IPO Preparation Steps

AUDIT: The Process EVERY COMPANY Should Understand 🔍 When I first started my journey as an accountant, I thought accounting only consisted of 2 fields: Audit and Tax. While the world of Finance & Accounting indeed is much bigger than just these 2 fields, Audit still makes up a big part of Accounting. Today, I'm breaking down what audit means in plain English, but first... ➡️When do companies go through an audit? Different events in a company's journey can trigger the need for an audit—this is often the case whenever a large amount of funding is being invested or lent into a business. The concept is simple - investors want to ensure the financials accurately reflect the state of the company. As companies mature and eventually go public, they no longer have the "option" to complete an audit...it's a requirement thanks to Sarbanes-Oxley. ➡️What to Expect from a First-Year Audit Your first-year audit will be TOUGH. It requires a lot more time, effort, and resources than most companies realize. Here's what to expect: The auditors will dig deep into your financial records - examining everything from bank statements to contracts. They'll need to understand how your business operates from scratch, which means many meetings and explanations. Your team will need to provide years of documentation and answer countless questions. This often pulls staff away from their regular duties for weeks or months. Many companies underestimate this workload and don't allocate enough resources. First-year audits typically cost 25-50% more than subsequent audits because everything is being examined for the first time. The process can take 2-3 times longer than future audits. It's actually quite common for companies to abandon their first audit attempt when they realize the enormous commitment required (I've had this happen with several clients I've worked with). Here's an easy way to remember what the process of an A-U-D-I-T can look like: ➡️ ASSESS First, auditors scan your financial statements looking for oddities. ➡️ UNDERSTAND Next comes connecting your data to accounting rules. Good auditors don't just memorize GAAP or IFRS - they know how to apply those complex rules to YOUR specific business situation and industry. ➡️ DOCUMENT Paper trail, paper trail, paper trail. Working papers become the backbone of everything. ➡️ INSPECT Now comes the detective work... Auditors examine evidence, test controls, and look for inconsistencies. They'll inspect physical assets, review contracts, and evaluate your internal control systems. ➡️ TEST The final step involves verification. Auditors test samples of transactions, recalculate figures, and confirm balances with external parties to verify accuracy and compliance. === What's been your experience with audits? The good, the bad, or the ugly? Share your thoughts in the comments below 👇

ESOPs don’t always work, but when they do its magical 5000 Swiggy employees made around 9000 crores in the IPO Some would have made 100 cr plus Many many more would have made 10 cr plus Life changing money for most people and will enable risk taking and another 100 plus startups from this set If you are evaluating offers from startups with significant ESOP component, this is how you should evaluate it For an employee to make meaningful money through ESOPs, 2 things must happen: - Growth in company value - Employee friendly ESOP policies that ensures employees make money when company grows a) Growth in Company Value This is where employees need to think like investors Just like investors are particularly wary of what valuation they are coming in, entry valuations should matter for employees too ESOPs are allotted basis the current valuation The likelihood of a 10x growth in your ESOPs if you are joining a startup valued at 100 million $ is much higher compared to joining a startup already valued at 5 billion $ A 75 lakh ESOP allotment in a 1000 cr valued org with chances of a 10x growth could be a better offer than 2 cr ESOP allotment at a 20000 cr valued org with lower chances of future growth The second thing to judge is the business model and the likelihood of the business to grow( very important for Seed/Series A/B startups) b) ESOP Policies The startup ecosystem is full of stories where employees didn’t make money despite the company growing and having multiple liquidity events. Swiggy, Zomato are examples of great ESOP policy. Many companies have extremely shitty ones Here are the things that should matter most while evaluating policies: 1. Vesting Schedule: The standard is 25% vesting after every year. Any schedule which has higher vesting towards the later years is a red flag Vesting should never be performance linked If performance is bad, it is management’s responsibility to fire 2. Vesting on Leaving/Startups Exit: If you exit, you should retain all options that has vested If a startup gets acquired before all your options vest, there should be accelerated vesting 3. ESOP Communication: There should always be written communication( preferably through ESOP portal) Verbal communication for ESOPs is a huge red flag 4. Strike Price: Strike Price should be as low as possible( Re 1 ideally). This maximizes the value creation for the employee 5. Holding/Exercise Period: Converting options to shares is a major tax liability exercise. With limited exercise period, it becomes impossible for employees to exercise as it means paying up to 40% real taxes on notional capital gains in an asset class that is not liquid Ideally, holding period should be infinite for vested options, even after exit This enables employees to wait for liquidity events without incurring upfront taxation to be paid out of own pocket

Do you know what auditors look for when examining financial statements? Let's dive into the audit assertions! Assertions about Classes of Transactions: -Occurrence: Ensuring that recorded transactions actually happened and are related to the company. No fictional sales here! -Completeness: Checking that all transactions are properly recorded and disclosed. Nothing left out! -Accuracy: Making sure there are no errors in recording transactions and that disclosures are correctly measured and described. Accurate numbers matter! -Cut-off: Verifying that transactions are recorded in the correct accounting period. No time travel allowed! -Classification: Confirming that transactions are posted in the right accounts. Raw materials in repairs and maintenance? We'll catch that! -Presentation: Aggregating or disaggregating transactions for clear descriptions and relevant disclosures. Let's make financial statements easy to understand! Assertions about Account Balances: -Existence: Ensuring assets, liabilities, and equity interests are real and not overstated. No imaginary assets here! -Rights and Obligations: Checking legal ownership or control of assets and obligations to repay liabilities. It's all about rights and responsibilities! -Completeness: Confirming that all assets, liabilities, and equity interests are properly recorded and disclosed. Nothing missing! -Accuracy, Valuation, and Allocation: Verifying appropriate valuation and recording of assets, liabilities, and equity interests. Plus, proper allocation of overhead costs! -Classification: Ensuring assets, liabilities, and equity interests are recorded in the correct accounts. Let's organize things properly! -Presentation: Presenting assets, liabilities, and equity interests in a clear and understandable manner. Financial statements should tell a compelling story! Understanding audit assertions helps auditors ensure the reliability and accuracy of financial statements. #AuditAssertions #FinancialStatements #Auditors #audit #accounting #finance

Stock options are more like handcuffs than an incentive. Because you don’t own equity with a “stock option”, you just under certain conditions have the option to buy the stock at a predetermined price. But if you want to leave the company to pursue a new passion or opportunity, you can’t. You’re handcuffed. Because if you leave, you need to actually buy the vested stock options to convert them to equity. Pay up or you forfeit the options. But you probably won’t be able to afford buying it. And you probably won’t want to and/or can’t afford to pay the taxes to buy it. Especially when the investment won’t produce cashflow. And the timeline to exit is totally unknown. And your potential return is totally unknown. So really, you’re just handcuffed to being an employee until a liquidity event. Which may not even make you any real money. Because your options sit low (or the lowest - common shares) in the capital stack. And even if company exits, you’ll be stuck paying ordinary income tax instead of capital gains which will cost you an extra ~20% of your net gain due to unfavorable tax treatment. ___ Real equity is how you get wealthy, not stock options. Real equity (usually) provides cash flow and (usually) provides tax benefits and (always) counts toward your net worth. Stock options do none of these. Let’s break down the differences - people need to know this stuff!! STOCK OPTIONS -You are granted options. You don’t need to buy the equity upfront. This *seems* like a good thing to inexperienced people, but it’s the worst because it classifies you as ordinary income (worker), not capital gains (investor). -Stock options don’t count toward your net worth. You don’t own them.  -Stock options have the least favorable tax treatment - ordinary income. Costs you an extra 20%  -Stock options don’t entitle you to dividends or cashflow -If you cease employment, you likely forfeit your options since you’d need to put up the 6-figure or 7-figures in cash to buy the equity (which is objectively often a terrible investment). EQUITY -You are an investor. You purchase equity with cash, note, or another form of payment -Equity counts toward your net worth at fair market value -Equity (usually, if held for more than 1 year) has favorable tax treatment - capital gains -Equity (usually) provides cash flow, at least for most companies outside of B2B tech who don’t burn excessively -Your *employment* is not tied to your *ownership*. You can leave the company whenever you want. Retain the equity. Be entitled to the distributions. And be able to sell the equity at FMV back to the company or another buyer ___ Want to get wealthy? Be an investor. In companies that produce cash flow to investors. Then be an employee there, too. And create net new enterprise value that builds your net worth. #b2b #equity #stockoptions #personalfinance *NOT FINANCIAL ADVICE. There are lots of situations with equity - do your own research & consult a Legal/Financial advisor

Most Indians won't buy a ₹2,000 shirt without checking reviews. But they'll invest ₹2 lakh in a loss-making IPO because "everyone's talking about it." Recently saw how this played out with OLA. The buyers were largely retail investors, many of them entering with the belief that this was an opportunity to beat inflation and buy into a long-term tech story at “low” prices. Par asli picture thodi different hai. This isn’t an isolated case. It’s part of a pattern we’ve seen repeatedly across recent Indian IPOs. → Ola Electric listed at ₹76 and now trades near ₹34, down over 55%. → Paytm listed at ₹2,150 and fell to around ₹310, an 85% erosion of value. → Zomato took almost two years just to climb back to its listing price. Different companies, different narratives, but a similar outcome for retail investors. What’s actually happening is fairly straightforward. After the 2022 global rate hikes, venture capital funding slowed sharply. Easy money disappeared, and many cash-burning startups suddenly needed an alternative source of capital. The public markets became that exit door. For early investors, the IPO often turned into a liquidity event rather than a growth milestone. Retail investors, unknowingly, became the liquidity. Yahan pe sabse bada gap expectations ka hai. Most retail investors have low risk appetite and are investing money meant for retirement or their children’s education, yet they’re being sold loss-making tech stocks as “wealth creation” opportunities. When founders themselves are selling after a 78% drawdown, that’s usually not the moment for retail entry. Remember: if promoters are exiting, stay cautious. If a company needs an IPO to survive, it’s probably not meant for retail capital. IPOs should fund growth, not desperation.

Going public is in — at least for technology companies. Between the upcoming SpaceX IPO on June 12, Anthropic confidentially filing to go public, and the expectation that OpenAI will make its own filing any day now, IPOs have been all the rage in headlines. Not only are these three companies front-and-center in the current technology revolution, but they’re expected to go public at record-breaking valuations: SpaceX’s target valuation is $1.75 trillion, Anthropic’s most recent valuation was $965 billion (as of May), and OpenAI’s most recent valuation was $852 billion (as of March). If the latter two go public later this year as planned, it’s reasonable to expect both to do so at a target valuation over $1 trillion. Those numbers are bonkers. When we compare SpaceX, Anthropic, and OpenAI to the largest IPOs of the past 15 years, they eclipse anything we’ve seen before. In this week’s column, I examine the IPO hype further – plus, I also sat down with Tom Farley, CEO of Bullish and former president of the New York Stock Exchange on a new episode of The Important Part. We discuss why the IPO market has changed, what retail investors are bringing to the table, and why some companies may still see public markets as a source of credibility, liquidity and long-term opportunity.

SpaceX’s trillion-dollar plan and what it means for 2026 IPOs Elon Musk’s SpaceX is reportedly working with banks on a mid-2026 IPO that could value the company at over $1 trillion, putting it among the biggest public listings in history. 𝐁𝐞𝐡𝐢𝐧𝐝 𝐭𝐡𝐞 𝐦𝐨𝐯𝐞? Starlink’s breakneck global expansion, progress on Starship, and a new frontier of space-based data centres. But the bigger story isn’t just SpaceX. It’s what this IPO could unlock. After years of private-market dominance, 2025 has already seen the revival of US IPO activity and 2026 is shaping up to be the year the floodgates truly open. 𝐇𝐞𝐫𝐞’𝐬 𝐭𝐡𝐞 𝐜𝐨𝐧𝐭𝐞𝐱𝐭 ↳ $2.9 trillion worth of private “centicorns” (valued at $100 billion+) have stayed private far longer than previous generations. ↳ Heavyweights like Stripe, OpenAI, Anthropic, Databricks and ByteDance are all viewed as potential candidates to follow SpaceX. ↳ Investors, institutional and retail, are increasingly hungry for access to the companies they’ve been shut out of for years. ↳ For founders, the private liquidity cycle is tightening. Markets are shifting. Going public is back on the table. If SpaceX prices anywhere near its expected valuation, it will send a shockwave through the entire IPO landscape, clearing the path for the biggest IPO wave since 2021. 𝐁𝐮𝐭 𝐭𝐡𝐢𝐬 𝐭𝐢𝐦𝐞 𝐢𝐭'𝐬 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐭 ↳ These companies are massive, far bigger than the typical IPO candidate. ↳ Many have controversial leaders, thin profits, or valuations that need public-market justification. ↳ Governance and CEO bandwidth (especially in Musk’s case) will be real investor considerations. Still, the appetite looks strong. 2026 may be the year the private-market giants finally step into the spotlight. The bankers will be lining up.

The decision to go public is one of the most critical crossroads for any company—and it’s not as straightforward as it used to be. Experts like Bill Gurley often champion the benefits of IPOs: cheaper capital, increased accountability, and the discipline that comes with operating under public scrutiny. And he’s not wrong—when a company scales, that accountability can push it toward being a healthier, more sustainable business. But the landscape has shifted. In 2023, there were 154 IPOs on the US stock market, compared to 181 in 2022. Both were significantly lower than the record-breaking 1,035 IPOs in 2021. Many companies that seemed unstoppable a few years ago now fall short of the benchmarks expected by public markets. Investors are hesitant to bet on high-risk startups when they can back established players like NVIDIA or Amazon, still posting double-digit growth. And then there’s the founder mindset. The old playbook said IPOs were the ultimate flex. Now, autonomy is the goal. Founders are asking, “Why hand over control when private markets can give me the cash I need without the headaches?” Liquidity options in private markets have leveled up, and many companies are staying private longer, dodging the scrutiny and rollercoaster ride of going public. That said, it’s not all smooth sailing. Some companies get stuck in messy deals to avoid down rounds, which makes going public later even more complicated. Sure, players like SpaceX and Stripe are thriving, but plenty of others are stuck in no man’s land—neither crushing it privately nor ready to IPO. The reality? There’s no universal playbook. For some, the public markets bring the discipline and access they need to hit the next level. For others, staying private keeps their autonomy intact and simplifies their path forward. The real question isn’t just “When should we go public?”—it’s “Why does it make sense for us?” And that depends entirely on your company.

Here’s the one thing no one tells you about stock options… In the early days of my career, I was fortunate to be part of a few high-growth companies that went on to massive exits. And while the ride was exciting, there’s one thing I really wish someone — a mentor, a manager, anyone, had sat me down and explained: Stock options are way more complicated than they look. Yes, they’re part of the upside. Yes, they can be life-changing. But what people rarely talk about is what it actually means to exercise them and the very real financial risk that comes with it. Let me break it down: Let’s say you join a company super early and rack up a large equity grant. Y ou crush it, the company takes off, and suddenly it’s worth billions. 🎉 Congrats! you’re sitting on paper millions. All you need to do is buy your options. Easy, right? Well… here’s the catch. Your strike price might be low, but the Fair Market Value (FMV) of the stock has skyrocketed. The IRS sees that as a taxable gain even if you haven’t sold a single share. So now you’re faced with: A massive tax bill due immediately No liquidity event in sight And the real possibility you could lose all that money if things change Sound insane? It is. Especially for people who don’t come from wealth and can’t just borrow millions from a generous uncle or wire it from a trust fund. It’s a broken system. And worse, it’s one that’s rarely explained to employees, even as equity is pitched as a “meaningful” part of the comp package. If you’re offering options, educate your team. If you’re receiving options, ask hard questions. Equity isn’t just upside. It’s responsibility and sometimes, a serious liability. It’s time we talked about that more.