Faced with the worst VC funding headwinds in years and the most moribund initial public offering (IPO) market in recent memory, many venture-backed companies may think they can put off preparing to go public.
They couldn’t be more wrong.
This period of low IPO activity is an opportunity to seize, not a problem. It will enable startups to make strategic choices about timelines, prepare meticulously and negotiate more effectively with advisors.
I must make my conflict of interest clear: I advise venture-backed companies on fundraising and going public. That said, in a previous life I was head of corporate affairs for a US biotech that listed on the Nasdaq as a unicorn — so I’ve learnt the following the hard way.
Set your strategy in stone
A slow IPO environment means you can methodically execute the raft of technical upgrades — to financial systems, governance structures, website content and back-end tech infrastructure — that you’ll need to comply with the Sarbanes-Oxley Act, a set of requirements for public companies in the US, or local equivalents.
Of greater potential value, however, is doing some deep thinking about the business model and how to most clearly articulate it.
Venture-backed companies often work in concert with their board to quickly pivot away from challenges or into larger opportunities. In public markets, by contrast, sudden changes in strategy can be seen as a sign of failure and start an irreversible downward reputational spiral. Leadership teams risk triggering draconian insider trading laws unless they break the habit of shifting strategy following a few phone calls in which they unwittingly share material non-public information with a few lead investors.
A company going public must navigate the nuance between presenting a consistent and compelling story, yet also allow for flexibility and potential directional shifts. Such thinking isn’t best done last minute.
Once set, that story needs to be backed by essential credibility markers demonstrating the company’s ability to execute, including financial metrics, technical expertise, market position and track record of the team.
This new narrative needs to be presented in a clear, credible and — above all — consistent manner to all stakeholders by all teams in the company, including sales, executive leadership team and the board.
An often unnerving test of IPO readiness comes from a quick email asking essential members of the leadership team to independently answer a simple question: “Please explain, in the language of public market investors, the company’s current medium and long-term value.”
In all but the most buttoned up and IPO-ready companies, the CEO, technical lead and board chair come back with wide-ranging and often contradictory answers.
There is also a cultural shift in the leadership’s self-description of the company. In addition to public market expectations of a clear and simple explanation, CEOs who are used to selling the story to VCs need to reign themselves back from a sales-style approach that may have them making statements that cannot be readily substantiated.
The CFO needs numbers at their fingertips to back up the CEO and answer incoming investor queries and challenges. The general counsel needs to ensure that risk factors do not deflate all excitement about the company.
Build relationships
Beyond these more internal issues, engaging the right advisors is difficult at the best of times. During an IPO rush, the most seasoned and valued advisors ruthlessly prioritise clients in two ways: relationship and willingness to pay high fees.
The most sought-after advisors will default to supporting companies backed by top-tier VCs. During an IPO lull, these advisors will be more open to working with other companies, developing relationships and locking in the contracts needed to keep them engaged through the full process of going public.
Relationships with public market investors also takes time to cultivate and are best made when you don’t need their money. Relaxed investor conversations long before a company goes public allows space for investors to offer valuable advice on refining a pitch, market trends to watch and even co-investors to tap.
And then there are the analysts. Going public is not the end of the journey — and for everything that happens after a listing, you need analysts on your side.
Analysts play a unique and powerful role as you look for inclusion in investment reports, sector roundups and indices. Companies going public should scrutinise the analysts relevant to their business with an anthropologist’s eye and approach them with a diplomat’s sensitivity to local protocol.
Read their reports, social media postings, quotes in the media, speeches at conferences and more; study their approaches to valuation, the kinds of companies they liked and what credibility markers they valued.
When we took the biotech company public, we identified gaps in industry analysis that might appeal to busy analysts and make their jobs easier. We pulled together research we had already done internally, built out a compelling infographic focused on our category and shared the infographic prominently in all presentations about our science, on our website and in social channels. Within weeks it was republished on the cover page of an analysts’ report, with a byline crediting our company.
This infographic credit line from a respected analyst was more powerful than shouting our name. It placed us at the heart of the industry discussion.
The journey to IPO is not a race won with speed alone. Venture-backed companies built over many years must ensure their first days on the public markets demonstrate a compelling investment opportunity with a clear vision and strong foundation. By starting this work early during quiet moments for the markets, companies can lay the foundation for a prosperous future in the public eye.
