Counsel Corner: IPO Strategy: How to Lay the Foundation for a Successful IPO

Our Counsel Corner series brings together the top legal minds from our community to discuss complex challenges that GCs face when growing their companies and navigating their careers. To gain some IPO insights and advice, we sat down with three legal experts in our community: Andrew Glickman, GC and Corporate Secretary at NAX Group (and previously led both Uber and Sweetgreen through IPOs), Michael Nordtvedt and Rezwan Pavri, both Partners at Wilson Sonsini.

Though IPO activity has slowed in the current market, now is the time to start preparing for a possible future IPO, given the ample planning. As you begin, you should ask yourself how you can best position yourself to lead a successful IPO. We sought some answers to that question. 

As you focus on the company’s goals for going public, remind yourself, “The best way for a company to succeed in an IPO is to focus on its core business and achieve operational excellence.”- Andrew 

Read on for practical tips on how to lay the foundation as a GC for taking your company public. 

Assemble your public-ready board

Ensure your board is ready to go public from composition to corporate governance as this is crucial to operationalize ahead of the IPO.

Andrew: “First and foremost ensuring that you have a strong, public-company-ready board that meets the various SEC, listing and governance requirements, and can appropriately staff all 3 committees is critical. This is a process you want to start well in advance (12-18 months) because finding the right board members can be time-consuming and cumbersome, but also dealing with board composition changes in connection with the IPO can be emotionally taxing. Once you have landed on your board composition, determining the voting structure is a critical governance practice to determine early on in the process.”

Cultivate and foster your relationship as GC with the public-ready board

Michael and Rezwan: “Part of a GC’s role is to support the board of directors in its decision making. Given that an IPO is one of the most important steps in any company’s life, it is a natural opportunity for a GC to strengthen his or her relationship with the board. In connection with the IPO process, there are often changes in board composition. Helping the board manage this process is a great way to establish rapport with the incoming directors.”

Align and communicate with your team

As you finalize your going-public team, discuss and decide with your cross functional partners on how you will communicate with external stakeholders. 

Michael and Rezwan: “Most of the decisions related to the relationships with investment banks will be made by the CEO and CFO; however, the GC will often be the company quarterback for significant portions of the IPO transaction execution. It is important at the outset of an IPO process to clearly establish expectations upfront regarding allocation of responsibilities and how investment banks communicate and collaborate with one another and with others in the working group”...”In advance of an IPO, a GC should partner with the CFO to ensure that the company has the right people, processes and systems in place to accurately, comprehensively and repeatedly communicate with investors about its historical results and expectations for the future.”

Proactive communication is essential to keeping the relevant parties aligned during the IPO process, both internally and externally.

Andrew: “Work with your bankers and lawyers to really understand the process steps so you can look around corners and are prepared for the next challenge to come ahead. The easiest way to lose the confidence of your key stakeholders is if you are surprised by what's coming next or you haven't properly communicated cross-functionally to ensure alignment. Be proactive and stay ahead of the process and communicate clearly. There are so many different stakeholders in the IPO process, but if you are able to take the lead on cross-functional organization and communication, you will become an invaluable resource.”

Diligently drafting the S-1

Drafting the S-1 is a critical step in the IPO process. Be diligent and selective in choosing what metrics to include as investors will expect you to continue reporting on those items, this can increase your risk exposure.

Andrew: “There are so many different elements in the IPO process, and some are outside of legal's control, but one of the key considerations is to be intimately involved in the S-1 process and be willing to try to narrow the scope of your disclosure. In an S-1 often your bankers or management team want to continue to provide more facts, more numbers, more support. This can lead to an S-1 that feels like a string of statistics, rather than a coherent story, but also every time you are putting facts / numbers in an S-1, you are exposing yourself to some incremental legal risk. Make sure that all of your numbers, facts, claims, etc. are necessary in the S-1 and that they help tell your story. Similarly, keep in mind that every statistic or assertion that you put in the S-1 will likely be a statistic that investors and analysts will want to see you report on going forward. So be selective in choosing stats and KPIs that you are comfortable reporting on going forward, or if it is a one-time stat, be clear in the S-1 of that fact, so you can explain why you are not reporting on it going forward.”

Expect some bumps in the road

There is no shortage of unexpected challenges, no matter how public ready your company is. Prepare for such circumstances by ensuring you have the resources in place to adapt to these problems. 

Andrew: “Equity, cap table management and executive and board compensation are unexpected challenges that take up a lot of time and energy. In my last IPO we transferred our cap table from Carta to E*Trade and the process was incredibly burdensome requiring a third party stock admin company as well as numerous resources from our engineering, accounting and HR functions. Getting this process right takes months and also involves significant education sessions and seminars to your employee population. Get ahead of this and ensure you have strong partners in accounting and HR to work through these issues - as you can imagine, employees are very focused on it!”

Due diligence will uncover most issues but there may be unexpected challenges that arise.

Michael and Rezwan: “Even the most well-run company has areas in which it could improve and the IPO due diligence process will almost certainly surface them. Front-running the diligence process at least to some extent allows companies to address them proactively. Just to name a few examples of issues that crop up with a fair amount of regularity but that can come as a surprise when they occur are technical problems with how capital stock or equity incentives were issued that need to be corrected before an IPO, licenses to intellectual property that need to be obtained to ensure there are not any clouds over a company’s freedom to operate, or immature historical (or ongoing) business practices”...”The best way to handle those types of issues is to push forward as far and as fast as you can once you are in the IPO process so that you have the time and space to deal with such issues without simultaneously having to address some known transaction-related action item.”

Closing thoughts

Andrew: “An IPO process is an incredible journey for a company and an exciting time. It can be scary as you are walking into a new governance and reporting regime, but realize something won’t go according to plan and the company is going to have to make last minute changes or revise the process at some point. That's all part of the fun of the process. At the end of the process its super rewarding (standing on the balcony at the NYSE was one of the most rewarding days of my life), but then you have a few days to let it wear off and then you have to go back to continuing to build and grow your business with a lot more eyeballs and scrutiny on your every move!”

As we revisit the original question on how to best prepare yourself for a successful IPO, here is a summary of the expert advice:

1. Understand the objectives of the IPO, focus on the company’s core business and operational excellence.
2. Assemble your public-ready team, finalize board composition and the corporate governance practices that fit your needs.
3. Align with your team and external stakeholders by proactively communicating to keep the IPO process on track.
4. When drafting the S-1 to SEC Review, take ownership and be diligent in the process.
5. Be prepared for any potential issues by making sure you have the resources and team to tackle those challenges.

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