AI could make it easier for companies to IPO. Is that a good idea?

If artificial intelligence (AI) could take a years-long process or task and reduce it to mere weeks or days, it would be irresponsible not to explore the possibilities. The IPO process, in which companies list their shares on a public stock exchange, is one area that is particularly ripe for a round of innovation or streamlining—and newly emerging AI tools may just be what IPO-minded startups have been waiting for.

Initial public offerings are notoriously long, complicated, and fraught with challenges. There are dozens of people involved at many stages, and even in a best-case scenario, a company hoping to list its shares on a major stock exchange is staring down a daunting gauntlet of red tape, back-and-forth with regulators, and peacocking for investors. It’s one of the reasons that SPAC transactions became a popular method for sidestepping the process a couple of years ago, and why, over the past year or so, some companies have put their IPO plans on ice.

“Let’s say a company is very prepared and has all its ducks in a row, then it’s maybe a three-month process to go through the regulators and go from private to public company status,” says Megan Penick, a partner and public securities chair at the law firm Michelman & Robinson’s New York office, who has extensive experience guiding companies through the IPO process. “But because there’s a lot involved and companies don’t usually know what they’re doing, there are a lot of things to corral, get together and organize,” she says. “Depending on the complexity of the company, it can take six months to a year.”

AI in the IPO process: Speed and efficiency

Penick explains that companies looking to go public need to do a whole lot of legwork, which includes getting their financial statements and paperwork in order, having that paperwork audited, meeting with underwriters, preparing even more statements, looking at the possibility of additional fundraising, and working with the Securities and Exchange Commission (SEC) and a stock exchange it hopes to list with, which also requires document preparation. All told, it can require hundreds or thousands of hours of work, and a significant amount of manpower, even for relatively simple companies.

It’s in many parts of that process—specifically, wrangling the financials together and preparing statements and paperwork—where AI may be able to speed things along.

Eléonore Crespo, the cofounder, and co-CEO of business planning and finance platform Pigment, says that in the past, she “saw dozens of companies preparing for IPOs, and saw companies struggling so much” while working through it all. Pigment is working on AI solutions that can help companies navigate the IPO process, and it’s working with numerous businesses that are currently in that process or preparing for it.

It’s a market that is expected to grow. As such, Pigment, and other companies in the space, such as Anaplan and Workday Adaptive Insights, see a viable opportunity to use AI to improve the overall IPO process now, and in the future.

“There’s the accumulation of data you need to prepare, and everything you need to do—structure, collaborate, etc.—it all needs to be absolutely perfect. If you’re equipped with the right tools, it’s going to be possible to slice and dice” through it all much easier.

Accordingly, Crespo says that AI can be utilized in bringing data together from across several parts or divisions of a company looking to IPO, process and analyze it, and then package it up as necessary. In effect, it can speed things way up, cut down on the necessary manpower, and streamline the path to a public listing.

“With AI, you will be able to be way faster and smarter,” she says, and the big value-add for AI when it comes to the IPO process is the ability to “be more productive and more strategic.”

Like the iPhone?

Interestingly, the use of AI to improve the IPO process isn’t entirely new. Ajay Vashee, a general partner at VC firm Institutional Venture Partners (an investor in Pigment) and the former CFO of Dropbox, tells Fast Company that when Dropbox went public in 2018, some next-generation tech was utilized to facilitate it. 

“We leveraged machine learning and RPA to automate elements of finance operations and accounting but didn’t have access to the type of AI functionality that Pigment is building, which has the potential to be revolutionary for analytics, scenario analysis, and planning,” he says. “It made the process of preparing for our IPO and reporting as a public company more efficient and less error-prone.”

That functionality that Vashee mentions can include a swath of things, such as analyzing and preparing documentation, assisting in the due diligence process, analyzing industry and market trends, and flagging potential errors within data sets or documents. 

Penick, who is well-versed in the nitty-gritty of the IPO process, does see the potential upsides of AI, especially during the due diligence process, she says. “I think about how the process has changed in the past 20 years, and the ability to research, find information—largely through Google searches, and improvements to legal databases, which have made it much simpler—I would think that AI programs that can assist and quicken the process seems [like] a reasonable expectation.” She says that if that were to happen, it’s likely AI use would become the industry standard in a relatively short period of time.

But she warns that the process would still require a lot of human interaction. “It’s not like an AI can just take over and do the whole thing. It would just be able to enhance the process and maybe make it easier to get over some roadblocks and quicken the process of completing various steps,” she says. That’s because there’s always the chance that things could go wrong—there could be data errors or other issues.

On a broader scale, there have already been some examples of AI not producing the types of results that users intended. An attorney in New York, for example, used ChatGPT to do research for a court filing, only to find that the tool cited fictitious or nonexistent cases—landing the lawyer in hot water. Another famous example is a Microsoft-built Twitter chatbot that went rogue in 2016. That bot, after a mere 16 hours, morphed into a racist sexbot that made jokes about fornication and talked about Hitler. 

But if AI is used to streamline even segments of the overall IPO procedure, that could free up a lot of resources for companies looking to go public, which could be a good thing for just about everyone involved—except, maybe, those racking up billable hours. 

Crespo says that it may still be hard for many people to envision just how big of a game-changer AI can be—whether it be in generating text or images or helping companies speed along to a public listing. 

“It’s like the iPhone coming in and changing smartphones,” Crespo says. “It’s really about simplifying everything.”