Reports are in; U.S. venture-backed initial public offerings have hit their lowest point in two years. This according to the National Venture Capital Association and Thomson Reuters, about 17 venture-backed companies raised $1.43 billion in the three months ended March, compared with 37 that raised $3.40 billion in the same period last year.
More Scrutiny? More Competition?
This marks the first time in two years that the number has dropped below twenty, when only eight venture-backed companies went public, raising $716.9 million.
More so, the other end of the spectrum—venture-backed mergers and acquisitions—saw a lower per-deal size, $128.1 million compared to $245.8 one year prior.
What does this mean for companies looking to take their company public in 2015, 2016, or beyond? It could be two-pronged:
- There could be more scrutiny after investors got burned after IPOs of companies like ad tech firm Tremor Video, whose market capitalization at its 2013 IPO of $568 million, turned into about $129 million nowadays.
- There could be much more competition in the market as more companies are ramping up for IPOs later in the year.
So, no matter what happens, you have to have the people, processes, and technology in place well before you even enter the pre-IPO process of choosing underwriters, filing a prospectus, heading out on road shows, and actually getting listed.
Many recommend spending a few years operating theoretically as a public company, developing a full business plan and preparing the required financial statements.
Five Critical Steps to Preparing for an IPO
Of course, there is much more to filing an IPO than being quiet for a few months and then traveling relentlessly selling your company to investors. Jeff Epstein, Operating Partner at Bessemer Venture Partners, offered five crucial tips for preparing your company for an IPO.
- Assess and Upgrade the Fiscal Organization: Find a competent controller, a financial planning and analysis expert, and an SEC expert. Further, know what to outsource and how to hire core members of the IPO team, including an underwriter, a banker, an accounting firm, an audit firm and various legal advisors.
- Prepare for the Ramped Up Financial Reporting: Welcome to the full strategic role of the CFO. CFOs must create a comprehensive IPO plan that balances the company’s short-term objectives with its long-term goals and that allows for the coming onslaught of real-time reporting required of a public company. Further, it’s critical to find a scalable technology solution that integrates well with others.
- Brace Yourself for Public Company Tax Concerns: CFOs of private companies may have limited experience in dealing with the complex tax-related issues and considerations of a public company. To succeed, they should work with an IPO-experienced tax advisor to reconcile their financial statements with the relevant tax provisions, while implementing systems for automatically reconciling financial data with these provisions.
- Improve Process and Implement Controls: The effective review of a company’s internal controls provides assurance about the completeness and accuracy of the financial data needed to drive the business and bolster investor confidence. CFOs must also address high-risk gaps in controls through a proper risk assessment, finalize their disclosure process, and minimize error-prone processes.
- Enhance Investor Relations: When CEO and CFO hit the road with the bankers, it’s absolutely vital to have financial presentations on point—being able to answer questions including revenue, outlook, net income and operating cash flows without overpromising or being overly optimistic.
These tips are just a brief overview of the pre-IPO process. As we said earlier, before any of this happens, you need the people, processes, and technology in place.
Preparing for Pre- and Post-IPO Success
This is why we would like to welcome you to download the whitepaper The IPO and Beyond: The Keys to an Enduring Financial Foundation from Intacct. This whitepaper will show you keys to IPO readiness, and also post-IPO lessons learned from Intacct customers who have successfully taken their companies public.
Brittenford Systems, as a proud provider of Intacct Cloud Financial Management Software, has helped companies of all sizes and industries to implement streamlined, automated, audit-ready financial management software. Learn more by contacting us today.