Secrets to a Successful IPO
Last year was a record for biotechnology IPOs, with some 82 companies raising a combined $5.5 billion. Not all IPOs are created equal, however. A good IPO is one that benefits all stakeholders and leaves the door open to future mutually beneficial collaboration.
What, then, are the secrets of successful IPOs?
Let’s start with one of the basics. The success of an IPO is judged first on whether or not participating investors make money on the transaction, and secondarily, on whether the listing company raises the funds it was seeking.
For investors to make money on an IPO, the share price needs to rise in the short-, medium-, and long-terms. If investors make money on your IPO they’re more likely to back you again in the future should you ever need to raise more. In this sense, IPO profits can lead to and sustain familiarity, loyalty, and future interest.
A key rule for companies looking to list is don’t be greedy. First of all, make sure your valuation leaves “something on the table” for the investors you’re courting. Secondly, by all means conduct your IPO after a key piece of news or on the back of successful trial data, but make sure there will be a series of future milestone events that Wall Street can look forward to.
If the market is hot, you may be tempted to go “too early.” But another secret to success is to resist that temptation and wait until you are ready for life as a public company. A listed biotech at an atypically early stage of product development might be able to catch the eye of analysts and investors when the market is frothy, but that company will be the first to be ignored when the market cools, risk appetite moderates or when one of its peers falters. That company may then find itself in limbo, unable to convince investors of its potential, unable to attract attention, and unable to raise additional funds in the future.
Before you go public, develop an investor relations (IR) plan and start executing it well in advance of your actual listing. Westwicke can help you in this regard. One of the guiding principles behind a good IR plan is to preemptively build the kind of relationships you’ll need once you’ve gone public. Become familiar with Wall Street’s community of analysts and get to know those who cover listed companies similar to yours. You’ll need a coherent investment story, of course, but the point is you can begin telling it long before the IPO road show. You should also engage potential buy-side investors in the same way. Lay the right groundwork and you could find yourself in an ideal situation that a large proportion of your IPO order book was effectively presold.
You should also spend time getting to know bankers and make sure you pick the one that’s right for you. The right banker isn’t focused purely on the short term (i.e. the IPO fee), but is instead looking out for your long-term interests. Building and leveraging on your banking relationship will help you achieve a variety of goals in addition to a public listing.
Plan for the changes that come with going public well in advance of your IPO. The venture capitalists on your board of directors will, in time, likely be replaced by industry veterans. Pick the right people and make sure this transition is well communicated. Ensure you are fully prepared for life in the public eye. This could include practicing quarterly earnings announcements, conference presentations, Q&A prep, investor days and event-driven conference calls.
Finally, be realistic when it comes to your IPO funding goals. The key thing is to make sure you raise enough capital to be credible and to take you beyond the next value-creating milestone. You don’t need to be fully funded post-IPO, but you’ll need to be self-sufficient until your next financing milestone and that needs to be evident for all to see.
Life as a member of the public company club can have many benefits if you put in the early work. At Westwicke, we’re here to make sure those benefits are available to you. Contact us for a conversation about your potential public offering.
ICR Westwicke is the largest healthcare focused investor relations firm in the country. We provide customized investor relations programs and independent capital markets advice to small and mid-cap healthcare companies.
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