Your board is telling you to go public. Your peers are telling you that this IPO window may close at any moment. You believe your company is compelling enough for an IPO, but are you actually in the position to get one done in short order? How can you make an IPO move faster?
In my last post, I went over key — and sometimes overlooked — housekeeping items you can do to hit the ground running for an IPO, such as ensuring you have the right lawyers and auditors in place and getting a head start on your presentation and website. In this post, I’ll go over strategic choices that you’ll want to think through as soon as possible to improve your chances of a speedy and successful entry into the public markets.
Prioritize and focus
There are few better ways to earn the trust of investors than to demonstrate an ability to think like one. For many executives, it’s tempting to make claims about the countless ways their products and technologies can change the world and make billions. Pie in the sky thinking is common, if not essential, for the start-up/early stage company executive. However, to best earn the trust of IPO investors, you will need to balance long-term vision with the ability to demonstrate what is worth immediate investment in.
If you aren’t doing so already, get used to asking yourself these crucial questions:
- What are my lead value drivers?
- What results and progress best demonstrate their potential?
- How do we plan to grow or complement the lead drivers over the long run?
- What potential value inflection and risk events can change your business outlook over the next two to three years?
Let the answers to these questions become the pillars of your IPO, and you will also be well positioned to sprint through much of the IPO process. S-1 drafting and presentation preparation can get easily sidetracked by the smallest details. Establish these pillars front and center and you will give yourself the quickest path to a successful deal.
Don’t wait to engage with sell-side research
Let me beat the drum once again: it is never too early to engage sell-side analysts, especially if an IPO is in your purview. It is important to remember that a successful IPO is not just about bankers and salespeople. Sometimes, the difference between securing a highly enthusiastic, high-impact investment banking team for your deal and an indifferent, unmotivated banker comes down to the familiarity or interest level of each respective bank’s analyst.
Turn research analysts into fans of your story ahead of time, and you might find the bake-off process entirely more fruitful and exciting than if you simply cold-called some bankers to give you a pitch
And moreover, you might be surprised with the readiness of many analysts to offer strategic advice and honest feedback on your story. While some analysts are more accessible than others, almost all make a habit of welcoming select private companies to sit down in their offices – especially companies that are poised for an IPO.
Be careful and conservative with management changes
It is never bad advice to put together a great management team. However, the reality for many private and early stage companies is that it is not sensible or cost-efficient to bring a whole suite of highly-reputed, C-level executives on board. And you may be surprised, but most investors understand this. If you are planning an IPO in the near term, you may want to reconsider the extent of any management team shuffles.
First of all, an entire executive team is rarely present for investor meetings (typically, no more than three go on the road). Second, investors may not give the company much credit for or be suspicious of managers who have only been on board but a few months, conveniently before a potential IPO payout.
As long as you can have a plan in place to round out your team in a sensible, strategic manner, you might be better served to trust in the group you have for now or limit the hires to one or two key roles. Ideally, your team will have been in place at least a year or two ahead of the IPO, with direct results to speak of.
Consider raising money ahead of the IPO
Executives sometimes take for granted how critical it is to stay ahead of funding needs. The bottom line is this: it is always easier to raise cash when you don’t need cash.
Any perceived or real risk of running out of cash in the near term or before meaningful newsflow will compel most investors to heavily discount their valuations of your business. This loss of leverage applies across the board, from IPO investors to potential corporate partners (or acquirers) alike.
Your existing investors may scoff at the notion of adding another potentially dilutive round of financing to the plan, but your balance sheet and public stock introduction can benefit considerably from the approach, especially if the threat of a secondary offering shortly after the IPO or before a major value creation event becomes diminished.
You may also have an easier time getting certain marquee investment funds on board in a favorably priced pre-IPO private placement than in an IPO. Consequently, not only could this first deal extend your cash runway and push the IPO to a more strategic time frame, but the reputation of the new investors you add in a pre-IPO round may also convince a larger and stronger group of investors to take a closer look when you eventually come back out for an IPO. In today’s crowded IPO calendar, this sort of hook can make all the difference in securing quality demand and getting a deal done.
Think you’re ready to get the IPO ball rolling? Check out our Timeline of Your IPO and make sure your schedule and timelines are appropriately set. Not feeling so sure? We can help. Contact someone from the Westwicke team and let us guide you each step of the way.