IPOs aren’t for everybody. There’s a large percentage of technology leaders that avoid it to save themselves from the distraction altogether.
Often times the preparation for an IPO can drain a technology team with respect to the time-consuming preparation, costs of complying with the SEC, and the burden of fees from financial reporting and investment banks. The market pressures also force organizations to prioritize short-term results, and can cause very unhealthy relationships between investors and management.
Then, of course, there’s the other percentage of technology leaders that recognize the alluring precedent set by tech juggernauts and unicorns alike. For your organization, an IPO could also be the ultimate catalyst for hypergrowth, international attention, a sharp increase in brand visibility, and the fruits of liquidation.
When you’re a company under 30 people and still enduring the growing pains of being an early startup, a public offering might seem like a fantasy. However, it’s never too early to begin thinking about an IPO, and beginning with the end in mind can only help with your alignment and the likelihood of you achieving such a milestone.
Here’s 3 tips to remember to stay attractive to investors for executives and founders of startups and SaaS companies:
Attracting investors isn’t as hard or as volatile of a process as you might think. When it comes to trying to crack the investor mindset, it’s not too far removed from the mindset of any other low-risk stock investment strategy: stay away from volatility.
The fastest way to scare off investors is when your growth plans are riddled with moonshots and volatile “hockey-stick” growth patterns. It’s very easy to think you’re winning and growing when you’re constantly beating and dodging expectations, but investors definitely don’t see value in being in the dark about your company’s growth.
Cementing a steady growth strategy can go against a lot of tech-learnings, since impatience and risk are glorified in these spaces. However, sticking to a growth plan and showing reliability and responsibility in your market will do much more for you than just cranking everything into third gear and trying to take every dollar you can without a plan.
As a company, do you know who or what is pulling your strings? It’s important to know what you’re at the mercy of, or “single points of failure”, because your investors will care about this above all else.
There might be a specific account that you’re dependant on, or supplier for that matter. You might be showing steady growth in your trajectory, but ultimately the lack of diversification will be a red flag too large to ignore for investors at a certain point.
Basically, if your growth is dependant and latched onto an external entity that your business cannot control, you’re at risk of being an overpromising candidate and one that won’t find success in going public.
Again, in startups and technology companies it’s pumped into our brains and feeds that we should take any and all business, but public investors have extremely different priorities. They are looking for market opportunity, scalability and continuous, steady growth. Dependency and single points of failure threaten all of these metrics, so it’s important to stay cognizant of this and steer far from it.
Build the right financial team
The most important part of an IPO preparation is assembling and conditioning your financial team, led by a chief financial officer (CFO) that has experience going public. If your organization is contemplating an IPO and you currently do not have a CFO with public company experience, hiring such a CFO should be of highest priority for your leadership team.
On the other hand, if you already have a CFO that has experience changing and shifting the people and processes for financial reporting, consider investing in more robust financial tools and AP automation systems to improve productivity and eliminate errors associated with manual processing. This will only help all sides of your financial reporting team, including your CFO, Financial Controllers, Treasury and Audit Directors, and senior level tax managers.
Barry Jahansetan, a storied CFO of 20 late stage SaaS/PaaS companies, confirms the direness of this and the appeal of a well-constructed financial team to investors: “Investors are looking for financial teams that can accurately and strongly describe the current financial performance of the company, but also establish a future direction,” says Jahansetan.
“CFOs on the other hand, need to clearly manage expectations across the board with the progress that the company’s making. This includes being able to identify revenue growth and stagnation, illustrate strengths in cash flow as well as weaknesses.
CFOs should start creating this trust with public investors a year or two before by starting to talk with investors about the management team’s historical financials and how they’ve been able to break through and grow their revenue.”
Preparing to go public is no small task, but with your focus in the right places, it can be a thrilling and informative experience that actually results in your product being sharpened, your organization being well-oiled, and your reporting and finance in a top shape. Planning early can be advantageous to you, so take note of what needs to be done and what your strengths are to continue towards the milestone of going public.