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Late-stage GC Insights: Navigating the Path to an IPO

Fenwick’s corporate partner, Ran Ben-Tzur, recently led a small group discussion on “How can GCs identify, prepare for and respond to pitfalls in the IPO journey?” at TechGC’s IPO conference in San Francisco. The following are some key takeaways from the conversation, including insights from in-house counsel for late-stage private technology and life sciences companies.

How do GCs manage IPO preparation in an environment where companies are not going public and where there may be more pressing internal priorities??

ran: There are certain things that a company must “require” before going public, such as: B. Two years of Public Company Accounting Oversight Board (PCAOB) compliant financial statements and a majority independent board and board committees. However, there are many equally important things a company does to become “publicly ready” that, while not necessarily mandated by the rules, are important to focus on regardless of whether the company decides to go public .

This includes, but is not limited to, establishing governance structures, implementing systems and tools to ensure fast and accurate financial reporting, ensuring the company’s capitalization is correct, and building a strong compliance program. Accordingly, despite the current downturn in the IPO market, many leadership teams, including GCs, continue to spend time focusing on public readiness initiatives.

What are the challenges of building a “public” compliance program at a late stage?-Level private company?

ran: As a company matures and the legal department expands and becomes involved in the adoption of more rigorous processes around contracting and compliance, tensions often arise between legal and other aspects of the business. Early stage business teams in private companies want to move fast and are often not used to being legally “in the way”. It is the job of the GC to ‘sell’ to the business side the importance of establishing strong processes and compliance and how these things ultimately benefit the business. For example, many technology companies share financial and other information extensively with their employees before going public. A GC can sell leadership by pointing out that broad information sharing would limit employees’ ability to trade post-IPO. Another example is building strict contractual processes that would help the company avoid internal control failures and financial adjustments. One GC suggested making it clear to stakeholders within the organization that in the context of an IPO (or M&A or financing) they ultimately need to go through rigorous due diligence processes and that a strong compliance program will significantly streamline the due diligence process. GCs should keep in mind that changes within the organization should be implemented with care (and ideally within the confines of corporate culture) – a “rip the tape” approach is often not the best way to do this, which is likely to create further tension between business and law and can ultimately be counterproductive.

How do GCs who have not gone through the IPO process find out about an IPO?

ran: Many rely heavily on outside advice to educate themselves on what they need to know, as well as through self-study using online materials such as Fenwick’s IPO and Direct Listing Checklist. We always speak to late stage clients about specific questions or scenarios that arise as they prepare for life as a public company and are here to guide them through this interesting and challenging time when it is unclear when the IPO -Window is opened again to a significant extent. But if that’s the case, we want our customers to be fully prepared.

What are Are late-stage private companies concentrating in the current environment?

ran: Companies are transitioning from “growth at any cost” to profitable growth. The legal department has to adapt to this environment. GCs now face issues such as power reductions, option pricing adjustments and other activities that occur during a slowdown, while also focusing on ensuring the company is “publicly ready” when markets recover.

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