Seven Signs Your Company Isn’t Ready for an IPO
Is it time to take your company public? Many executives dream of the day when their business begins trading shares on Wall Street, but an IPO is an expensive and grueling process that necessarily distracts you from your core business. And a failed attempt at an offering can damage your credibility for many years.
That’s why it’s vital to be sure you’re ready to go public before you begin the formal process. Here are seven signs that you’re not quite there yet:
1. Your Messaging Isn’t Refined
Clarity, concision and consistency are the keys to effective communication with the investor community. Remember that you must choose messaging that inspires confidence, and that you yourself can live with as a public company.
If your message is muddled or lacks distinction, analysts aren’t going to spend time sifting through it when there are thousands of other companies from which to choose. And if your message changes over short periods of time, or you make promises that you don’t deliver upon, you’ll be put in the “penalty box” for a long time.
2. Your Financials Need Review
Do you have a fully developed financial model that has been stress-tested? Have you figured out which metrics to focus on to satisfy analysts on both the buy and sell side? If you haven’t, these are big red flags that more work is required.
When settling on those metrics, you need to reflect on your level of confidence that you can hit them. Over-promising and under-delivering can translate into a missed first quarter, which is calamitous.
Finally, before going public, lock down those historical financials so accounting doesn’t delay the process.
3. The Timeline for Expected Events Is Uninspiring
Investors are placing their money with you in the expectation that you’ll use the resources to produce positive developments that fuel share price appreciation. You need to manage those expectations by furnishing them with a timeline that you can reasonably fulfill. This is especially important for development-stage companies.
4. You Don’t Have Well Established Relationships With the Investment Community
The time to forge all-important relationships with buy- and sell-side professionals is not during the weeks or even months leading up to your IPO. Company executives should start cultivating these relationships at least one to two years before an anticipated IPO. These individuals need time to get to know your company. The IPO process is a relatively short one. There just isn’t enough time at that stage to conduct all necessary the due diligence.
One additional point: the IPO process is the only time you get to pick your investors; after you’re public, your investors will pick you (or not). Getting to know them well before the IPO will help you allocate shares.
5. Management Isn’t Prepared for the IPO Process
Successful CEOs and CFOs are experts in the operation of their companies. But some have little experience with the IPO process. That’s understandable, but it requires your attention and effort. It’s important to have a grasp of the overall IPO process and capital markets.
Moreover, you’re going to make scores of presentations that will earn or lose support for your company. You can’t wing it. Invest the time in practicing and understanding your various audiences. Get training, if necessary, to improve your presentation skills.
6. The Back Office Isn’t Ready
The corporate back office must be as strong as every other element of your organization. Being a public company means focusing not just on what you do, but also in communicating effectively about what you do. That means your website, for example, must tell your story as well as you do out on the road.
7. You Have No Plan For Nurturing Investor Relations After the IPO
Going public isn’t a one-off process. For as long as your company is public, sell-side analysts are going to write regular reports about your progress, or lack thereof. Meanwhile, those on the buy-side will be keeping an eye on you and their investment. You need to keep them all updated to help them understand your performance and evolution. The time to develop that IR strategy is well before the IPO.
We can advise you on your current readiness for the IPO process, and help get you ready if you’re not yet there. Contact us to start the conversation.
John Woolford is a Managing Director on Westwicke's life sciences team. He has extensive experience in investor relations, as well as IPOs, capital raises, M&A, and other business development activities. He has a BS in microbiology from the University of Maryland at College Park and an MBA from the R.H. Smith School of Business.
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