Thinking about an IPO? 4 things for founders to consider first
Selling your shares on the stock exchange and going public is an important stage in a company’s trajectory. An Initial Public Offering (IPO) raises funding for growth and provides a host of other benefits, but the process can be challenging to navigate. Here are 4 things to consider before deciding on whether it’s right for your business.
1. Is an IPO the right option for your business?
Understanding when and why you’re going to IPO takes time. IPOs aren’t right for every business and you need to be clear about the reasons why you’re embarking on the IPO journey.
One main benefit is greater access to capital. And, depending on market conditions, it might prove less expensive than other routes.
Equity driven remuneration is powerful. Staff that backed the business before it was public can be rewarded and new talent enticed. Shares can be used as currency for mergers and acquisitions too, potentially adding significant weight to your war chest.
As a public company you’ll be better known. It helps to build your reputation as a high quality operator and that can, in turn, improve your valuation compared to a private company.
On the other hand, IPOs can be complicated and costly to get right. You need advisers to support you and it doesn’t usually make sense to grow that kind of capability in-house. There are extensive corporate governance requirements including clear processes and policies that need to be adhered to by staff.
Public companies are also prone to short-term reactions to business performance in a way that private companies don’t have to worry about.
For some entrepreneurs it can be the fear of losing control that stops them from pursuing an IPO: it’s crucial to question how you feel about that before making any decisions.
2. Have you considered the timeline required for IPO readiness?
Getting public company ready takes time. This varies dramatically depending on the maturity level of the company. The process typically takes one to two years, but it’s not unheard of for companies to take much longer.
With this in mind, you need to start thinking about going public a long time before you start the process. The business leaders that time it right are the ones that have proactive discussions about IPO as part of their strategy discussions. They can see the value in considering an IPO as a viable option for their business’s future.
Think also about your choice of which market to list in early on, as that sets the bar. Each market will require different reporting standards and give you access to different levels of capital.
3. Are you ready to start acting like a public company?
The key thing here is to start acting like a public company from day one. That means thinking, looking and behaving like a public company long before you become one.
Investors aren’t just interested in growth, they want to see sustainable growth and, more recently, a commitment to Environmental Social and Governance (ESG). Question whether your data is showing the right kind of growth – and how you’re going to build a story that shows your progress and potential.
Build the right infrastructure by getting the tech platforms in place and investing in your team and valuing the people who can deliver. That foundation creates confidence.
4. When is the right time for your company to IPO?
Markets are volatile, and the current landscape is uncertain. Stock prices have dropped and there’s a large amount of uncertainty about the economy. Consequently, valuations have dipped.
Preparing for an IPO now, even if the listing takes place in the medium term, will put companies with strong fundamentals in a good position to move quickly when the market improves.
Once you go public, the numbers are available to see, so your customers and competitors know where your business stands. You need to be ready to report from day one.
Want to know more about IPO readiness? Get in touch.
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