How to Prepare a Company to Go Public in a Volatile Market

Key Takeaways

Seven considerations to make before taking your company public

Pursuing an Initial Public Offering (IPO) is something many entrepreneurs will only experience once, and it’s important to get it right. 2021 was the biggest IPO year ever with extraordinary volumes globally. The global IPO market delivered 2,682 IPOs and raised $608 billion. The largest IPO globally in 2021 was the $13.7 billion IPO of Rivian Automotive on NASDAQ. During 2022, the market saw a dramatic decline in IPOs after a year of incredible IPO growth. Despite this, micro-cap and small-cap companies continued to dominate the 2022 IPO market in the U.S.

To date, there have been 101 IPOs on the U.S. stock market in 2023 raising more than $60.9 billion. It’s a huge amount of money and yet, this is -25.78% less than the same time in 2022, which had 136 IPOs by this date. As you say, the markets go up and down constantly. Companies now have a new host of considerations when it comes to choosing the right time to go public. In today’s current economic climate, most entrepreneurs feel fearful going into this environment wondering, will it be a success? In order to go public, the company becomes very exposed to scrutiny, the costs are high, and the complexities are many. It is important to make the right choices to establish the best chances of success.

As the CEO of Exchange Listing, LLC which helps micro-cap and small-cap companies list on the senior USA stock exchanges like NYSE and Nasdaq, we have seen it all. In this environment, we advise companies to focus on what we call “IPO readiness,” so that a company can IPO as soon as market conditions are practical for their goals. Whether you are a company founder looking to take your business to the next level, an investor seeking to understand the risks and rewards of small-cap and micro-cap IPOs or a professional advisor helping clients navigate the IPO process, here are the seven things to consider before going public:

1. Get committed

Be clear that this is a direction for you. If you’re not sure, don’t start getting on a roller coaster, because once you’re on it, it’s dangerous if you try to get off in the middle. It sounds exciting to take a company public, and it is. But the evolving landscape and fluctuations demanded along the way can derail you unless you are convinced this is the best course of action for the success and growth of the company.

2. Prepare before taking action

Preparation for a micro-cap or small-cap IPO needs to begin well before the IPO date. Ideally, a company should start assessment anywhere from 18-24 months before the actual IPO date. Going public is gratifying, but it requires significant internal and external resources. In addition, the complexities, cross-functional participation and interdependencies of going public require effective management and a clear understanding of the content and process. Therefore, preparation and groundwork are critical to a smooth execution process. Brian Cox, the CEO of SurgePays Inc. which went public in November 2021, attested to the value of having brought Exchange Listing on early in the Nasdaq Uplisting process. The company was able to prepare for its IPO well in advance and ultimately was able to raise a total of $19.78 million.

3. Ensure the right business model

One of the most fundamental criteria for success includes having a business model best suited for the public markets. We ensure that a company will be ready to IPO from a regulatory position. Business IPO readiness requires the coherent articulation of the core elements of the business, which will be unique to the company in question. Generally, it will encompass critical areas such as the business’s strategy, markets, products, sales, marketing, operations, financial statements and metrics. You need a company deck, a one- or two-page teaser and a comprehensive financial model.

4. Tighten your organizational readiness

For private companies that are planning a micro-cap or small-cap IPO, a strong executive team and a board of directors are critical. A well-positioned team will increase the value of the company and provide confidence to potential investors. The assembly of a management team, advisors and board, including the form and structure of management compensation, is critical. The management team, advisors and board need to be optimally aligned with the company’s strategic objectives and public market expectations so that they can guide the company’s operations successfully and provide public market reporting.

5. Align with SEC compliance

The S-1 registration statement may sound unfamiliar. Preparing the S-1 registration statement involves the creation of a basic business description consistent with the SEC regulatory requirements. This involves a summarized explanation of the business, its customers, its competition and other information relevant to investors who want to make an informed investment decision regarding the company and its prospects. It includes business and financial information designed to inform prospective investors and outline all material business risks.

6. Prepare for scrutiny

While audits may sound scary, these are a mandatory part of the process of preparing for the IPO, and it’s important to get the details right. Footnotes and schedules are required when compiling the company’s financial statements to ensure that the company’s financial reporting complies with industry standards. The footnotes also provide reasonable assurance that the financial statements are presented fairly, free from material misstatement, and thus can be relied upon by investors.

7. Get your finances in order

If the company’s financials have been sloppy, now is the time to track each detail and category to ensure confidence from investors and approval. Prepare two years of profit and loss, balance sheet, cash-flow statements, related footnotes and supporting schedules. It is vital to have your financials in order to present the most accurate and thorough picture of the company’s health and the opportunity to the investors.

Although the broader IPO market seems to be on pause due to less-than-ideal marketplace conditions, know that these market conditions are not here to stay, at least not forever. Companies that are considering an IPO would be wise to use the current pause period to hustle while they wait and prepare to become IPO ready. Thorough preparation requires that your company not only takes the proper steps and does the right things but also invests in the right partners, resources, technology tools and team. Taking these actions now will set you up for the best chance of success when the time is right to execute your first or next IPO.