Outlining the Road Map for Your Micro-Cap Company
For both new and experienced Micro-cap officers and directors, embarking on an IPO can be somewhat intimidating especially given the complexity and lack of check-boxed guidelines for Micro-Cap IPO strategies. Developing a comprehensive roadmap and strategy is different for each company, and having one can ensure a smoother IPO execution. Proper IPO preparation and readiness is one of the critical elements for the commencement of life as a public company, which can be a memorable, gratifying and once-in-a-lifetime experience.
A Micro-Cap Company may consider an initial public offering as a growth strategy for various reasons. Whether it be financing expansion, an exit strategy or recapitalization, an IPO may be an effective long-term strategy for early-stage Micro-Cap companies. However, the journey to executing an effective IPO requires a well-defined strategic road map.
This involves detailed planning, experience, an appreciation of the unpredictable nature of the stock market, and an unwavering commitment to becoming a successful publicly listed company. Developing an IPO roadmap requires management to construct a business model, systems, and processes that can support credibility for investors. The IPO roadmap for a successful outcome will include an action plan, timeline, budget, communications, and team structure.
- Listing Requirements – Identifying the quantitative and qualitative requirements necessary and preparing and submitting exchange listing applications and related documentation.
- General and Strategic – The Company’s operating philosophy and business model including each business line’s growth strategies and objectives.
- Finance – Historical and projected financial results, including assumptions, operating performance, revenue, operating expenses, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), net income and earnings per share.
- Management / Board of Directors – The Company’s management team and employees any pending or anticipated changes to key management, board composition, governance structures or corporate structure.
- Valuation – Valuation metrics including comparable company analysis, discounted cash flow analysis, current and precedent transactions analysis
- Legal, Regulatory and Risk Management – Material disputes, litigation, claims, or possible claims pending or threatened against the Company.
- Corporate Communication – Corporate Communications and Awareness Strategy, asset development, guidelines, and communication policies.
- Environmental – Appropriate licenses, permits, and approvals compliant in all material respects and policies to ensure the highest health, safety, and quality standards are met and maintained.
A proper Roadmap for a Micro-Cap IPO will include a plan to satisfy the criteria the company must satisfy in order to list its common stock on an exchange. This is a critical element of understanding of the criteria including the financial requirements, the initial bid price, market value of listed securities, and market value of unrestricted publicly held shares as well as the corporate governance requirements needed to meet the exchange standards.
Putting the Puzzle Pieces in Place
Think of these initial steps as throwing all the puzzle pieces out of a box, laying them out in front of you facing the right way up, and then putting them all together. The road map is the picture on the front of the puzzle box (which we can imagine is the Bell Ringing Day), and the steps ahead are the process of putting the puzzle pieces together. The IPO process and preparations are complex and consist of multiple steps and documentation.
Before the IPO, the company must collect and deploy a great deal of data and documentation required to go public and be well scrutinized in the lead-up. For example, you’ll need information relating to company finances, business plans, responses to information requests from lawyers, investment bankers, the auditors and the Exchange carrying out due diligence.
To ensure you are keeping track of all the pieces of the puzzle, documentation and providing consistency and efficiency in this process, consider compiling an IPO data room. Best practices would include an administrative person dedicated to this process as a single communication point and responsible for collecting and organizing consistent financial and non-financial data.
Putting Together the Pre-IPO Team
Embarking on a Micro-Cap IPO is a significant step in the overall development of a company and it will require a team with expertise and specialized knowledge. Before embarking on the IPO journey, assembling a knowledgeable IPO team will be crucial. It can take longer than you might think to find the team members with specialized knowledge and experience to send a strong signal to the market about the company’s leadership, business model and governance strength. This team will include advisors current with the IPO market, its requirements and existing relationships to make relevant introductions, selection and negotiation of investment bankers, lawyers, accountants, and other professionals and the Exchanges.
The team and your board of directors will have a say in relevant company issues like corporate governance, employee stock option policies, determining executive compensation, etc. Therefore, we recommend starting to assemble your board of directors early.
Both before and after the IPO is complete, companies need to rely on their advisory team. Public companies will be subject to additional audits, quarterly reporting, investor and analyst updates, communication and awareness policies. Corporate governance and communication with investors take time and transparency and additional resources once the company is public.
Indeed, the road to an IPO is challenging, but the right team can help firms find both the best partners and opportunities when they emerge.
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