There are significant benefits to becoming a public company, including access to public market capital to fund growth, research and development, new product introductions and acquisition opportunities. An IPO can also have a significant impact on your company’s brand and ability to compete in the marketplace. That said, ensuring you are actually ready to operate as public company is of critical importance before making the leap.
If you think an IPO is the right path for your tech company, make sure you have in place a few key items:
1. The right team with the right experience
The quality of the leadership team is a key factor for IPO investors. As a public company, you’ll likely provide some form of quarterly and/or annual guidance to market investors and analysts, and your company will be held accountable for that guidance.
While the CEO is the face of the company and will do most of the talking during an IPO roadshow, institutional IPO buyers will want a sense for management depth and reliability. Investors often look for a CFO with prior public company experience. A CFO who has successfully taken a company public before is seen as a big plus (“been there, done that”).
The broader finance team, including corporate controller, financial planning & analysis (FP&A) team, tax specialists, etc., is the backbone to ensuring your company can operate smoothly post-IPO.
2. A solid financial plan
Your company’s leadership team will need to prepare budgets and forecasts well ahead of an IPO. Those forecasts before the IPO will be shared with your underwriting team’s research analysts who will, in turn, educate IPO investors about your company and its growth trajectory. A proper balance of attractive growth, clear path to profitability and cash flow, as well as manageable expectations that you can consistently deliver upon are critical to attract and maintain high-quality institutional shareholders.
As a public entity, quarterly financial results and forecasts will have a significant effect on your company’s stock price, and the markets are known to react negatively to companies that miss their goals. Establishing a solid forecasting process early on, and delivering on results, is critical.
3. Key external partners
Who will you choose to assist in taking your company public? Your underwriters, external legal counsel, and accounting partners will be key collaborators along the way. An experienced external team will help you navigate the complicated road to an IPO, including coordinating a roadshow, marketing your story to investors, and guiding you through the complex SEC and regulatory process.
Another key consideration is how will you handle investor relations? Some companies have an in-house team; others hire outside firms. Companies that work successfully with external partners integrate them into their IPO process early on, so they understand and can help develop the positioning of the company well before investor dialogue begins.
The road to an IPO is not straightforward and involves myriad decisions for you and your executive team. But it can be rewarding and profitable with the right team, plan, and partners.
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