By Brendon Frey
Taking a company public through an initial public offering (IPO) is a complex process that requires broad market expertise, good timing, diligence, and considerable expense and effort. Even promising, venture-backed companies can produce IPO failures.
How can you avoid common pitfalls and ensure a successful IPO? While there are no guarantees, you can enhance your company’s chances of success by having these four critical elements in place.
An experienced, proven team of bankers, lawyers, accountants, capital markets advisors, and investor and public relations professionals can guide your executive team as you develop and carry out an IPO plan. By choosing individuals and institutions with a strong track record, you will give investors and analysts confidence in your company and be better prepared for for entering the public markets.
Interviewing and choosing an investment bank is particularly important. Your banker will become a key adviser as you decide on valuation, work out IPO timing, conduct your pre-IPO investor road show and determine the allocation of shares to your initial investor base.
You should have your company message firmly established before you start the IPO process; a continually changing message could be a red flag for investors and analysts.
Once your message is established, make sure it’s reflected consistently throughout all materials and spokespeople. Executives and any other spokespeople need to know the story thoroughly and be able to tell it clearly, confidently and consistently; all investor-facing materials in print, on presentation slides, and online should reflect and reinforce that message. Your management team should also be able to summarize your company and its message clearly and consistently.
You should have an investor relations strategy in place well before you go public. That will not only allow you to hit the ground running following your IPO; it will also enable you to start telling your story long before the IPO road show.
One of the primary principles behind a good IR plan is to proactively build the kind of relationships you’ll need once you’ve gone public. Start becoming familiar with analysts and institutional investors who are focused on your space. Then, use company milestones, new products and other company news as an opportunity to touch base or make conference appearances. Make sure to initiate relationships with both sell-side industry analysts, who can prove invaluable in building investor support for your firm, and buy-side players, who can be helpful in providing reactions on the company.
Exercise discipline when setting your offering price and determining the timing for the IPO. Investors will judge your IPO in part on whether they’re able to make money on the deal, both in the near term and over longer periods, so resist any impulse to take an overly aggressive approach to valuation. Talk with your banker early on about pricing goals and priorities.
In a similar vein, avoid succumbing to the lure of enticing market conditions and jumping the gun on your IPO. Instead, wait to make sure your company and team are truly prepared to operate as a publicly traded enterprise. Your company should have a track record of growth and/or launching products; otherwise, you may not be prepared to meet those same kinds of critical milestones post-IPO. For a successful IPO, it’s prudent to wait until your management team and company are ready.
An experienced investor relations advisory team can help you navigate your IPO journey from the start. To learn more about the role ICR can play for your firm, from developing an IR plan to crafting your story and connecting with analysts and investors, please contact us.