What do you need to consider when taking your company to IPO?
- Communication is key
- Meet with your investors well in advance
- Develop a long-term financial model
- Don’t compromise the business
Taking your company to IPO, or “going public” is more than just selling stock. For many growing companies all over the world, this is the signal that the business has made it. Many heads of companies nowadays are asking the important question of “How to take my company to IPO?” because ultimately, going public this the goal for many businesses.
Through an IPO, not only does a company gain the access to capital which can fuel their growth and provide liquidity for their investors and founders, they can also show off an unofficial stamp of approval from the market.
As you can imagine, though, the process to take your company to IPO takes a lot of money, time, and effort. A company must jump over many regulatory hurdles and meet the extensive requirements that are laid out in front of them. When asking the question “how to take my company to IPO?”, here are a few considerations you need to make:
Communication Is Key
You have to find the right balance when communicating with your team about an IPO. On one hand, you usually want to tell your people about your plans, at least the big-picture stuff. However, it is also not a good idea to relay the specific details such as pricing, the performance of your stock after the IPO happens, timing, etc.
Keep in mind that anything can and will happen, so you should always avoid giving out specific information. Once important information gets into the wrong hands, it could result in drastic responses from your customers as well as your shareholders.
Talking about your plans and aspirations in broad strokes is the right way to discuss your plans to take the company to IPO. Just remember to give yourself enough wiggle room when it comes to the finer details so you can be ready for the unexpected.
Meet with Your Investors Well in Advance
Not all investors are the same; this is true whether your company has a public market or private market investors. Investors at mutual funds have demonstrated that they have a track record of buying and more importantly, holding, all of the important positions in a company. In other words, if you can get some, if not all, of your investors to participate in a meaningful way, the chance of your IPO successfully goes way up.
Having investors that are active also makes the entire process of running a company much easier. So, build a meaningful relationship with your investors, meet with them well in advance of the IPO, and educate them about the process so they can participate. The more they know about you and your company before it goes public, the more likely they are to pull the trigger on an investment.
Develop a Long-term Financial Model
The day you start earning revenue is the day you should start building your long-term revenue model. This can help smarten you up about the actual dynamics of your business as well as help you focus on areas that need your expertise as CEO.
You can do this by re-visiting your early assumptions regularly as a part of the learning process. If done right, you should have a business that is highly predictable over time as long as you make the right decisions.
In addition to investors and bankers questioning you about this model down the line, you need to have a framework in place before you even consider taking your company to IPO.
Don’t Compromise the Business
Nowadays, public market investors want to see profitability, or at least a clear path to it because they tend to focus less on the past and more on the future. Make sure that you have focused your key spending on growth initiatives before you take your company to IPO. Remember, it’s way easier to show your profits as a public company if you have already made the investments needed to ensure those profits while you are still private.
Try and run your business for at least a year privately before filing to go public. This way, you can moderate the growth of your expenses meaningfully during your early years as a public company. Once you can demonstrate to your investors the leverage your business would have down the line as well as a relatively flat line of expenses, they are sure to reward your stock handsomely.
Taking your company to IPO is one of the most significant events in the life of your business. The capital you raise through a successful offering can help the ability of your business to expand into new markets or grow through acquisitions. It can also reward your initial investors with liquidity help your company attract new talent with stock options and other equity awards.
These benefits do not come without costs, however. When you find yourself asking the question “how to take my company to IPO?”, carefully consider your options because one wrong decision can compromise the company you have worked so hard to build.