With over 900 initial public offerings (IPOs) in the US, and many more planned for the future, it’s no wonder every entrepreneur dreams of taking their startup public. After all, an IPO can provide a massive windfall of capital for a startup, allowing it to expand rapidly and unlock the true potential of its business.

However, the reality is that going public isn’t easy and requires a lot of preparation to ensure you fulfill all the requirements. Let’s discuss what it takes to get your startup IPO ready.

What Is an IPO?

An initial public offering (IPO) is the process of selling a company’s stock or shares to the public. Companies often use IPOs to gain access to the public markets and raise capital for expansion.

The IPO process can take months to complete, but it is worth the effort if a company receives a healthy valuation when its stock goes public.

Why Is IPO Readiness Important For Startups?

IPO readiness means a startup is prepared to go public, meaning it meets the requirements set by stock exchanges and regulatory authorities. Companies must comply with all laws and regulations while having a clear strategy for growth and profitability.

IPO readiness is essential for startups because it gives them access to the public markets, which opens up a new source of capital and potential investors. Furthermore, it can validate a company’s brand and its products or services.

There are many factors to consider when making a company IPO-ready, including financial performance, corporate governance structure, investor relations, and public relations. Companies must also have a plan to manage the new demands of being publicly traded.

Key Aspects of IPO Readiness

When transitioning to an IPO, a few key aspects of readiness must be considered.

Disclosure and Reporting

While private companies can ensure privacy for their information, public companies have to follow the SEC-set guidelines for disclosure and reporting. It involves providing detailed financial statements and other relevant information regularly. 

Public companies also require an independent audit of their financial statements to ensure that the information they provide investors is accurate and in compliance with regulations. Companies should also have a system of internal controls to ensure proper oversight of financial reporting.

Accounting Policies and Procedures

To be ready for an IPO, a startup must have a set of accounting policies and procedures in place. You should start:

• Documenting your revenue recognition
• Keep track of inventory valuation
• Put in place procedures for fixed assets and depreciation
• Develop a process to manage taxes
• Keep records of accounts receivable and payable

Sarbanes-Oxley Compliance

The Sarbanes-Oxley is a US law that requires public companies to adhere to specific accounting and financial reporting standards. Per this legislation, companies must establish and maintain rigorous internal controls over their financial reporting processes and procedures.

Sarbanes-Oxley compliance requires public companies to implement a system of controls designed to ensure accurate and reliable financial reporting. These controls should prevent, detect and correct any misstatements in the company’s financial statements.

When Does Your Startup Become IPO Ready?

Do you want to make the leap from a privately-held startup to an initial public offering (IPO)? There are certain criteria your company must meet for IPO readiness.

Build a Solid Financial Track Record

Before you can consider taking your company public, it must have a track record of profitability. Investors want to see evidence that the company is financially sound and has earned steady profits over time. If your startup has been generating losses, it’s unlikely that you’ll be ready for an IPO.

Develop Your Brand and Image

Your company needs to have a strong brand and reputation with the public. It should be well-known and respected in the industry and have a good track record of serving customers.

Choose an Investment Firm

An investment firm will bring your company public. You should choose a financial institution that’s experienced in the IPO process and has a proven track record.

The firm will be the underwriter of your IPO and will provide the necessary guidance to make sure you meet all regulatory requirements. They’ll also be responsible for marketing your offering and ensuring it’s successful.

Ensure a High Growth Rate

A high growth rate indicates that the company has a bright future, and that’s attractive to potential investors. Your startup must have achieved consistent growth for at least three years to be considered IPO ready.

The metrics reflecting your growth will depend on your niche and industry. For a tech startup, you may need to have achieved high levels of user engagement and solid revenue growth.

Meanwhile, an e-commerce company’s IPO readiness might depend more on its sales growth rate.

Fulfill Regulatory Requirements

Your company must meet various regulatory requirements before it can go public. It typically involves filing forms with the US Securities and Exchange Commission (SEC). Depending on your industry, you may also need to comply with industry-specific rules.

Additionally, you must be able to show that your operations are well-managed and transparent. Investors need to trust that you’ll remain in compliance with all laws and regulations.

Perform Due Diligence

Before you can become IPO ready, your company must perform due diligence. It means evaluating the financial and operational risks associated with the business.

The due diligence process also includes reviewing your financial statements, customer contracts, and other documents. Having an experienced team of advisors will help ensure that everything is in order and that you’re truly ready for the IPO.

You’ll have to work with public accountants, your attorney, and the underwriter to create the registration statement you will submit to the SEC. The SEC will then review the filing and provide comments or requests for additional information.

What Next?

Once you’ve met all the criteria for IPO readiness, you can begin the process of going public. First, you have to set the offering price and the number of shares to be issued. Then, you can start marketing your IPO and courting investors. After that, it’s time to set the date and make your public debut.

Suppose you want to list your stock on the NASDAQ or New York Stock Exchange. In that case, you’ll have to meet the listing standards and additional requirements, such as governance policies for publicly held companies.

Let’s Go Public

Going public is a complex and lengthy process, but your company can benefit greatly from an IPO. With the right preparation, you can ensure that your startup is ready for its public debut.