The global IPO market is undergoing a lethargy phase, with 1,429 IPOs launched globally in 2023 — this is the lowest number since 2019 and a 16% drop from 2022 rates.
At the same time, the US IPO sector showed certain warming, with 153 Americas IPOs in 2023 that raised $22.7 billion — a 15% YOY increase in number and 3x in proceeds. Some IPO experts see certain positive signs and are cautiously optimistic about the 2024 IPO outlook.
With this in mind, we aim to aid business owners considering going public to make the IPO process streamlined and effective. In this article, we discuss the benefits of using virtual data room solutions during the initial public offering and suggest the top 3 virtual data rooms to use.
What is an IPO?
Let’s start with the basics.
Initial public offering (IPO) is the process of a privately held company going public. It presupposes that a private company starts offering its stock shares on the public market for the first time.
Typically, the main goal behind the IPO is the opportunity to raise capital for the company’s growth. However, there are other potential benefits, such as publicity. By going public, a private company gets more attention and can attract more potential investors ready to buy its stocks. This, in turn, results in more capital raised for the company.
For a company to be eligible for IPO, it has to meet certain requirements, such as:
- Audited financial statements prepared by a reputable accounting firm
- Track record of strong financial performance
- Strong corporate governance practices that adhere to regulatory standards such as the Sarbanes-Oxley Act (SOX)
- Compliance with all applicable laws and regulations, including those related to securities and financial reporting
- Solid market potential that’s supported by a compelling business model and a clear strategy for growth
- Capable and experienced management team and board of directors
- Certain minimum revenue depending on the stock exchange a company plans to list
| IPO is different from M&A. During an IPO, a company enters a public market. It doesn’t cease to exist, and it retains control of the decision-making process. During M&A, one company is acquired by another company, which often can lead to a full takeover, when the target company ceases to exist or the acquiring company gets control over the target company’s decision-making. |
What is an IPO data room?
An IPO data room is a virtual data room (VDR) software used specifically during the IPO process.
Such virtual data rooms typically offer tailored features and services that aim to streamline the IPO preparation and execution and enhance their efficiency.
Below are the main advantages virtual data room bring to the IPO process:
- Secure data management. VDRs provide a secure platform for storing, sharing, and managing confidential information related to the IPO process, such as financial statements, legal documents, and contracts. This ensures that sensitive information remains protected from unauthorized access.
- Streamlined due diligence process. Virtual data rooms streamline the IPO due diligence process by centralizing all relevant documents in one location. This enables the company going public and other interested parties to efficiently review and analyze the necessary information, saving time and resources.
- Efficient collaboration. Virtual data room providers facilitate collaboration among all stakeholders involved in the IPO process, including company executives, legal advisors, underwriters, and potential investors. With the help of collaboration tools such as Q&A sections or annotations, VDR vendors foster greater transparency and efficient communication.
- Improved accessibility and availability. VDRs offer anytime, anywhere access to documents, allowing stakeholders to securely access and review information from any location with an internet connection. This accessibility ensures that key decision-makers can stay informed and engaged throughout the IPO process, regardless of their geographical location.
- Robust data analytics. Many VDR vendors provide analytics tools that track document activity, including views, downloads, and user interactions. This valuable data helps companies gauge investor interest, identify key focus areas, and tailor their communications and presentations accordingly, optimizing the IPO process.
- Adherence to regulatory requirements. Virtual data rooms help ensure compliance with regulatory requirements governing the IPO process, such as securities laws and data privacy regulations. They offer granular permissions, document watermarking, and audit trails, which help demonstrate compliance and mitigate potential risks associated with unauthorized access or data breaches.
How to prepare for IPO with a virtual data room: 5 stages
The preparation for the IPO process typically starts with assembling the IPO project management team and developing the IPO readiness checklist to further follow all stages.
When this is done, the IPO preparation starts. Let’s describe what the process of IPO preparation looks like with the virtual data room for IPO.
1. Financial due diligence
Financial due diligence is crucial to IPO readiness assessment since it aims to ensure accurate financial reporting and transparency of financial statements. During this stage, a company should prepare audited financial statements that comply with regulatory requirements, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
How can a virtual data room help?
- Secure document storage and distribution. Virtual data room security features ensure that all the sensitive financial information shared via VDR is kept private and confidential.
- Audit trails. Virtual data room administrators get detailed audit trails detailing all the activity performed inside a VDR space, which allows for maintaining full control over data access and ensuring its security.
- Granular user permissions. A VDR administrator also sets up different access levels for every user, which makes it impossible for highly confidential financial data to be seen by unauthorized external parties.
2. Legal and compliance review
Reviewing legal and compliance matters is important to ensure the company meets regulatory requirements for going public. A failure to do so can result in an IPO failure or litigation. For instance, the SEC filed 50 IPO lawsuits in 2022.
What’s more, it’s also important to ensure compliance with the latest industry laws and regulations post-IPO. Thus, 34% of companies appear on the exchange non-compliance list, such as Nasdaq’s.
How can a virtual data room help?
- Document indexing and search. This functionality makes it easy for auditors and other responsible parties to navigate large volumes of legal data inside a virtual data room.
- Redaction. With the help of the redaction feature, highly confidential data, such as personally identifiable information, is blackened out, and thus, protected from unwanted views.
- Watermarking. This is another security feature that ensures no data is shared with outside parties, copied, or screenshotted.
3. Business operations evaluation
Before going public, a company should also assess its business operations, market positioning, and growth prospects to showcase its potential to investors. This also includes ensuring that effective corporate governance structures are implemented, reporting and disclosure processes are enhanced, and all the key stakeholders, executives, board members, and employees are educated on the implications of going public and their responsibilities during that process.
How can a virtual data room help?
- Folder structure. Virtual data rooms allow for grouping all the documentation in relevant folders, which makes navigation easier and more efficient. Additionally, some VDRs offer labeling functionality, which only adds to the overall user experience.
- Q&A functionality. With the help of advanced Q&A workflows, all the parties can proactively collaborate and ensure a streamlined business operations evaluation process.
- Easy data management. Data management is also improved with such features as drag-n-drop and bulk upload that allow administrators to upload files in seconds despite their quantity.
4. Risk assessment and mitigation
During the IPO preparation phase, it’s also essential to identify potential risks and liabilities associated with the business and develop strategies to mitigate them. This minimizes the chances of IPO failure and increases potential investors’ interest.
How can a virtual data room help?
- Version control. VDR administrators can maintain version control of risk assessment documents to track changes and updates made during the preparation process.
- Data encryption. The security of sensitive risk assessment documents is ensured by encrypting data both in transit and at rest within the virtual data room.
- Remote wipe and IP restrictions. To mitigate the risks of sensitive data disclosure, VDR administrators can also restrict access to certain IP addresses or activate the remote wipe feature even when the data is already downloaded on a device.
5. Investor relations preparation and marketing
Working on the investor relations (IR) strategy is a crucial part of the pre-IPO stage. IR specialists are responsible for educating potential investors about the company’s business model, financial performance, and growth prospects.
At this stage, a company should prepare different investor documentation, including prospectuses, presentations, and roadshow materials.
How can a virtual data room help?
- Document tracking and analytics. This functionality allows for tracking investor engagement with investor materials. This helps gain insights into investor interests and preferences.
- Secure mobile access. Most virtual data room providers are available on mobile devices, which enables on-the-go access for key stakeholders and potential investors during roadshows and investor meetings.
- Two-factor authentication. For the security of the shared data, VDR administrators can enable two-factor authentication, which ensures no unauthorized user can view documents.
Top 3 virtual data rooms for IPO
So what virtual data room provider to choose for IPO? We recommend relying on your business needs, but suggest you consider the following:
| Provider | Features | Free trial |
| iDeals | Detailed audit trails Built-in redaction 8 levels of granular access controls Auto notifications for new activity Remote purge and wipe Full-text search with OCR Multi-project management Document labels | ✅ 30 days |
| Datasite | 5 levels of access controls Two-factor authentication Single Sign-On Dynamic watermarks Document labels Advanced search filters Q&A functionality | ✅ 14 days |
| Ansarada | Session timeout AI redaction File versioning Q&A functionality Real-time audit trails File self-destruct Multi-format support | ✅ 14 days |
Summing up
Let’s summarize the key points from the article:
- IPO is a process of a private company going public. Generally, the main objective behind IPO is to raise capital for growth and development.
- The IPO preparation process is significantly streamlined when using virtual data rooms.
- Virtual data room features and services ensure the security of data shared during IPO and the effectiveness of collaboration of all the parties involved in the process.
- A few VDR providers to consider for IPO include iDeals, Datasite, and Ansarada.