6 ways to increase the chance of IPO success
Even the most optimistic founders and executives at high growth companies aren’t immune to the challenges of fundraising. According to PWC, European IPOs have been ‘heavily impacted’ in the first half of 2020, with just 28 deals compared to 53 at the same stage in 2019.
There have been a few successful outliers, notably car-buying site, Vroom whose stocks have risen considerably since they started trading. Although a small sample isn’t widely representative, it does beg the question: if some can be successful during a pandemic, how can it be done more effectively when things stabilise?
Of course, a lot of companies will be seeing things the same way, meaning stiff competition for future investor funding. In such an environment, preparation and planning becomes paramount to attracting investors, and that means buttoning up business processes and ensuring your company is ready. A good business management system is crucial to achieving that - especially one that unifies your critical business functions. Meanwhile, those seeking funding need to know how to stand out from the crowd.
Here are six steps to help achieve a successful IPO:
1) Know your company’s story and how to tell it
Effectively articulating everything from product roadmap to brand identity and growth objectives keeps all stakeholders informed and confident that the company is on the right path.
In other words, it’s not enough to have a good story; it’s critical that the company’s leadership can both tell it and back it up. That means having a team that’s as adept at proactively conveying the brand as it is at responding quickly to news, both good and bad. Company storytellers need to be armed with the financial performance and KPI information and need to tell their IPO narrative in a way that bolsters confidence to potential investors.
2) Get your financial house in order
Having a comprehensive financial foundation in advance of an IPO should go without saying, but it goes deeper. Not only is it important to keep in mind that a piece-by-piece approach to deploying financial software can prove costly over time. Key decision makers also need to be aware that regulatory requirements will prohibit them from changing any financial systems during the IPO process, and for one year thereafter. Without a system in place that gives key stakeholders appropriate and real-time access to critical data, the journey gets tougher.
Companies looking to IPO should be prepared to provide three years of audited financial data. Investors will want to see solid debt-to equity ratios, sufficient market capitalisation and predictable revenue and earnings streams. Finally, establish processes for key areas that touch revenue, headcount and all other major expenditures. Your financial infrastructure must have the necessary controls to manage these processes as well as the flexibility to accommodate changes in the future.
3) Prepare for rigorous financial reporting
The IPO process is made significantly easier by efficiently producing financial statements, so there’s significant value in investing in systems (and automation) that can deliver global consolidation and financial reporting.
By eliminating manual inputs, a company can scale more effectively as the business grows in volume. And, by ensuring that reporting processes are transparent and supported by full audit trails, a company will reap dividends throughout the IPO journey. The ability to analyse past performance and forecast future performance requires investments in a system that can harness business intelligence and analytics.
4) Establish good corporate governance
The public market doesn’t reflect kindly on organisations that can’t effectively govern themselves. Those considering IPOs should establish a governance framework that keeps board members and executive management accountable. Many private companies don’t fully understand the importance that governance plays in long-term success, and those that do make governance a priority often underestimate the time and effort required to establish it effectively.
When a company goes public, regulators and investors alike demand that it be coordinated, transparent and consistent, unlike the loose policies that may prevail in many private companies. In the public equity markets, governance is not optional, and each director and C-level executive must understand exactly how they relate to one another as well as to the organisation and its stakeholders.
5) Establish investor relations and corporate communications
Although investor relations can’t sell products or services, or secure big contracts, it can help preserve reputation. Once a company goes public, it becomes an open book to any and all, meaning the roster of significant stakeholders will start to reach far beyond long term colleagues and collaborators. Investor relations should act like a gatekeeper, ensuring that the company is communicating effectively with the financial community and beyond by deftly integrating information coming from finance, marketing and legal teams.
A strong IR team, backed by metrics that provide a clear picture of the business, needs an infrastructure that can report on those metrics. This requires closing any gaps and building a visible and transparent reporting process long before pursuing an IPO.
6) Develop risk management capabilities
Going public is a process that introduces significant risk and forces a company to be accountable to a wider range of investors and regulators should it perform poorly. Being able to see potential problems before they emerge can mean the difference between long-term success and bankruptcy.
Apart from ensuring that legal counsel has a strong voice, and that a policy protecting the company against the acts of directors and officers is in place, a public company also needs to be able to respond when an audit committee or the board of directors asks about management expenses, approving major costs, cash access or forecasting. A good management system should provide access to real time KPIs and automated rule-based alerts needed to identify risks before they become real life problems.
While these steps by no means guarantee success, the process gets a lot bumpier without robust preparation and systems underpinning it. Taking these actions and supporting them with an effective business management system can significantly increase the odds of IPO success.