COVID IPO – Going Public During The Epidemic
Ever since the COVID-19 hit the world, it brought many challenges for running a successful business. Established companies had to make considerable changes to adapt to the new normal, and new companies have to plan every move very carefully.
Going public with a business offer during the pandemic comes with a set of unique challenges you have to consider. Finding the right timing is the first step, but there are many other things you must consider as well. Here’s a quick breakdown of the challenges you will face if you opt for an IPO during the pandemic.
Here are the most important things you should consider before the IPO happens.
1. Virtual Roadshows
Today, everyone does business on Zoom, and it turns out that it’s the perfect platform for IPOs. You can easily organize a virtual roadshow and spread the word about your offer entirely online. Since there are no face-to-face meetings and regular roadshows, you can use a virtual platform to get the same results.
The only thing you’ll have to think about is to do your marketing right. The chances are that you won’t complete all marketing activities you would normally do, but you can still reach out to your investors and keep them up to date.
2. Diligence Process
You must understand the risks and challenges of running an IPO during the pandemic. You can expect to spend time talking with your bankers, getting the legal details in order, and understanding how the pandemic will impact your business offer and prospects.
That’s why you should be extremely careful with your IPO. Apart from considering the regular details such as providing a detailed disclosure and keeping an eye on your competition, you have to consider other details such as employee relations, health risks, governmental approvals, compliance, debt issues, and so on.
You should also know that everything will change during and after the pandemic, which makes the diligence process far more challenging. However, these are all factors you have to consider and adapt to if you want to succeed.
3. Audit and Timing
All companies face a challenge when preparing financial statements for an IPO. The new virtual environment requires all sides to adapt to the current situation. Since the auditors are adapting very quickly, you will have to be ready to facilitate public company financial audits and reviews with their accountants. The key is to identify potential issues as early as possible and find proactive solutions with the SEC.
4. Stockholder Protection
Some stockholders could have concerns about the IPO during the pandemic, which is why it’s imperative to introduce protection measures on time. You must protect your shareholders from unwanted interference after the company goes public.
The new situation has increased market volatility, and the room for error is practically non-existent. That’s why you must inform your investors of all long-term plans and adopt specific measures that will keep them safe from potential short-term results and market raiders.
What’s To Like And What’s Not To Like About Doing The IPO Virtually
A virtual IPO roadshow offers a few considerable benefits over the traditional methods, but it also comes with certain downsides you have to be aware of. Here’s a quick overview of the pros and cons of a virtual IPO.
Efficiency – A virtual IPO allows you to cover much more ground. Instead of going from one banker to another, you will be able to address all of them at once. You also won’t have to worry about social distancing and repeat the same presentation five times a day until you find the right investors.
Time Efficient – It usually takes months to collect the capital you need for an IPO. The markets can completely change by the time you get the funds you need. A virtual IPO offers better results as you can present your company much faster.
Cost Savings – Since you won’t have to travel around the country, you don’t have to worry about hotel and travel costs. What was usually a costly feat is now much more affordable since you don’t have to go anywhere to get things done.
Better Communication – If your investors have questions, you can answer them right away in direct communication. There’s no need for follow-ups, and you won’t lose time waiting to get the answers you need.
Change Is Hard – Capital markets are very traditional, and the new situation the world is in will probably put you against some resistance. Old-school investors often have a problem with running things differently than they are used to. Your virtual roadshow has to be very detailed and on point. One single mistake can lead to a complete disaster.
While face-to-face meetings give you more options and a better chance to sell your idea, virtual meetings will test your knowledge and patience. You will have to tread lightly to succeed.
Control Issues – When talking to investors in person, you can use your charm and wit to control the situation and get everyone on board. On the other hand, a virtual setting won’t be that easy to manage. You might expect technical issues, distractions in the background, people walking into the room, and so on. All of those things are atypical during traditional IPOs, and they could have a negative effect overall.
Less Camaraderie – When you meet investors face to face, you have time to get to know them better over lunch. You get the chance to connect with them on a personal level, something that’s much harder to do online.
Sure, you can organize a lunch break during a virtual conference, but it just won’t be the same, no matter how hard you try. It lacks the social aspect, and that’s something you can’t fix.
Unique Challenges Faced For New and Follow-on Investments
IPO investing comes with all kinds of challenges that only got more complicated during the pandemic. Here are some of the challenges you have to face for new and follow-on investments.
1. Lack Of Information
You must provide your investors with accurate information to allow them to make a well-informed choice of investing. Since you are the only person who has all the information, you have to break things down into smaller chunks and go over all the essential information until your investors get the full picture.
2. No Guarantee Of Listing Gains
Some of the biggest companies in the world started as an IPO. There is no guarantee that your investors will get their money back. As long as you keep them informed and present your product correctly, they will have the information they need to decide whether to invest.
3. Additional Funding
The initial investment might be enough to get your IPO started, but you will most likely need further investments to reach your goals. You must keep your investors in the loop and provide them with all the documentation they need to understand the limits of future funding.
The COVID-19 pandemic has brought some considerable challenges to the table when it comes to IPOs. The environment and rules of the game have changed, and most investors are much more careful about where they invest.
For your IPO to be successful, you must make sure that your investors are on the same page as you are. Keep your project as transparent as possible, and inform investors of all changes the moment they happen. With a little luck and the right management skills, you could build a successful company around the initial IPO.