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The Renewable IPO, Part 2: What To Expect After the Decision Has Been Made

In part 1 of this article, we talked about some successful and not-so-successful IPOs in 2010. If your company determines that an IPO is the next step for you, here is some advice on what to expect and how to prepare. It isn't all about the money.

Start Early

This is not a fast process. If you are operating on a shoestring budget and have three months worth of cash, the IPO is not for you because it will take longer than that.

Going public can take six months but more likely will take a year. If funds are dear, consider government grants or loan guarantees, selling tax credits, selling to private institutional investors, bank financing if you have assets that can be used as collateral, licensing your technology or other fundraising activities.

Still in? Here’s more.

Solid Financials

You might expect an auditor and CPA like me to say you need quality financial reporting, but you’ll hear the same thing from underwriters, securities attorneys and investors. The smarter clients considering either an IPO or even a private sale get a CPA involved several years before the deal. Since renewable energy companies are in their early stages, investors understand that there will be losses, but audited financials by a reputable firm give you better leverage.

Generally, when filing your initial registration statement with the SEC, you will need to include the most recent one-year balance sheet and the most recent two-years’ income statements and statements of equity and cash flows for smaller reporting companies.  An independent audit firm registered with the PCAOB must audit all of these.

In addition, if the audited financial statements are more than 129 days old, then you will need to file stub-period financial statements that must also be reviewed by your independent audit firm.


A year in advance, evaluate your existing management team and assemble the best team you can, preferably one with transactional or public company experience.

Board of Directors

You should begin assembling a strong, independent board and a complete set of corporate minutes and any governance records. Most private companies operate with a board of directors consisting primarily of management and friends or family members. However, most stock exchanges require that the majority of the board of directors of a company traded on their exchange be independent. In addition, the SEC requires an independent audit committee. 

Compensation Disclosure and Analysis

Compensation disclosures have been one of the SEC’s hot buttons over the past several years and as a public company you will need to provide extensive disclosures in your periodic filings. So get the policies and contracts in place prior to going public.

Document Material Agreements

As part of his/her due diligence process, the underwriter and his/her team will request and review all of your material agreements. When you file your initial registration statement you will be required to file as exhibits all material contracts outside of the ordinary course of your business. This is where your legal counsel fits in.

Protect your IP

Investors these days need to know what it is you truly own and can defend in court if necessary from patent infringement. Make sure your intellection property is properly documented.

Play Defense

This includes anti-takeover provisions and poison-pill takeover measures. Poison pill plans are legal in the US and used to protect companies against hostile takeovers. Typically, shareholders will have the right to buy more shares at a discount, if one shareholder buys a certain percentage of the company's shares.

Do a Risk Assessment

Identify any issues that could challenge your company’s ability to thrive and prepare measures to deal with them. This could vary from legal, market, commodity and political risk to workplace issues. Petro Algae, for example, misread the market risk and the investor appetite for early stage renewable technology that had not as of yet produced revenues. Another example of risk assessment would be to analyze the political risk facing ethanol producers who build grants and tax breaks into their cash flow projections that could be wiped out with the stroke of a pen.

Prepare for Periodic Filing Requirements

As a public company you will need to file quarterly and annual reports with the SEC within the required timeframes. Prior to going public, ensure that you have systems in place to accommodate these requirements.

You will also need to disclose and report on your internal controls over financial reporting. The requirement to provide an independent auditor’s report on internal controls over financial reporting (commonly referred to as 404b) was removed by the Dodd Frank Act for smaller reporting companies as defined by the SEC, but even for smaller reporting companies, management will have to provide their report on the effectiveness of their internal control over financial reporting.

The initial documentation of internal controls and ongoing testing required for this report can be quite time-intensive. Some companies are handling this all internally and others are outsourcing but the process can and should be started before going public and not afterwards.

Select an Underwriter

About six months prior to the IPO, management needs to select an underwriter, who will ultimately market the transaction. Some important considerations in making this selection are as follows:

  • Industry expertise
  • Size of firm, bigger is not always better
  • Their perceived commitment to your company both before and after the offering
  • Their backlog of deals, are you going to be number one on the list or number one hundred?

The underwriting company will have its own SEC counsel who will work closely with your own. At this point, the registration statement will begin to be drafted. Once filed, the SEC will review the document and provide comments, generally within thirty days. Within a week to two weeks you will need to respond to the SEC’s comments and file an amended registration statement.

The SEC will review the amendment typically within about a week and potentially provide additional comments. Because of these iterations of comments and responses, the SEC review process can potentially slow down the transaction’s closing. It is not uncommon during this process to establish direct contact with the SEC to clarify their concerns and to help expedite the process, normally handled by outside counsel and auditors with SEC experience. 

The Road Show

One of the last activities for management prior to closing is the road show, where you make presentations to syndicate members, potential institutional investors and retail brokerages. Management’s job in these presentations is to respond to questions and present the company, not hype the deal. While you can get into projections, you should stick to facts as much as possible.


The IPO can be crucial to early stage technology companies. Earlier this month, Gevo raised $107 million ($96 million net). The IPO can provide a level of funding that most VC firms are not comfortable with. The payoff to the company is at worst a few more years of operating capital – it used $21 million last year for operations (estimated based on September 30, 2010 results)  - to develop and sell its promising isobutanol technology. The public markets turned out to be a source of funds that the company may have been unable to access otherwise.

Greg Pfahl, CPA, is an audit partner in the Denver office of Hein & Associates LLP, a full-service public accounting and advisory firm with additional offices in Houston, Dallas and Southern California. He also serves as a local leader for the alternative energy practice area. Pfahl can be reached at or 303.298.9600.

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