Please join us to learn about EGC's connection with IPO: Opportunities and advantages with IVLF!
The IPO process also poses significant legal barriers and high compliance costs, especially for startups or small and medium-sized enterprises.
For this reason, the concept of EGC – Emerging Growth Company was introduced, providing special mechanisms that help companies access the capital market more easily and reduce legal pressures during the transition to becoming a public company.
Why is EGC status important in the IPO process?
1. Reducing legal burdens and saving costs
A traditional IPO requires audited financial statements for three consecutive years and an auditor’s attestation of the internal control system under SOX 404(b). This is among the most expensive requirements in an IPO.
With EGC status, companies only need to report two years of financial statements and are exempt from SOX 404(b), saving millions of USD in audit costs, especially for startups without complex governance systems.
According to PwC, the average cost of SOX 404(b) audits for a company preparing for an IPO can account for 25–35% of total IPO expenses. This exemption allows EGCs to allocate resources to product research and market expansion instead of spending heavily on legal compliance.
2. Confidential Submission of IPO filings
Before the EGC framework, IPO filings were made public from the outset, exposing companies to public scrutiny and competitive risks if revisions or delays occurred.
With EGC status, companies have the right to submit IPO filings confidentially for review by the U.S. Securities and Exchange Commission (SEC) before public disclosure. This enables:
- Information control: Avoid negative impacts on brand reputation if the IPO is delayed.
- Proactive preparation: Gain time to revise filings without constant public attention
In practice, 83% of IPOs in the United States since 2012 have used this mechanism. Snap Inc. – the parent company of Snapchat – is a prime example, having used confidential filing to successfully IPO in 2017.
3. Optimizing disclosure requirements
Ordinary IPO companies must disclose detailed executive compensation, including Compensation Discussion & Analysis (CD&A), performance comparison charts with peers, and other sensitive data.
EGC are permitted to:
- Simplify compensation disclosure: Only provide information for the CEO and the next two highest-paid executives
- Defer adoption of new accounting standards: Companies may choose the timing of adoption, avoiding sudden conversion burdens
This allows EGCs to meet transparency requirements while maintaining confidentiality of business strategies during their high-growth phase.
4. “Test-the-Waters” rights with investors
Another important mechanism is Test-the-Waters, which allows EGCs to engage with institutional investors prior to the IPO to gauge market demand and collect feedback.
EGCs can meet with major investors to discuss growth potential, thereby adjusting offering size based on actual responses. This is particularly useful for technology firms or startups during valuation phases and when attracting strategic investment funds.
5. Flexible transition period
EGC status lasts for up to five years after the IPO, or until the company exceeds specified revenue or market capitalization thresholds.
During this period, companies can:
- Gradually upgrade governance systems to public company standards.
- Plan financial and legal strategies aligned with actual growth pace.
This serves as a “stepping stone” mechanism so that companies are not overwhelmed by stringent requirements immediately after going public.
Choosing a Trusted Advisory Partner
If an IPO is considered the grand gateway to the international capital market, then the journey to reach that gateway is like a labyrinth filled with legal, financial, and governance crossroads. In that labyrinth, IVLF is the experienced “guide,” helping companies find the safest and most effective path.
IVLF always accompanies enterprises as a strategic partner, ensuring every step complies with regulations while optimizing capitalization efficiency and enhancing long-term brand value.
Contact information
IVLF International Consulting Company Limited
Hanoi Office:
📍 R1.7 Eden Rose Urban Area, 908 Kim Giang, Thanh Tri District, Hanoi
📞 (+84) 936 726 065
✉️ info@ivlf-advisors.com
Ho Chi Minh Office:
📍 4/17, HT02 Street, Hiep Thanh Ward, District 12, HCMC
📞 (+84) 936 726 065
✉️ info@ivlf-advisors.com
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