Popular companies like Slack, Uber, Lyft, and Beyond Meat have declared Initial Public Offerings (IPOs) recently. An IPO, or “going public,” is when a company decides to sell some of its common stock to outside parties to invest in. For many entrepreneurs, an IPO is the ultimate goal, with the added potential of being bought out by a larger company. That may sound great, but it’s not so easy. In addition to planning, there is also a tremendous amount of money and man-power that will be expended before any shares are traded on a public exchange.
Although there are many keys to successfully completing an IPO, the most important considerations are:
Establishing a Solid Track Record
Although I have been involved with companies that have accelerated their IPO (24 months), the standard time it takes a company to complete an IPO is between four to six years. There will be specific KPIs that will be critical in determining the initial price of your shares, and it is important to know what the key metrics are in valuing your business.
If an IPO is something that you desire to do with your company, or feel is a reasonable possibility, it is important that your company has a strong record of financial performance that will intrigue investors and attract the attention of venture capital and private equity firms. Doing so will give your company momentum, and expose you to major firms in the financial markets.
There are a considerable number of costs and reporting responsibilities for public companies — many of which are not obvious to the average person. The most important are the required reporting during the S-1 process, as well as the 10-K and 10-Q filings.
Strong financial and legal departments will handle the financial and regulatory aspects of a public company.
Other costly internal investments include:
For many small and medium-sized companies, you may be appropriately staffed in these departments for your size today (or a bit understaffed). However, these departments should play more significant roles in the strategy of your company during this process and will play critical roles in maintaining compliance with outside regulatory agencies once the IPO is complete. Your success or failure will be greatly influenced by how these departments are structured early in the IPO.
Once you become a public company, you will be required to disclose more information about the company, its operating performance, and its officers than you are normally accustomed to doing.
You will need to share fundamental statistics such as, but not limited to:
Most entrepreneurs I’ve worked with prefer privacy over public disclosure; however, that is a preference that will have to change if you want your company’s stock listed on an American stock exchange.
Going through an IPO is a grueling and time-intensive process that requires a lot of planning, investment, and strategic execution. It’s not as easy as it is perceived to be, so if you are considering this as a viable option for your company, make sure you understand all of the costs as well as the benefits.
Contact us to talk through this process.
Co-founders & Managing Partners