Rob Swystun, Pristine Advisers
So you’ve put in the hard work and dedication and now you’re ready to take that leap into being a publicly traded tech company … or are you?
Your Initial Public Offering (IPO) has to have predictability, visibility, growth potential and cannot have a single point of failure (no pressure, though). And (this is the best part) even if your company has all of this covered, your IPO is by no means a sure thing. To up the chances that your IPO will be successful, have a look at these 10 tips.
Hire a Chief Financial Officer who understands not only your business, but how Wall Street works. If you’ve yet to hire a CFO, make sure you hire that person a year or more in advance of your planned IPO because your CFO will need several quarters to learn the business, as they will play a key role in marketing your IPO.
Your CFO will want to get comfy in the role before having to take on a task like an IPO and will have to build their team and put the necessary systems in place to support the demands of a publicly traded company.
Familiarize yourself with the relevant investment banks well ahead of time. As it is critically important to choose the right banking syndicate to handle your IPO, you should start auditioning candidates well ahead of time so you don’t have to rush the decision as you get closer to your IPO date. Spend the year ahead of your IPO date getting to know the banks you’re considering and make your decision about which ones to work with based on what you’ve learned about them.
Remember that you have more leverage to get their best people and the best deal economically from them before you make your decisions so take your time and make sure the banks are competing for your business.
Use relevant criteria to choose a banking syndicate. Pick your lead book runner or runners according to their syndication capabilities and how well they understand your business and how they envision Wall Street valuing your company. Also, choose co-managers who have quality research analysts.
Leverage your pending IPO to attract top talent to your company and board. News of a pending IPO can serve as a compelling recruitment tool. You can also help keep your profit expectations low in those first few quarters of being a public company by padding your expense base in the lead up to your IPO. It will also be easier to recruit board members prior to your IPO when you’re still a private company.
Start meeting with public investors and sell-side research analysts six to 12 months before filing your S-1 registration. Begin building your reputation during these meetings by honing your story and practicing your responses to the types of questions public investors are wont to ask. Try to meet or exceed the objectives of these meetings. That’ll help you establish your reputation.
Fill your coffers as much as you can prior to your IPO. Although this may seem counterintuitive because you will be raising capital when you go public anyway, it will help ease the minds of potential investors. If investors are given the idea that you actually need the cash raised from your IPO, they will either shy away or seek an aggressive valuation. Being in a position where you are not in need of cash just to operate the business will put investors’ minds at ease and allow you to approach them from a position of strength. After all, in that situation you don’t need their money, you’ll be just fine without it. But it would be beneficial for them to invest in your company.
Keep your metrics simple. Investors aren’t apt to like odd metrics that explain how you expect your company to perform. They are much more likely to appreciate ones that are familiar to them and that they already know. Use the same ones that you use internally to forecast your performance to investors.
Keep financial projections modest. Part of getting a good reputation as a public company is to continually meet or exceed expectations. By keeping your expectations modest, you set yourself up to beat projected numbers. Some companies cut their projected numbers back by as much as 25% when providing pre-IPO guidance to analysts. However, if you beat your projected numbers by too wide a margin every single quarter, investors will start to ignore your guidance and expectations will be even more heightened. You want to be seen as a management team that can deliver and that also understands how to manage Wall Street.
Be prepared to devote the necessary amount of time to IR. And for CEOs and CFOs that means as much as 20-30% of your time in the first year after you go public. In order to be able to devote this amount of time to IR, of course, you will need a strong team within the company who can effectively run it while you are doing the rounds educating investors.
Price your deal to move. It’s extremely important to build the right investor base, which means attracting serious, long-term investors who have done their research and who understand your business. You’ll inevitably get some short-term traders, too, but the more long-term investors you get, the better. This may mean pricing your stock for slightly less than what it’s actually worth. You may leave some cash on the table, but you can more than make up for it by building a good investor base.
Follow these tips and you’ll be more than ready to go public when the time comes.