When you’re building a business and preparing for IPO, there are many distinct stages to the fundraising journey. Last week, we published the first part of our fundraising journey blog series, which covered early stage investor communications . Now, we’re moving onto pre-IPO due diligence and investor communications.
Due diligence is standard procedure for any company preparing for an IPO. At its core, it’s an investigation into your business’s financials. This provides investors with a better idea of any risk factors they need to consider before going public.
In today’s blog, we’ll be covering the importance of investor communications in due diligence, considerations for going public, and the role that data rooms can play in pre-IPO investor communications.
Due diligence: The importance of investor communications
When investors carry out due diligence, they’re conducting a thorough appraisal of your company’s financial situation and chances of success. Scrutinising your financial documents will help investors determine the amount of risk involved in investing in your company. The main reason due diligence is such a vital aspect of investor communications is because, if you’re exhibiting a lack of transparency or professionalism, this might result in a failure to attract funds.
There are a plethora of factors to consider before going public, the main two being how long the process is going to take, and how much going public will cost. Often companies consider these two factors, but fall short of considering the many other factors involved in going public. Even before investors and advisors begin their due diligence, there’s a lot of work for your company to do.
With that in mind, let’s take a look at some of the other considerations…
Choose advisors with IPO experience
Get advisors involved as early as possible. The more experience they have, the better, especially if they’re well versed in the equity capital market. They’ll be far more likely to identify potential issues before they become a detriment, and overall the process will be expedited. Without the help of experienced advisors, offerings may end up being delayed.
Financial testaments to provide investors
There’s not really a definitive list when it comes to the financial documents your investors will be expecting, but the following list is a start:
- Financial statements since your company was founded
- Your most recent balance sheet
- Financial projections
- How much money has already been raised, and how that money has been used
- Tax returns
- A plan for how you intend to use the money raised in your current round of funding
Using data rooms for investor communications
These days, the only way for investors to carry out effective due diligence is with access to your documents through a virtual data room to ensure an audit trail is captured to meet regulatory requirements. But there’s a reason data rooms are such a necessity – in fact, there’s a whole host of reasons.
A data room means that investors can utilise the many built-in efficiencies that this tech has to offer. You’ll be able to organise and structure your documents in a way that makes it easy for investors to find information quickly and easily. It will also greatly reduce the amount of emailing back and forth you’ll need to do, as most of the answers to investors’ questions will be right there in the data room.
When you’re communicating with a number of investors, there has historically been the risk that confidential information might end up in the wrong hands. But with a virtual data room, you can control exactly which investors have access to any given document. This permissions system will also let you know who has viewed those documents, and even how long they spent on each page. This visibility greatly limits the risk of data breaches.
Eager to learn more about the fundraising journey and investor communications? Keep an eye out for our next blog on investor roadshows. And if you’re looking for an affordable virtual data room, head to our Engage page to find out more.