The Five D's of Rocking Your IPO

Five key areas that will drive the success of your IPO

Let’s imagine that you have a start up company, and you have been through funding rounds with friends and family, angel funds, venture capital funds, loans, and maybe even private equity. You’ve grown as much as you can without additional scalable capital. Where do you go next? For some, it’s an initial public offering, or IPO, where shares in the company are offered to the open market and some percentage of the company will be owned by public shareholders. But going public is like private fundraising on steroids, with an unprecedented level of scrutiny and legal requirements. Contrary to some of the terrifying documentaries about startups (who shall remain nameless but “may” overuse words like “hustle”), most companies trip in one of the following areas.

Disclose Your Dirty Laundry - It’s Not Just a Don Henley Song

A lot of companies get nervous about sharing their “dirty laundry” and instead, try to hide the less than stellar facts from outsiders. What they don’t realize is that no company is perfect, and every organization has faced issues, financial challenges, outsized burn rates, and even potential litigation. It is critical to be completely transparent with the bankers and lawyers preparing your S-1 (which is the first and most critical of the offering documents). Let them determine what is best to include to ensure that you don’t find yourself in an ugly situation where you are perceived to have misled potential shareholders.  

Documentation

Corporate records, while not the most exciting part of taking a business public, are critical to its valuation and offer cold comfort to the banks and early investors. Things like board meeting minutes (signed and finalized, not draft form), governance processes, financial documentation, regulatory review documents, and stock certificates should be organized, indexed, and ready to produce as needed. And the commitment to maintaining solid documentation moving forward has to be fostered and valued as a talent, as this need will never go away once you are traded on an exchange.

Discipline

With public company status comes increasing scrutiny and a lot of additional requirements and legal hurdles that might be new to your organization. Companies often go astray by not recognizing the amount of business processes that will be needed once they are public, such as greatly enhanced financial reporting and audit practices, and then those companies are forced into an 11th hour rush to build the infrastructure they need in the new highly regulated world they live in. These larger and more cumbersome processes can also require hefty IT resources and infrastructure to support, thus an early strategy review is key to the scalable technology readiness that will be required. Prior to the IPO, build and test the processes and systems so they are ready to go when that first trading bell sounds.

Develop the Team

Whew, that’s a lot of work. But you still aren’t done. The most important part of an IPO is a focus on the people. The skills needed as a publicly traded company are sometimes different from the skills needed for a privately-held organization. Coaching and leadership will be more important than ever before, and a coachable executive team that are not delusional (wait, is that another D?) and who listen to their board and investors will be critical to institutional investors, banks, and the investing public in order for those constituents to feel comfortable that their capital is in good hands and hopefully will create a return on their investment. In addition, many of the most crucial service areas (finance, legal, HR, and IT) who are already strapped for capacity and resources will need to continue their “day jobs,” keeping the company running smoothly and maintaining its value, while taking on a lot of additional responsibilities around the IPO itself. So recognize the opportunity for burnout, develop and support the team responsible for the massive undertaking, and ensure that you have the ability to supplement and scale the internal team as needed with contract and outside advisors.

Deliver a Message that Connects with Staff, Customers, and Partners

But wait, there’s more! Especially when it comes to people. The final and most often overlooked piece of the puzzle is your story. This is not the non-emotional, structured story of the S-1. This is the connection that you build with all of your constituents. How do you share this exciting new chapter with your team, some of whom have probably been with you since the early days? What about your customers and partners? All of these people might fear that they are just going to become a number now that you have investors. Tell your story in a way that is unique to your organization, and that calms and reassures those people who helped you get here, while energizing them to stick with you for the next phase of your great adventure.

By focusing on the five D’s, you will be positioned for success through the creation of the S-1, valuation, and the initial offering of stock on the open market.

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