- This year, there's been a dearth of IPOs after a flurry of companies went public in 2021.
- IPO delays don't have to become wasted time for tech startups.
- A Fidelity SVP tells Insider how founders can use the lull for employee education and readiness checks.
The initial-public-offering craze of 2021 represented the biggest public-debut year ever by volume, according to the consulting firm PwC. But this year seems silent by comparison.
Some tech companies, such as Instacart, TripActions, and ServiceTitan, have confidentially filed to go public this year. Yet few have executed on that promise, with most choosing to push their IPOs to next year and beyond in the face of market uncertainty.
But IPO delays don't have to become wasted time, Carl Stegman, the Fidelity senior vice president leading stock-plan services for private companies, told Insider. In fact, without the pressure of juggling competing priorities under a tight timeline, startups can take advantage of extra time to prepare employees and fortify vendors to avoid some common IPO headaches.
"If a company is considering an IPO, we ask them to use this time as a gift and create a plan that effectively utilizes that nine-, 12-month period to really ready their organization for the IPO," Stegman said.
Stegman works with startups from the early stage to IPO and helps them with everything from stock-plan administration to employee education. Here are his top tips for how startups can take advantage of IPO delays.
Educate employees on IPO effects
During the IPO lull, companies can use the time to create an educational program for employees, Stegman said. That includes information like the financial implications of an IPO and how to plan for them.
Education not only helps smooth over the IPO process but also leads to more loyal and engaged employees, Stegman said. For instance, employees can learn about mitigating the tax effects of an IPO event to receive the capital-gains tax rate that's lower than the ordinary income rate.
Plus, employees often come with a variety of experience and knowledge on the topic. So it's crucial to explain even basic topics, like how an employee can exercise their options early, to get everyone up to speed on the effects of an IPO, Stegman said.
Understand restrictions for securities
Many employees and executives may not understand the restrictions placed on IPO securities. These restrictions can be nuanced and require careful planning on the company's part beyond general employee education, according to Stegman.
"The biggest surprise between a company and their employees is when they think, 'We've gone public, we have publicly traded securities, and everything is tradable,'" Stegman said. "But there's going to be restricted periods. There's going to be restricted securities."
For example, during a lock-up period, company insiders like employees or executives are not permitted to sell shares for three to six months post-IPO. By providing education on these restrictions early, startups can prevent employees from feeling disappointed about what they're allowed to do following an IPO, Stegman said.
Complete vendor and supplier readiness checks
Heading into an IPO, startups should vet all of their vendors and suppliers to make sure they're public-company-ready, Stegman said.
In a normal IPO process, vendor and supplier diligence can be pushed until the last minute or may compete with other important priorities, such as meeting with investors or fortifying financial reporting, according to Stegman. A pause in the IPO market, however, offers companies the opportunity to get ahead of the curve by completing these processes early.
"By completing a vendor conversion early in the process, plan administrators will have more time to master vendor operating platforms, put controls in place to minimize security conversion challenges, review data, and ensure it is in good order, and eliminate unnecessary stressors during the IPO conversions," Stegman said.