The state of IPOs today
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.
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
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.
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.
VDR features that boost the IPO process
An initial public offering is specifically successful when a virtual data room offers particular features aiming at improving the IPO and due diligence process.
Imagine you have a private startup company and think about turning it into a public company. What services should you expect from a VDR provider to have a profitable deal?
Let’s define the most helpful featuresthat are provided by Datasite, iDeals, and SmartRoom.
Even being a startup, your company probably has lots of documentation and confidential information to be shared within the investment banking community.
That’s why virtual data room providers must offer tools that will help you manage large amounts of documents in a breeze. Below are the examples of data management tools offered by Datasite, iDeals, and SmartRoom:
- Drag-n-drop upload
- Bulk upload
- Optical character recognition (OCR)
- Document structure import
- Advanced search
These services enable you to swiftly upload files in large volumes, as well as assist interested parties in a quick search through the documents.
Using a virtual data room with a set of effective data-management features saves time both for a startup that seeks growth and public investors that pursue new opportunities.
Enhanced security is what makes virtual data rooms more preferable for the initial public offering process than a physical data room. VDR providers offer certain services to give your sensitive information extra protection at any stage.
These are some of the security features Datasite, iDeals, and SmartRoom have in common:
- Granular permissions
Every security feature a virtual data room provides ensures that information about your business operations will stay confidential even when shared with other interested parties.
There are also more tools each VDR provider offers that make it unique and preferable for different IPO transactions. For instance, iDeals’ customers enjoy their fence view and remote shred services.
For a successful IPO process, communication between all the parties involved is important. With a virtual data room, collaboration becomes less time-consuming, and it’s a great opportunity to save resources.
The majority of traditional data rooms offer a Q&A section that helps the support team during the due diligence process and maintains effective communication between all the parties.
E-sign is also a common VDR feature that speeds up the due diligence and IPO.
Ease of use
An intuitive interface is also a part of the effective due diligence strategy.
Given that people of different experiences and backgrounds will be reviewing data about your company, they all should be able to manage the documents fast and easily.
Bankers, lawyers, venture partners, legal advisers, and other parties should navigate the virtual data room without complications.
These are some of the popular tools and features that speak loud about the high-quality service of a company:
- Mobile application
- Cloud-based software
- Multilingual access
- Users import integration
- Single sign-on
Most of them are common for iDeals, SmartRoom, and Datasite.
The ability to create a branded space where you can securely share documents might not be the most obvious advantage of a virtual data room.
However, this helps your startup stand out and attract investment bankers. This is what a physical data room can’t offer.
Unfortunately, not every VDR vendor provides such a service. But lots of companies, such as the iDeals data room, offer customizable watermarking, logo, and invitation email.
Analytics and reporting
The company can speed up financial transactions with the help of analytics and reporting most of the VDR providers offer (iDeals, SmartRoom, and Datasite included). This is also what distinguishes VDRs from a physical data room.
It’s great when a vendor has:
- Full audit trails
- Real-time analytics
- Ability to track users’ activity in a data room
These services help you monitor all the actions performed on your documents, so that you could react proactively.
When you decide to go public and list your company on a stock exchange, sharing confidential information is inevitable. That’s why a high level of data room security is a must.
This is the bare minimum iDeals, Datasite, and SmartRoom provide:
- 256-bit SSL/TLS encryption
- Data at-rest encryption
- Data centers in different locations
A virtual data room should also be at least:
- ISO 27001 certified
- SOC 2 compliant
The biggest drawback of a physical data room is that you can’t get help when suddenly facing any difficulties.
A virtual data room always has a dedicated support team that is ready to answer all your questions, so that your IPO deal will be concluded faster.
Notable providers such as iDeals, SmartRoom, and Datasite offer:
- Multilingual support
- Round-the-clock availability
- Several contact options (email, chat, phone)
- Detailed FAQ section