Is your tech company ready for an IPO? Three ways to make sure
If you’re considering taking your company public, here’s how to ensure you have the right people, plans, and partners in place
Your Pacific Northwest technology business is growing and reaching new expansion milestones. And that opens exciting new opportunities for business. But with those prospects come added risks and options. Are you prepared?
There are significant benefits to becoming a public company, including access to public market capital to fund growth, research and development, new product introductions, and acquisition opportunities. An initial public offering (IPO) can also have a significant impact on your company’s brand and ability to compete in the marketplace. That said, ensuring you are actually ready to operate as public company is critical before making the leap.
If you think an IPO is the right path for your tech company, make sure you have in place a few key items:
- Housekeeping: Surround yourself with the right team and the right experience
The quality of the leadership team, including the board of directors and senior management, is a key factor for potential IPO investors. As a company looking to go public, you’ll provide quarterly or annual guidance to market investors and analysts. Potential investors will evaluate your leadership team and look for gaps that could affect your company’s performance and reputation.
When assembling a new board, consider experience level. Ensure that the new board is properly aligned with your company’s mission as set forth in the annual report. For example, if the board wants to grow the company through acquisitions, it’s imperative that there be members with M&A experience.
Selecting the right senior management team for your company follows the same principles as forming a new board. While the CEO is the face of the company and will do most of the talking during an IPO roadshow, potential investors will want a sense of management depth and reliability. Investors often look for a CFO with prior public company experience. A CFO who has successfully taken a company public before is seen as a big plus.
Remember, when selecting the broader finance and management team, that including attorneys, accountants, and tax specialists are essential to smooth operations before and after an IPO.
2. Financial changes
Start with asking the basic questions: Do you have enough liquidity today? How much additional capital should you ideally raise in an IPO to fully fund your growth plan? Do you have a backup liquidity/growth capital plan in place should your IPO timeline change or the IPO window close for some period of time? A pre-IPO credit facility could be the solution to liquidity or another round of private growth equity could be an option, especially if you’re not profitable or generating cash organically today.
It’s also important to make sure you have an audit in place for all of your financials. A basic financial checklist includes making sure your shares are registered, reviewing all compensation agreements, and considering changing you incorporation status. In software, reviewing payment of annual subscriptions to insure timing of payment makes the most sense for your company.
Your company’s leadership team will also need to prepare budgets and forecasts well ahead of an IPO. Those forecasts will be shared with your underwriting team’s research analysts who will educate IPO investors about your company and its growth trajectory. A proper balance of attractive growth, clear path to profitability and cash flow, and manageable expectations that you can consistently meet are critical to attracting and maintaining high-quality institutional shareholders.
As a public entity, quarterly financial results and forecasts will have a significant effect on your company’s stock price, and markets are known to react negatively to companies that miss goals. Establishing a solid forecasting process early and delivering results is critical.
- Key external partners
Who will you choose to assist in taking your company public? Your underwriters, financial team, external legal counsel, and accounting partners will be key collaborators. An experienced external team will help you navigate the complicated road to an IPO, including coordinating a roadshow, marketing your story to investors, and guiding you through the complex U.S Securities and Exchange Commission and regulatory process.
Another key consideration: How will you handle investor relations? Some companies have an in-house team; others hire outside firms. Companies that work successfully with external partners integrate them into their IPO process early so they can understand and help develop the positioning of the company well before investor dialogue begins.
An IPO is one of biggest milestones for your technology company. The road to an IPO is not straightforward and involves myriad decisions for you and your leadership team. But it can be rewarding and profitable with the right team, plan, and partners.
Beau Bohm is a managing director in Wells Fargo Securities’ Equity Capital Markets group, where he is responsible for all technology equity and equity-linked issuance. Email him at Beau.Bohm@wellsfargo.com.
John Flemming is the regional manager for Wells Fargo’s Technology, Media and Telecom Group in the Pacific Northwest. Email him at John.T.Flemming@wellsfargo.com.