When preparing an IPO, you might want to keep your company or plan a dual-track IPO process with a possible M&A and exit. In any case, you need to provide multiple external parties (auditors, underwriters, potential investors, etc.) with secure, transparent, and controllable access to your company’s financial IPO data. This is where tools like virtual data rooms come in handy. Continue reading to discover everything you need to know about using virtual data rooms for IPO.
The state of IPOs today
Back in 2018, Fred Wilson, partner at the Union Square Ventures VC firm, predicted in a Barron’s article that “a pipeline of strong, mature and increasingly profitable” companies will go public quite soon, ending several years of silence in the IPO field and paving the road for the comeback of tech company IPOs.
Uber, Dropbox, Pinterest, and Airbnb were mentioned as potential candidates. As we know, Uber’s IPO flopped back in 2019, but the company has been rising since then. Others on this list performed much better. As the pandemic starts to recede, the tech industry remains one of many where exciting IPO prospects are emerging.
Thus, Wilson’s forecast seems to be coming true, and if you are a tech startup in an emerging market, your prospects of making a successful exit are pretty high today — assuming that you use the right software IPO tools and do everything correctly from the get-go. Here is what you need to keep in mind.
What is an IPO?
As you well know, IPO stands for Initial Public Offering or the first issuance of a company’s shares to the public — institutional and retail investors. An IPO preparation usually involves the help of underwriters — one or more investment banks that help prepare all the necessary documentation to get the stock listed on one or more stock exchanges.
This means that many people have to look through your company’s most confidential data — its financial reports, growth forecasts, expense reports, etc. However, this data needs to be protected from being copied, as disclosing some details before going public can lead to diminished interest and an unsuccessful IPO.
This protection is exactly what virtual data rooms ensure.
How to prepare for an IPO with the help of data rooms
A virtual data room is a cloud-based secure data storage that can be integrated with other toolkits like Dropbox, Google Drive, etc., to enable drag-and-drop document management for your team. Modern virtual data room platforms like iDeals include the following features:
- Built-in data encryption and copying protection to protect your data from leaks
- Granular access control rights to ensure users only have access to specific data
- In-depth analytics that allows you to see who has viewed a particular document and for how long. This helps you understand which investors are more interested in your company and respond accordingly.
So if you’re going to prepare a roadshow for an IPO using data rooms, here’s an approximate workflow:
- Collect and centrally store all of your reports from the start. This will help down the line.
- When preparing for an underwriters’ audit before the IPO, discuss with the stakeholders whether you want to keep the company or make an exit. Data rooms support the dual-track IPO process perfectly since you can evaluate the feasibility of every outcome based on the analytics and make the final decision closer to the end.
- Create different roles and assign access rights and privileges based on each person’s responsibilities. For example, your team members must be able to update documents, while underwriters and potential investors can only view them, and so on.
- Upload all the data required for IPO preparation to the data room and let the consultants, underwriters, and potential investors work on it. Keep an eye on the IPO due diligence process using in-depth analytics to react to any requests quickly.
- Use the built-in questions and answers (Q&A) features in the IPO software to quickly respond to inquiries while keeping all the communication centralized and secure. A wayward email or miscommunication left unnoticed can cause severe damage in the long run. Therefore, it’s best to keep the communication centralized and protected from prying eyes.
Once the investors are ready to make their M&A offers and/or the stock is registered with the SEC and ready to be traded, the IPO procedure can begin.
Data rooms features for IPOs
Virtual data rooms for IPO aren’t only helpful at the preparation stage. Here is how you can use their various features to facilitate the process and ensure its success:
- Real-time reporting to quickly identify what the bidders are looking at most
- Dynamic watermarking to protect your documents from being copied
- Q&A functionality to enable swift and secure communication in a centralized manner
- Complete audit trail to provide transparency for all IPO stages
- Single Sign-On and 256-bit encryption to ensure only the authorized users have access to the data
- Granular access control to grant access only to people who require it
- Cross-platform compatibility to help you stay on top of the process whenever and wherever you need it — from any device
This is merely the tip of the iceberg, as different software for IPO provides different functions. Yet, the benefit of using a centralized data storage you tightly control is undeniable.
Advantages of using data rooms through the IPO process
We’ve mentioned these briefly throughout the article, but let’s recap a virtual data rooms advantages:
- Strong data security. Data rooms help ensure that the investor roadshow proceeds with no data leaks.
- Smooth and traceable workflow. VDRs keep track of all changes, so you know who did what and when. As all the documents stay in one place, it takes less work to keep the process on track.
- In-depth analytics. Knowing what your bidders pay attention to and what documents they read most often helps plan your IPO due diligence activities and react quickly.
- File Transfer Protocol (FTP) and collaboration combined. The fast bulk upload and updates of multiple files are some of the best features of FTP services, but their UX can be weaker. Google Drive provides excellent collaboration capabilities but is clearly not fit to support multi-million dollar deals. VDRs combine the best of FTP and customer-centric worlds, enabling secure collaboration and easy document management.
These advantages apply at any stage of a startup journey but become most valuable during the dual-track IPO process.
Data rooms for IPO dual-track process
An IPO used to be considered the preferred outcome for startups, while M&A exit was generally thought to be a backup plan. This perception has changed recently, with dual-track becoming quite a viable option. Naturally, you want to raise as much capital as possible when exiting, so going public to reap the benefits of the hype seems like a good decision. On the other hand, selling a startup to a single large investor simplifies future management and decision-making for shareholders.
Virtual data rooms greatly facilitate dual-tracking. You can prepare for an IPO while also privately negotiating with one or more large investors. Knowing that you are on track for an IPO helps keep them engaged. Meanwhile, you can always change your mind in favor of selling to the highest bidder and avoiding the risk of an unsuccessful IPO.
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Using virtual data rooms for IPO helps you easily organize a structured, controlled, and secure process. It reduces the IPO preparation effort needed from all parties, mitigates the risk of data leaks, and helps your stakeholders react quickly to maximize the gains of an exit.