Wilson Sonsini Goodrich & Rosati recently surveyed various corporate governance and disclosure practices of venture-backed companies incorporated in the United States and involved in U.S. initial public offerings (IPOs) from January 2010 through June 2011. A copy of the report is available here. We believe that this is the first such survey specifically relating to venture-backed companies.
We examined the 50 companies involved in the largest IPOs measured by deal size over those 18 months. By deal size, measured by gross proceeds, the IPOs examined ranged from $56 million to $352.8 million, with an average deal size of $123.3 million and a median deal size of $90.1 million.
Nineteen of the companies examined were headquartered in the San Francisco Bay Area; six in southern California; five in Texas; three each in Georgia and Massachusetts; and the remainder in 11 other states and one foreign country.
Forty-eight of the companies examined were incorporated in Delaware; one in California; and one in Maryland.
Twenty of the companies examined were listed on The NASDAQ Global Market; 17 on the New York Stock Exchange; and 13 on The NASDAQ Global Select Market.
We reviewed practices and trends in the following areas:
- Directors and independence
- Board committees
- Board policies
- Stock plans
- Key metrics and non-GAAP measures
- Defensive measures
Detailed findings in each of these areas are set forth in the report. We noted the following key findings in our survey:
- Directors and Independence
- Even though newly public companies have phase-in periods within which to comply with stock exchange requirements regarding majority board independence, each company surveyed had a majority of independent directors on its board, and most companies were substantially independent, at the time of the IPO.
- Of the companies surveyed, slightly more companies separated the chairman and CEO roles than combined them.
- Board Committees
- Even though newly public companies have phase-in periods within which to comply with stock exchange requirements regarding fully independent board committees, almost all of the companies surveyed had board committees that were substantially comprised of independent members at the time of the IPO.
- Frequently, board committees of the companies surveyed included members who were venture capitalists affiliated with venture funds that had invested in the companies, and frequently the venture capitalists were determined to be independent directors, notwithstanding their share ownership.
- Board Policies
- Nearly all the companies surveyed had adopted, or planned to adopt, key corporate governance board policies in connection with the IPO, such as corporate governance guidelines, codes of business conduct, and related party transactions policies or procedures.
- Stock Plans
- Nearly all the companies surveyed adopted a new equity compensation plan in connection with the IPO, frequently with “evergreen” provisions, which allow shares automatically to be added to the available pool annually.
- Less than a majority of the companies surveyed adopted an employee stock purchase plan in connection with the IPO, but those that adopted one frequently included an evergreen provision.
- Key Metrics and Non-GAAP Financial Measures
- A significant minority of companies surveyed disclosed non-financial key metrics (e.g., subscribers or registered members for Internet companies) in addition to financial metrics.
- Half of the companies surveyed disclosed non-GAAP financial measures (frequently, adjusted EBITDA).
- Defensive Measures
- None of the companies surveyed adopted a shareholder rights plan, or “poison pill,” in connection with the IPO, although other defensive measures were liberally adopted.
We believe that the detailed findings outlined in the survey will be useful to companies, particularly venture-backed companies, as they prepare for initial public offerings.
The complete report is available here.