Why and How to Use a Virtual Data Room for an IPO?

Aug 22, 2021

7 min

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Many privately-owned businesses go through the Initial Public Offering process, as they want to obtain more capital by selling new-issued company shares to the public on the open market. To conduct and complete the IPO, companies have to meet all Securities and Exchange Commission (SEC) requirements. Additionally, to list their shares on a stock exchange, they must also meet conditions set by an exchange. 

It requires revising many documents and files to provide maximum transparency and credibility for future investors and shareholders.

Here is where a virtual data room can help, as it provides a secure space for organizing sensitive data and managing complex procedures, like due diligence.

What is an Initial Public Offering (IPO)? 

An IPO, or Initial Public Offering, is a complex process that involves preparing a large number of documents. It’s because the private company decides to offer its stock shares to investors and to list their shares on the open market, it has to process large amounts of data. 

The IPO process is an enormous transition for the company. As the company prepares for its public debut, investors get the opportunity to examine the company’s financial statements. During the period leading up to the IPO, investors analyze not only financials but overall company operations to predict potential company growth. Based on their evaluations, investment banks and investors try to pinpoint a fair price for the company’s shares. However, once the shares are offered to the public at the IPO, natural economic market forces will determine the stock’s share price.

How does using a virtual data room simplify the IPO process?

The VDR can serve as a great tool to handle complex transactions, such as the IPO process. It’s considered to be a secure cloud-based space for quick sharing and storage of important files. 

A virtual data room for IPO helps process large volumes of information, including financial audits conducted by third parties or regulatory authorities. The data room software offers many security features to make sure you have full control over your documents. This allows you to assign individual user permissions by allowing or restricting access to your specific files. 

The IPO process can be simplified when you handle all of your files in one place. Instead of doing everything manually, including storing paper documents, transporting files to investors, underwriters, etc., you can just upload all files in the data room. That way, you will get a better overview of the progress. 

With advanced VDR features, you can assign tasks for your team members or receive comments regarding revisions. It saves a lot of time, making the whole process faster and more efficient. 

How to prepare a virtual data room for initial public offering?

During the preparation for an IPO, it’s good to have a plan to keep track of all important documents and reports. Here is a step-by-step guide to creating a smooth workflow using VDR software:

  1. Locate and centrally store all needed reports. It’s always better to have everything in one place, so then you can quickly upload all necessary files in bulk to the data room.
  2. Decide whether you’re going to exit or stay on at the company. During the preparation stage, you should discuss with other company stakeholders whether it’s best  to leave or continue holding a position with the company. It’s an important element for the underwriters’ audit done before the IPO. VDR software supports the dual-track IPO process perfectly, as you have the opportunity to evaluate all possible outcomes based on analytics. Then you can see your best option and make a final decision.
  3. Create roles for all users involved in the process and give certain permissions. The virtual data room provides different security features, including permission levels, where you can assign certain access levels to users. Access levels for viewing or sharing a document are determined by the person’s responsibilities. For example, team members have full access to the documents and can edit, save, and leave comments, while potential investors only have permission to view the document.
  4. Upload all required IPO documents into your data room.  As you gather all of the data for the IPO, you can bulk upload it to your data room and proceed to the next step.
  5. Invite other users and give them needed permissions to files. Now that you have all the files in your data room, you can organize them using indexing features and then give underwriters and investors access.
  6. Use communication and collaboration features to react to different inquiries from investors or consultants quickly. To avoid misunderstanding, double work, or unnoticed emails, it’s better to keep all communication regarding the IPO in one place. It’s secure and efficient, as you see all inquiries on your dashboard and can access them at any time. 

Once the company has registered its stock with the SEC or potential investors want to make their mergers and acquisitions offers, then the initial public offering process officially starts — all leading up to the day when the company finally offers its stock to the public.

Using a virtual data room for the IPO process 

The initial public offering with virtual data room is much easier and quicker, as you can use a data room throughout all IPO stages. An initial public offering involves four stages.

1. Preliminary IPO stage

During the beginning of  the IPO process, it’s important to do a thorough analysis of the finances, assets, and company procedures. There are certain steps the firm needs to complete during the preliminary stage, such as due diligence, asset analysis, reviewing financial documents, and checking if they are compliant with international standards.

All actions can be handled in the IPO virtual data room. With file management features, it’s easy to have all files under control, especially during complex processes, such as due diligence.

2. Preparatory IPO stage

This stage involves much team engagement and collaboration. The company should be ready for the rapid changes in operations and organizational structure. An  IPO data room allows you to communicate with the team, consultants, and investors effectively. 

With the Q&A section and other communications, all questions will be answered, so everyone is on the same page. You can also quickly schedule the investment memorandum and manage the marketing campaigns in the data room

3. The IPO 

The IPO stage requires collecting applications of offered securities. The firm, together with analysts, determines the share price based on a market-derived valuation.

4. The final IPO stage

During the final IPO stage, the conclusions are made, and the company analyzes if the IPO was effective. Based on the analysis, the firm creates a strategy for the future and signs the needed agreements. 

The final IPO stage can be very time-consuming because there are many people involved in the final review of the documents. For secure cooperation and time efficiency, many professionals use a virtual data room for IPO.

Which VDR features to use for an IPO?

An IPO virtual data room offers dozens of built-in features. This makes it hard to identify which features to use specifically for the IPO process. When choosing a VDR software for an IPO, you should take into consideration the following features:

  • Watermarking to avoid documents being copied and shared. 
  • Built-in encryption, which is important to make sure only authorized users have access to documents and protect them from unwanted leaks. 
  • The Q&A section for quick and secure communication between consultants, auditors, team, and investors. 
  • Audit and tracking feature to see investor interest levels and then act accordingly. The audit also provides full transparency throughout all four stages of the IPO.
  • Granular access control, so only those users who have permission have access to certain documents.

An IPO virtual data room serves as a powerful tool during the complex transaction process and helps to save time and resources. It provides top security together with management and communication features that are crucial for the successful completion of the procedure.