2011 is shaping up to be the most active year for IPO and M&A activity since the financial meltdown in 2007. According to Market Watch, in the second quarter of this year, there were 22 venture-backed IPOs valued at $5.5 billion, more than triple the dollar value seen during the second quarter of 2010 and a 29 percent increase by number of offerings compared to the same period last year. While some industry experts point to high profile social networking companies such as Living Social and Groupon as the cause for such elevated interest, it appears that overall transactional activity is back.
What we have learned from companies like Living Social and Groupon is that companies are skyrocketing to an IPO faster than many imagined possible (the traditional IPO time-frame). Some have commented that without R&D, brick and mortar, patents, product development or marketing, the initial investment needed by a social media or ‘lifestyle’ company is much lower and therefore the ability to turn a profit quickly or just grow revenue is often realized sooner.
As the IPO fever continues to grip VC-backed technology start-ups, investors are looking to cash in on the current craze as fast as possible. This ‘gold rush’ of start-ups eager to launch the next iPhone app or social media tool has created record keeping concerns for many investors and their portfolio companies. As a result, any VC-backed company should be mindful of what systems it has in place to track and manage its capitalization and other corporate records and put these systems in place early on. This will enable them to accurately track the information before any major transaction is on the immediate horizon (IPO, M&A or even initial investment).
We have helped many Corporate Focus customers reconcile and clean-up their records when they are not sure if their capitalization tracking and record keeping is 100% accurate. We have seen on too many occasions the embarrassment, frustration and loss of credibility that happens when a team of advisors (accountants, lawyers, bankers and VCs) during the due diligence process is using a set of spreadsheets that contains one “small” error buried in a formula.
This is where systems like Corporate Focus for stock plan administration and capitalization reporting come into the picture. Every time a spreadsheet is updated manually or by a different person, the risk of an error or inconsistency increases. In addition to reducing the risk of an error or mistake, systems like Corporate Focus provide easy access to the information and reduce unacceptable waiting time. Entrepreneurs and VCs can reduce headaches and misinterpreted numbers from accountants, attorneys and bankers by maintaining accurate information and reconciling the information between the company and its advisors before the numbers are shared with the other side.
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