Road to the North - part 8: Like doing a thesis for Nasdaq
This is part eight of a blog series following the journey of Witted Megacorp as it explores the possibility of listing on the NASDAQ First North market. The story is told from the perspective of CEO Harri Sieppi. Other parts of the series can be found on the Witted blog.
Last autumn we started an IPO project with seven different tracks and twenty to thirty different projects. Giant tasks included legal due diligence and writing the prospectus.
Legal due diligence (LDD)
Legal Due Diligence means - at least for me - a mental breakdown. If you happen to be someone who finds filing a tax return a chore, this is like filing a tax return every day for weeks on end. Legal Due Diligence more formally means going through all* the legal risks of the company. This audit provides the basis especially for the risk section of the prospectus. When I say "all" earlier, it seems to me that indeed ALL.
* In reality, we won’t go through all the risks, only the essential ones. Because I’m a layman when it comes to legal issues, it just feels that way.
We had Dottir as our legal partner, who kept a close (but careful!) eye on us throughout the process. They make sure that we at Witted don't miss something because we're not legal experts. (Okay, we have one lawyer on our payroll, and thank goodness we do!) This process is way easier for us thanks to our partners.
As a reminder, back in the day, when we got our IPO readiness requests, I started losing hair at an accelerating rate. It seemed like a lot of work. It was only at the point when the job was done and the LDD came up that I felt that IPO readiness was not such an onerous request for information. In the case of the LDD, an even longer and a more difficult list of questions came up. It felt like requests for information were coming in left and right. The first step is to find out whether there is this or that risk and whether there are sufficient contracts in place. It's understandable, but it's hard.
What stumped me along the way was the situation where I realised that after this request for information and the subsequent projects, the bottom line is that the prospectus will say whether or not there is a risk X in our business. I would have liked to write in the prospectus that there are all the risks involved in business as there always are in normal business - we are nothing special in that respect. So could the risk section be just this one sentence long? Well, it couldn't, all that was left was to break down the risks into atoms and put together a complete picture for the prospectus.
It didn’t make it easier that we had seven subsidiaries and two associated companies these days and nearly 350 experts working for us at that point. Additionally, we had a lot of customers. So all in all, an awful lot of contracts and then all sorts of other stuff – in the end, we ended up sending roughly 600 contracts to our legal partner.
* Again, from a legal perspective, “all” has a different meaning than in everyday language. So here it means all the essential contracts.
When I thought while collecting these contracts that it's a hard job to collect this pile, I realised that someone still has to read these. Fortunately, Dottir will take care of that. I have to tip my hat to somebody who is still willing to do these things. I did this for a couple of weeks, the team a bit longer. Those guys do that every day! That's a hard core career choice. Respect! Later I learned that they don’t need to read every single contract, though.
As is obvious to those following us at this stage, legal due diligence was completed with flying colours. We got down to the nitty-gritty of the prospectus.
If you're not familiar with IPOs, prospectus as a term sounds like a brief run-of-the-mill brochure. In reality, it's roughly a hundred pages of tough stuff. Building one is like writing a thesis, but with Nasdaq as your reviewer. The prospectus is negotiated between the reviewer and the drafter, like a thesis with its supervisor, until the work is sent for approval. There is no rating scale, the final result is determined by when the public votes with their investments.
The preparation of a prospectus is a marathon exercise. It was in the works from November 2021 and will be in the pipeline almost until the possible announcing terms of the IPO.
So what all is needed to build a prospectus? It's a bit like a bloody difficult colouring book, subject to all sorts of securities regulations. You get a template from your partners in which you fill in the blanks with facts about the company.
We did a division of labour for the prospectus. There were separate sections for the company and partners and all sections were always reviewed and checked together. On behalf of the company, we first tackled the 'story' part - what is the company's history, strategy and strengths. What is the company's operating environment and the market in which it operates? This seemed like a fairly easy job, as it's quite normal for companies. Companies tell their customers the same things every day and write about them regularly. You don't need to invent anything new, just describe what already exists.
In the beginning that work seemed easy, but eventually when you started doing it, it became more challenging. For example: all IT companies seem to describe their environment and market in different ways. There is no right answer and answers are always subjective. Again, similar to this project so far - arduous, but not difficult.
The best way to write was to turn off all stimuli, turn off the internet and sit down in front of Word for eight hours. Then, at the end of the day, you realise that you've just put a few odd pages back together and it's time to go pick up your daughter from nursery. There are also the inevitable interruptions in a CEO's daily life when you have to make sure that business is running smoothly. The role is challenging, but I signed up for that.
However, everyday life was enlivened by the fact that in addition to these two giant projects, there were a lot of smaller projects and really important ones. Sometimes we were able to build documentation that as a private company we have never needed, such as a communication policy or internal guidelines. Sometimes life was invigorated by investor meetings with anchor investors and preparing for them. Accessed training courses organised by Nasdaq and Inderes and created IR websites. In order not to become boring, a dash of book-entry project and making public announcements made everyday life... well - quite hectic x). However, receiving the final report of the IPO readiness at the end of the project brought the sun back and the grey colour on my face returned to normal.
The prospectus still has a life of its own, right up to the announcement of the terms of the IPO. At the time of publishing this blog post, the finish line is already looming. If all goes according to plan, the Road to the North will soon be complete.
We released our ITF last week and the press picked it up very nicely. There is a funny choreography to these listing intentions. Earlier in January, we were allowed to say that we were "exploring the possibility of a listing on the Nasdaq First North Growth Market Finland". Now we can proudly say that we "are planning an IPO and a listing on the Nasdaq First North Growth Market Finland."
It seems that not a lot can go wrong any more. Hopefully we can soon stop talking about planning and start doing instead of talking. On this marathon, we are already at the gates of the stadium.
The story continues in two weeks again. Follow Witted on LinkedIn, on Facebook or Twitter, and we'll tip you off when new parts come in. This story is also told (in Finnish) as Witted: Matka pohjoiseen - a podcast you can find on podcast services such as Spotify Or Apple Podcasts.