Preparing Your Company for an Upcoming IPO

There are two questions asked of IPO Village on a daily basis. The first question asked is “How is a Crowdfunded IPO different from a standard IPO (Initial Public Offering)?”, this question normally comes from potential investors in our upcoming IPO offerings. It is also a very common question from the press requests we get from the “Tech” community.
This one is fairly simple to answer, Crowdfunding an IPO utilizes the power of social media to eliminate many of the expenses companies (and investors) incur in the standard IPO process. By taking an offering directly to the crowd, the IPO Village model can save companies (and investors) around 23% of the “mark-up” and costs associated with going public. Much of this is the profit shared by Underwriters and Investment Bankers. Two entities that bring very little to the table as far adding value, actually they don’t bring anything to the table. They simply eat and run.

The second question, one that is asked by companies interested in bringing their company to the public markets and common among the “Financial” press takes a much more detailed explanation. “What steps need to be taken in order to take my company public through IPO Village?”

Daniel Hirsch, Managing Partner at First Line Capital, has provided us with what we feel is the most comprehensive guide to bringing a company public anywhere online. This “check list” covers the necessary steps to raising capital in the public markets.


The Beginning


  • Appoint someone to manage the relationships and serve as a point of contact for the various parties. There are a lot of professionals that will need to work with the company to make an IPO possible. These include; attorneys, accountant, auditors, consultants and various members of the company. Swift, effective communication will save many problems and delays along the way.


  • The company business plan and executive summary should be completed. They do not need to be overly lengthy or flashy but they do need to provide an accurate past and present view of the company along with supportable projections of the future.


  • As the company will be raising capital, a comprehensive “Use Of Proceeds” along with a “Plan of Operations” which spells out how, when and to what purpose the invested finances will be used.


  • Financial records for the past three years (or since inception) must be in good order and in an electronic system (seems obvious but……).


Getting Started


  • Retain an Investment Banking Firm.


  • Retain an attorney who specializes in dealing with SEC filings. Would be wise to do a search on the attorney on the SEC website as well on the internet.


  • Retain an auditor. The auditor must be PCAOB certified. You can check the PCAOB website for all of its members and you can see if the auditor has had issues in the past.


* When hiring a legal firm and an auditing firm, make sure that you retain ones that best fit your company. If you are a small company it may be unwise and impractical to use large firms. The same is true for a large company using small firms.


The Nitty Gritty (also known as Due Diligence Material) –


  • Have all basic corporate documents prepared. These include:


1.         Certificates or articles of incorporation and by-laws for the Company, as currently in effect.


2.         Minutes of meetings (or written consents in lieu of meetings) of the stockholders and Board of Directors of the Company, and of each committee of the Board.


3.         List of states and countries in which the Company is qualified to do business.


4.         Corporate organization chart including title, function and responsibility.


5.         Any agreements among the Company and any or all of the stockholders.


  1. Any other agreements that define or limit the rights of the stockholders, including, without limitation, preemptive rights, restrictions on transfer, voting rights and proxies.


  • Financial and tax documentation that must be prepared:


1.         Most recent unaudited financial statements.


2.         Summary of operating results for each of the last three fiscal years.


3.         Any financial projections.


  1. All federal, state, local and foreign tax returns for the last three years.


  1. All consents, waivers or other agreements with taxing authorities.


  1. All information concerning any significant claim asserted by any taxing authority against the Company.


  1. Litigation files and settlement documents (if any) relating to any tax litigation, whether in court or as part of any administrative proceeding.


  1. Any correspondence with the taxing authorities.


  1. Latest available list and aging of accounts receivable, including collections since aging date.


  1. Description of all contingent liabilities not disclosed in the latest balance sheets provided and any material contracts subject to renegotiation.


  • Bank Financings and other Credit Support Agreements


1.         All bank credit agreements or facilities and other agreements for borrowed money.


  1. Equipment loans to which the Company is a party.


3.         Letters of credit, guarantees, indemnity agreements and other credit support undertakings or contingent liabilities to which the Company or any of its stockholders are a party.


  1. Evidence of any inter-company indebtedness and a list of outstanding loans to or from any officers, directors and employees of the Company.


5.         Financing or other credit agreements with trade creditors relating to trade payables.


6.       Any correspondence relating to the Company’s non-compliance with any loan agreement or any other credit arrangement.


  • Regulatory and Litigation Matters


1.         All notices, information requests, filings, licenses, permits, consents or approvals and certificates obtained or required to be obtained from governmental authorities and agencies and all similar approvals held or required to be held in connection with the operation of the business of the Company, including all correspondence in connection therewith.


2.         Any settlement agreements, consent decrees, court or administrative judgments or orders.


3.         Any complaints, court papers and correspondence relating to any litigation, arbitration or investigations (or threatened litigation or investigations) by which the business of the Company may be affected.


4.         Letters to the independent auditors from lawyers with respect to the lawyers’ work on matters for the Company.


5.         Description of any facts which may give rise to any litigation, arbitration or administrative proceedings involving the Company or its stockholders.


  • Contracts and Agreements


1.         Customer and other sales contracts.


2.         Supplier and other purchase contracts, service contracts, distribution contacts, requirement contracts, take-or-pay contracts, sale and lease back agreements, construction contracts, etc., and any agreement with any government or government agency.


3.         A list of the major suppliers and amounts purchased from any such supplier during the last three years.


  1. Advertising, promotional and marketing arrangements and contracts.


  1. Agreements with independent agents, sales representatives or    others.


  1. Agreements with independent consultants.


  1. Fiduciary and agency agreements, outstanding powers of attorney and letters of authorization regarding the signing of purchase orders, contracts or other instruments.


  1. Joint venture or cooperation agreements.


9.         Any agreements restricting the ability of the Company to compete against others or in which third parties agreed not to compete with the Company.


10.      All agreements and plans entered into by the Company relating to the acquisition of or merger with, a business or an interest in any business, whether by acquisition of shares, assets or otherwise. If any significant portion of the business assets were acquired from a third party, copies of each acquisition agreement and any related agreements and schedules.


11.      Agreements (other than employment agreements) between the Company and any director, officer, employee or stockholder of the Company, any relatives or affiliates thereof, or any other entity in which such director, officer, employee, stockholder, relative or affiliate had or has an interest.


  1. Commitments for capital expenditures.


13.      All documents (whether or not recorded) purporting to create liens, security interests or other encumbrances on all property owned or leased by the Company.

14.        All written, and a list of all oral, license contracts and agreements.


15.      All other agreements that provide for material commitment by or for the Company.


  • Employee Matters


1.         Employment and termination agreements with current and former employees of the Company.


2.         Profit sharing plans and agreements.


3.         Deferred compensation plans and agreements.


4.         Union contacts and collective bargaining agreements and a description of any past labor disputes.


5.         Employee benefit plans including retirement, pension, savings, death or disability and other health benefit and welfare plans.


6.         Stock option and stock purchase plans.


7.         Internal Revenue Service or Department of Labor determination letters with respect to each pension and retirement plan.


8.         Actuarial reports and other documents from actuaries relating to any of the above plans and agreements rendered.


9.         Documentation of any audits, investigations or reviews being conducted by the IRS, DOL or PBGC with respect to any plan and any administrative proceedings in connection therewith.


10.      Employee handbooks and other letters or statements of policy as to working conditions, benefits, etc.


11.      Standard forms of employee trade secrets, non-disclosure and confidentiality.


12.      Description of all other benefits not included above involving any Company personnel.


  • Real and Personal Property


1.         Real property deeds and title policies with respect to any real property owned by the Company.


2.         Surveys, title reports, appraisals and related title documents.


  1. Real property leases.


  1. All leases and subleases for equipment or other personal property.


  • All insurance policies (including general liability, director and officer liability, life and health, fire and casualty, worker compensation, etc.).


  • Intellectual Property


1.         Schedule of patent registrations and applications identifying each patent by title, registration (application) number, date of registration (application), and country.


2.         Schedule of trademark (service mark and trade dress), service mark, trade dress, logos and trade name registrations and applications identifying each mark, trade dress or trade name and including date of registration (application), registration (application) number, status (that is, registered, renewed, abandoned, Section 8 and 15 affidavits, submitted, etc.), and country or state where registered.  In those instances where registration has not been sought, identify the mark, trade dress or trade name, and its date of first use anywhere in the United States.


3.         Schedule of copyright registrations and applications identifying each copyright by title, registration number, and date of registration.


4.         Manual or other written document detailing the procedures for maintaining the secrecy of trade secrets.


5.         A schedule setting forth all material licensing agreements, merchandising agreements (naming the Company or a subsidiary as licensee or licenser), or assignments relating to patents, technology, trade secrets, trademarks (service marks), trade dress, and copyrights.


6.         Communications to or from third parties relating to the validity or infringement of patents, technology, trade secrets, trademarks (service marks), trade dress, or copyrights of the Company.


7.         Studies or reports relating to the validity or value of the Company’s patents, technology, trade secrets, trademarks (service marks), trade dress, and copyrights, and the licensing or merchandising thereof.


8.         Agreements pursuant to which any patent, copyright, trademark, service mark, or trade name has been sold or transferred by or to the Company and evidence of recording thereof.


9.         Statutory invention registrations, patents, patent registrations and patent applications (including all reissues, divisions, continuations and continuations-in-part) and all improvements to the inventions covered in each such registration, patent or application.


10.      All documents relating to the right to obtain any of the foregoing.


Putting It All Together

  • Creation of the registration statement (usually an S-1). This is done primarily by the attorney, accountant and auditor with input from the company. This is the document that gets filed with the SEC.


  • Board of Directors approve registration statement.


  • Hire a transfer Agency


  • Attorney files registration with the SEC. Normally, the SEC will come back for some clarifications or edits to the document. The attorney generally serves as point to the SEC. Corrections are then made and the registration resubmitted.


  • Obtain SEC approval.


  • Have a market maker agree to file a 15c211 with FINRA.


  • As with the SEC, FINRA may have some questions regarding the 15c211. They may respond with questions that the market maker will answer.


  • Once FINRA approves, a stock symbol will be provided.


  • The market maker will establish a bid and ask on the stock.


  • Investor relation campaign begins.

Company should continually put effort into investor relations to make the company and its stock a know to potential investors.


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