Our Top 5 ‘must-do’s for Pre-IPO enterprises
10 April 2019 | Minutes to read: 4

Our Top 5 ‘must-do’s for Pre-IPO enterprises

By Nicholas Benbow

Considering an IPO? We’re often approached for professional guidance from pre-IPO enterprises on their path to listing. Such a journey is exciting and, at times, nerve-wracking – the IPO process is very much an outside-the-box experience and a once in a lifetime event. At William Buck, we’ve seen our fair share of successes and failures. From our experience, we’ve boiled down the five most important matters for you to consider to be successful in your own IPO process.

Show genuine progress with growth

Growth is not just about revenues and customers. Many new ASX entrants are enterprises nowhere near gaining revenues. Consider a biotechnology company that is yet to transition to an advanced stage of clinical trials, or a junior explorer just embarking on a major drilling program. Even tech companies may only have small revenue levels as they initiate pilot projects with targeted customers. What investors are looking for in this context of growth may be non-financial in nature – but in achieving those non-financial growth goals, investors will be able to see a clear path gearing up for full commercialisation.

Be connected in through your professional advisors

Leverage from and trust your professional advisors. This isn’t confined only to their expertise in their given field – such as legal and accounting – but also, who they know and how their connections can help you. Some of the most successful IPO listings on the ASX use a corporate advisor to manage their capital raising and investor relations. Our thoughts on what makes a good corporate advisor include the following:

  • Their connectedness with key cornerstone and seed investors and venture funds, predicated primarily from a strong and successful track record from other similar transactions
  • Their savvy in taking your growth message to market
  • Being able to act as gatekeeper for managing professional advisors necessary to the IPO process (brokers, lawyers, accountants) – allowing you to concentrate on the number one matter of importance to you – your business

Above all, if the corporate advisor-entrepreneur partnership is to work there needs to be a fundamental chemistry of trust and respect from both sides so that both can concentrate on the areas that they need to so that the IPO process is a success.

Get the balance right with your capital structure

Capital structures of pre-IPO companies often develop deep complexities. These complexities arise from different sources, but all share one thing in common – the need for a pre-IPO enterprise to access and preserve cash. Some common examples we see include the following:

  • Venture capital or strategic investors may join in on a preferential basis (compared to ordinary shareholders) – these preferential shares may include repayment mechanisms or may protect their interest against dilution
  • There may be non-cash incentives to the Board and management in the form of performance rights or options
  • Sometimes capital raising is done through convertible notes instead of shares

All above examples are very reasonable and practicable to pre-IPO companies. We only advise pre-IPO enterprises to be cognisant of some of the potentially non-intended consequences of entering into these creative financing arrangements, including:

  • They present complex accounting challenges that may cloud your message – that is, the growth message you may want to convey in your financial statements;
  • They may be costly to exit – in-particular, preferential shares and convertible notes may end up being very costly to the enterprise and these instruments have the capability to hold ordinary shares and the enterprise hostage
  • The regulator is increasingly looking for clear and understandable capital structures upon IPO – these instruments have the potential to obfuscate what the fully diluted capital structure (and indeed its market capitalisation) is – remember that often the IPO is the first pitch of the enterprise to retail investors, as up to that point all previous dealings have been with wholesale seed investors
Maximise existing government-sponsored programs designed specifically for pre-IPO companies

You may remember that buzzword ‘innovation’, which Malcolm Turnbull introduced to Australia upon his ascension into Prime Ministership. Political fluff aside, Malcolm Turnbull did bring in some new initiatives to further enhance strong government-backed support for innovation and entrepreneurialism in Australia.

You’re most likely already familiar with the R&D (research and development) Incentive and EMDG (export market development) grant. However, few in the pre-IPO space to date have taken full advantage of other potentially lucrative programs. This includes incentives for investors for early stage innovation companies (ESIC – which offers capital gains tax exemptions and a tax offset of 20% on capital invested) or specific incentives attached to particular industries – i.e. the Medical Research Commercialisation Fund.

Our advice to you: please don’t pass up these opportunities – particularly if (like the ESIC program) they apply only at the investor level. Your willingness to invest in the welfare of your investors through the ESIC program for instance, will speak volumes for how you intend to care for and reward your investors for their capital.

Gear up for corporate governance

You need to be aware that by following a successful issue or transfer of capital that the enterprise will no longer be yours, but that of your shareholders. This means something that often precipitates dread and fear in a founder – corporate governance. To assuage the pain of this, we advise you, the founder and entrepreneur, to adopt a pragmatic and utilitarian mindset – your Board will be there to help you and support you with skills, experience and networks different from your own. Boards will protect you and find ways to support growing and enhancing your business. Rather than finding and checking off a checklist of what should be in the corporate governance environment of an ASX-listed, build your own corporate governance from the ground up. Remember, checklists devised by the ASX are a one size fits all approach and are designed primarily in mind for ASX 200 companies that will have market capitalisations of at least $500m. Therefore, you will find that if you build corporate governance, from the ground up and bespoke to your needs, that it will be most-likely fit for purpose. It will also address all those checklists as a matter of course where there is divergence, an area for you to consider in the context of your enterprise and the risks it faces.


So, there you have it, William Buck’s five “must-do’s” to consider on your pre-IPO journey.

Of course, we’re available to discuss this in much more detail if you wish – just reach out! We always love to hear from entrepreneurs and their ideas for how they will change the world; if we can, we would love to help you get there.

Our Top 5 ‘must-do’s for Pre-IPO enterprises

Nicholas Benbow

Nicholas is a Director in our Audit and Assurance division. He specialises in accounting for complex business transactions, including acquisitions, divestments and restructures, particularly in situations where a business is primed to realise its growth potential. Nicholas works closely with companies through the IPO process, assisting with Audit and strategic advice.

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