2014 was a big year for initial public offerings (IPOs). According to Renaissance Capital, 273 companies took the plunge in 2014, the most since 406 companies went public in 2000. Gross proceeds of $85 billion were raised, inflated by the year’s largest IPO and the largest U.S. IPO ever, Alibaba’s $22 billion. More importantly, IPO performance at year end was up 16%, close to the ten-year mean but well below the 41% average return at the end of 2013.

If you are a general counsel or CFO of a company considering an IPO, recent changes in the regulatory landscape have shifted the paradigm of permitted activity. Preparation will make your life easier as you navigate the offering process and beyond. The stakes are higher—public offering disclosure carries with it the penalty of “strict liability”—meaning the company will not have a defense to statements it makes to prospective shareholders that are materially incorrect or misleading, or omit to state a fact required to make a statement not misleading. More importantly, IPO transaction execution, or lack thereof, can have a lasting impact on the business’s reputation. For many investors and consumers, this could be your only chance to make a first impression.

While compiling a complete list cannot be done in a brief article, here are the top five things you need to keep in mind to survive your first IPO:

1. Information and Document Preparation is Critically Important

Organize the company internally to be as efficient as possible for the IPO working group to conduct due diligence. Compile all important organizational documents and material commercial agreements and establish a data room. You can use the financial printer or one of the popular online data storage sites. The key to maintaining your sanity is having critical items in an accessible location so that business disruption is minimized. Due diligence will be conducted throughout the process, but the bulk of the review will be prior to filing the initial registration statement.

2. Prepare Your Employees for the IPO

It is a good idea to send a memo or conduct a meeting or series of meetings with employees so that they have talking points on the offering with clients, customers and others. Communication is a critical element of a successful IPO and the letter to employees, and your employees’ communications with outside stakeholders should be carefully screened by counsel to ensure you are not making a prohibited offer to buy securities.

3. Have Realistic Timing Expectations

You should be prepared for a four- to six-month process. Many offerings are accomplished in three months, but this is the exception. The Securities and Exchange Commission (SEC) comment process can be unpredictable. First-round comments can number over 100. Many comments are “camera-ready” wording changes, but others require extensive revisions to disclosure, adoption of policies or engagement of auditors to arrive at a mutually acceptable solution. Cross your fingers for a smooth review but be prepared for the transaction to drag. If possible, avoid transactions or business initiatives that rely on the IPO being completed by a certain date. This will prevent disappointment if the IPO is not completed by that date, which may be completely outside the control of the deal team.

4. Take Advantage of the IPO On-Ramp Implemented in 2012

The IPO On-Ramp, implemented as Section 1 of the Jumpstart Our Business Startups Act of 2012 (JOBS Act), was the most significant reform to IPO execution and process in a generation. The IPO On-Ramp created a category of issuer called an “Emerging Growth Company,” or EGC. To qualify as an emerging growth company (EGC), an issuer must have gross revenues of less than $1 billion. Domestic and foreign issuers who had not yet had a public equity offering are eligible, with some exclusions.

EGC benefits include:

  • Confidential SEC submissions and review
  • “Test the Waters” prefiling and pre-effective meetings
  • Reduced disclosures
    • No Compensation Disclosure & Analysis
    • No mean compensation data
    • No CEO vs. median employee
    • No Say on Pay, Say When on Pay and Say on Golden Parachute Votes (which are nonbinding anyway)
  • Exemption from Sarbanes-Oxley auditor attestation requirement (Section 404(b))
  • Audited financials—two years required instead of three
  • Selected financials—need not show more than audited years presented (two years instead of five)
  • Need not comply with new financial accounting standards

You remain an emerging growth company until the following occurs:

  • You qualify as a “large accelerated filer” under Securities Exchange Act Rule 12b-2:
    • $700 million worldwide public float (excludes affiliates),
    • Has been subject to reporting requirements for one year, and
    • Has filed at least one 10-K/20-F, or
  • You issue $1 billion of total nonconvertible debt over a rolling three-year period, or
  • You have $1 billion of total gross revenues (last day of such fiscal year), or
  • Five years—the last day of the fiscal year containing the fifth anniversary of first public equity offering.

Congress created the EGC in the JOBS Act in order to enable easier and more cost-effective capital-raising by smaller companies. Nearly every company that qualifies as an EGC has elected to avail itself of at least some of the privileges, especially confidential submissions and Sarbanes-Oxley 404(b) exemption.

5. Life as a Public Company is Different

By any objective measure, life as a public company is more complicated and demanding than closely held living. The majority of directors must be independent. Stock exchange and SEC rules prescribe board audit, compensation and nominating committees with certain membership and composition requirements. The company must adopt a code of ethics for the board and management. Auditors must be engaged to write a concurrence opinion with respect to the company’s assessment of internal control over financial reporting.

Public companies also have ongoing business and reporting obligations that will require adequate staffing. This includes (for domestic companies):

  • Annual Report on Form 10-K
  • Quarterly Reports on Form 10-Q
  • Current Reports on Form 8-K
  • Section 16 Reports (Forms 3, 4 and 5)
  • Proxy Statements and Annual Reports to Shareholders
  • Registration Statements of Securities on Forms S-1, S-3, S-4 and S-8 (and S-11 for REITs)

Also, earnings blackout, insider trading and Regulation FD policies should be implemented. In addition to finance and legal staff, you will also need to hire investor relations and media relations personnel and develop and maintain an investor relations website.

Companies that have insufficient resources to support public company obligations will receive notice from their auditors that they have a material weakness or significant deficiency in their internal controls over financial reporting, which will need to be disclosed in their SEC filings and presumably impact their stock price.

Completing an IPO is a transformative event in a company’s life cycle. Proper preparation and guidance will produce the best possible results.