve rounded up a handful of risk management tips before your company goes public.
Creating a Management Team
As you may know, your going public team needs to be more than a solo flight. This IPO venture is far too significant to fall on any one person’s shoulders. Plus, investors are counting on your management team to secure maximum financial returns as they contribute to the company’s long-term vision.
Many companies recruit an experienced Chief Financial Officer (CFO), particularly one who’s already been through the IPO process before. Not only does this strategy look suitable to investors, but it strengthens the company’s overall market position, as well.
Researching and Compliance Assessments
The IPO process can mean several grueling months for your leadership team. The main driver in this intense grind involves the Securities and Exchange Commission (SEC). Besides examining your business under a microscope, your team must use this information to prepare numerous detailed documents for the SEC. One bit of inaccurate information and the documents undergo another round with the Commission.
Throughout the IPO process, it’s critical to color in the lines, per se. Besides, now isn’t the time to adopt any “bend the rules” mindsets as your team will complete a variety of ongoing compliance assessments. In addition to SEC regulations, your company must comply with state tax laws, as well.
Some significant functions that you’ll review may include:
- Financial reporting, planning, and effectiveness
- The leadership team and project management
- Media and investor relations
- Internal audit
- Internal controls
- Corporate strategy
Working with the Right Investors
This particular risk is likely the first thought after an initial IPO meeting. After all, it’s one of the most crucial decisions that your team will make during this entire process.
When you decide on an investment bank, you generally rely on them to lead you through the procedure, too. The right investment bank can help you sharpen the company’s equity story and assist with the assessments above. Engaging with the right investors is critical.
Considering Compensation Programs
As mentioned, your company’s inner workings will be under a microscope during the going public venture, including your executive compensation programs. Substantial quantitative and qualitative disclosures concerning compensation programs for executives and directors will be required for IPO-related securities filings.
Furthermore, crystal clear insight is a must for investors to get an accurate risk profile for your company. Before a company dives into the IPO process with both feet, it’s vital to review executive and director compensation programs. You don’t want any cobwebs hanging in the corner office. Mainly this approach is to ensure the company’s objectives are met.
Your management team has the task of helping to prepare for your roadshow. Many of them will serve as your going public team anyhow. During the roadshow, potential investors interact with company executives to ask a multitude of questions.
Think of your roadshow as a job interview of sorts. The prospectus expresses the nitty-gritty details of your company, and the roadshow is where everyone gets to meet face-to-face. During this phase, your company will aim to attract interest in its shares.
Instead of hitting the bare minimum, reaching a triple oversubscription is often the goal. Your company can price itself higher the more demand it receives, of course. Investors and executives don’t land on a stock price until the very end of the roadshow, so carrying out an epic roadshow is imperative.
D&O Roadshow Coverage
With your company executives and directors on center stage, it’s critical to have adequate coverage in place to protect them. During the roadshow phase is when discrepancies typically arise, so preparing for scrutiny isn’t a bad idea. Going public means opening your company up to public opinions, after all.
Many private companies don’t carry directors and officers (D&O) liability insurance. However, going public is an entirely new ballgame. A newly IPO company faces more potential liability for directors and officers to public shareholders.
Having D&O coverage in places helps to catapult your roadshow endeavor. Plus, this level of protection works to attract and retain talented executives to spearhead your company’s new venture.
Public D&O Coverage
Before going public, most companies maintain broker relationships. Also, private companies typically carry a handful of insurance policies—general liability (GL), property damage, employment practices liability insurance (EPLI), and more. These policies are generally appropriate for the company’s pre-IPO risk profile.
But transitioning to an IPO company changes your risk profile significantly, outdating current coverage. Although the insurance you had as a private company served you well for many years, going public requires more protection.
It’s only natural to examine your insurance coverage as you gear up for the roadshow. Keep in mind that shareholders will continue to have a stake in your future, leaving your decision-makers more vulnerable than before.
Comprehensive Insurance Program
The run-up to an IPO can motivate multiple “upgrades” within the company. From accounting to legal, from company planning to internal controls, going public is far more than a professional facelift. As a result, it’s essential to land a comprehensive insurance program that fits your needs and manages your newly acquired risk profile.
Understanding the IPO transition can be overwhelming, especially if this is all new to you and your team. Founder Shield specializes in knowing the risks your operation faces to make sure you’re adequately protected. Feel free to reach out to us, and we’ll help you identify any unrealized risks and find the right policy for you.
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