Okay, your firm is ready to “go public.” Congrats! So… now what?
There are several competing theories about what makes a company IPO-ready. Some bankers and VCs cling to the “$100 million revenue” benchmark like religion. Others look to predictability, visibility, or growth measures. Still others bank on formulas for assessing vulnerability in the market.
We’re not here to adjudicate among these theories, though. If you are planning an IPO, we know that you and your team have done the hard work to prepare. And, while there’s a lot to prepare for during this time, I’m here to remind you that the IPO is not the end game. Going public is more like moving from college sports to going pro. That’s where Audacia Strategies comes into play. Our IPO roadmap will show you how to hit the ground running before AND after your company goes public.
Once you’ve decided to take your company public, you’ll find there are several moving parts. So we’re breaking this one down into a series of blog articles on developing your IPO story, building an IR team, and living with your IPO. Let’s get into it!
First Up: Developing Your IPO Story.
Perhaps you’re running a wildly successful startup…
Perhaps you’ve been in business for years and are finally experiencing your overnight success…
Or perhaps your firm will spinout of a larger firm…
Regardless of your path, you’ve likely been prepping your S-1 filing for months (at least)—eating late night pizza and spending more time with lawyers, auditors, and bankers than your family and friends. Now that the dream is becoming a reality, it’s time to get serious about how to share your story.
1. Determine your audience.
During an IPO you’ll have multiple filings that describe your business, your risks, and your opportunities. While you’ll likely be talking to several different audiences at this stage, it’s important to develop a coherent story that brings everything together.
Depending on the type of business, your audiences for your IPO roadmap could include the following:
- Institutional investors: Shortly before your listing date, your bankers will coordinate a roadshow for your management team to meet institutional investors in person (and sometimes via video teleconference).
- Credit ratings agencies: If you are issuing public debt, you’ll also have discussions with the credit ratings agencies. In the US, the three primary rating agencies are Standard and Poor’s Global Ratings, Moody’s Investors Service, and Fitch Ratings. These agencies assess the creditworthiness of the debt securities and their issuers.
- Sell side analysts: You’ll also want to cultivate relationships with sell side analysts who will cover your firm for their brokerage.
Each of these audiences will have different priorities and will want to focus on different areas of the business. You need to be aware of and prepared for these different stops along the IPO roadmap. But the overarching investment thesis for your business should remain consistent.
2. Create a narrative arc that answers the question “why buy this stock?”
Tell your unique story: Do NOT steal language from peers that have recently gone public. Yes, this actually happens.
If you’re thinking about going public, your firm has likely been in business long enough to have identified and proven its value proposition. This is the time to continue to refine that message and share it. Explain what makes your businesses different from your peers and competitors. Why are you better?
Go beyond table stakes (e.g., a strong management team, “customer intimacy” of your sales team, etc.) and get to meaningful differentiators—unique products or services, industry-changing technology, patents, contracts, etc. You get the picture.
Investors have thousands of options in the public markets. Tell them why your firm is worthy of their dollars. For more tips on telling your corporate story, see our previous post.
3. Establish credibility and proof points.
We’ve may have mentioned it once or twice before, but it’s worth repeating—credibility is key. And during an IPO, credibility is quite literally going to be your stock-in-trade.
If you can—show rather than tell. Use your (audited!) numbers to show your track record of delivering solid performance—bonus points if your firm can demonstrate resilience during challenging economic times. Go beyond the income statement! Balance sheet strength and liquidity matter as well and cash flow always counts.
Establish reasonable proof points that will demonstrate the success of your strategy as you follow your IPO roadmap. Not all investors will buy into your stock on Day One. But if they watch your firm for a year after the IPO, they should be able to see the proof points of your story play out in your firm’s performance.
Remember that companies trade on future value, so be intentional in explaining your long-term investment thesis and why your business model will generate results over the long-term.
Be transparent. Your S-1 will exhaustively list the potential risks that could face your firm and you can expect potential investors to zero-in on those and ask about them. Risks could include current legal issues, location in markets that could see political or social unrest, reliance on materials that have significant pricing swings, etc. Be sure that your messaging explains why your business strategy mitigates potential risks.
4. Set reasonable expectations.
Set your guidance strategy early. You will want the information provided during the roadshow to be consistent with that given during subsequent investor meetings, conferences and earnings announcements. Inconsistency will call into question your management’s credibility and challenge your firm’s valuation.
Alas—there is no Google-able response to “What should be my guidance strategy?” And, like a tattoo, guidance expectations once set are very painful to remove.
But here are some guidelines I use when developing an IPO roadmap for clients:
When considering guidance, earnings, revenue, and cash flow projections are table stakes. You should also consider qualitative measures—providing “color” or directional information on key metrics driving your firm. Examples might include: perspective on your customers’ buying habits, impact of the economy on supply chain, and sales pipeline development.
Of course, to develop your guidance strategy you first need to assess how much visibility you have into your company’s financial results. IPOs are exciting and you should absolutely exhibit enthusiasm for your firm’s future prospects. However, if your financial forecasts are less than clear, you may wish to keep your guidance broad until you develop greater insight into the near-term business fluctuations.
Finally, set expectations with the following in mind: your first earnings announcements following IPO will be closely watched to see how the company’s performance matches expectations set during the roadshow and how the management team characterizes the firm’s performance.
5. Stay consistent.
Consistency may be the single most important factor when telling your IPO story. It’s easy to get tunnel vision with all of the financial filings and discussions during an IPO process. But don’t forget that the company is communicating with the public in other venues—media relations, public affairs, government relations, sales teams are all speaking with key stakeholders.
So, it’s worth the time to review press releases, websites, fact sheets, blogs, social media posts, and even executive biographies to ensure consistent disclosure.
Take the time to set up internal processes to review existing communications and maintain a consistent message across all communications channels as part of your IPO roadmap. Investors, customers, and journalists can (and do) conduct due diligence on companies. In the era of the Internet and social media, all communications are instantly available across your audiences. They aren’t likely to easily forgive and forget.
Once you’ve decided to go public, the fun—and by “fun” I obviously mean “serious work”— really begins. But you know that. You wouldn’t be here if you shied away from taking bold action and bold action requires serious work. It also involves coordinating moving parts. And, we don’t mean to brag, but at Audacia that’s kind of our superpower.
Contact us and schedule your free consultation to find out more about your IPO Roadmap.
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