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IPO Services Leader, PwC US
Doug Chu
Capital Markets Advisory Leader, PwC US
A company's equity story can convey its unique value proposition, financial performance and risk management strategies in a way that is designed to resonate with potential investors. This story plays a pivotal role in its public listing journey. It goes beyond numbers, weaving together a data-backed story that’s aspirational and compelling.
For executives used to formulating fundraising pitches for earlier stage private investors, crafting an equity story for public markets can be challenging. Here are five key questions to help you develop a winning narrative.
Equity storytelling breaks down historical performance and combines it with a vision for the future. This narrative should articulate both core opportunities and ambitions, balancing growth prospects with cost management strategies.
Remember your audience. Public market investors have countless investment opportunities available to them, each with different risk-reward profiles. Some investors may seek stable, established companies that promise regular dividends or buybacks, while others might chase the high-growth, more volatile, prospects of emerging companies. The equity story can be your chance to showcase your company's differentiators — highlighting your value proposition, revenue generation, addressable markets and growth prospects.
Determining comparables, or comps, can help investors assess your company's performance and potential. While companies and their bankers may suggest a peer group, it's ultimately investors through their buying and selling decisions, who play a significant role in defining this group. Bankers and research analysts guide this process by interpreting market sentiments and positioning the company accordingly. Due to their lack of public trading data, private companies are rarely used as direct comps, except in the case of acquisitions where their precedent valuation might offer some insights.
Understanding your industry's unique landscape can be the key to telling a story that resonates. For instance, enterprise tech companies might focus on growth potential and market size, overlooking short-term profitability for long-term gain. More traditional businesses might highlight mature profit profiles and market dominance, while biotech firms may center their stories around scientific advancement and clinical milestones.
For sponsor-backed companies, especially the first initial public offerings (IPOs) in their subsectors, crafting the right narrative can be particularly complex. These companies should balance illustrating core business performance with the potential for future growth, often shifting focus from rapid expansion to sustainable, quality-driven growth. This is especially true for multisite operators in industries such as home services, veterinary clinics, car washes and med spas, which have been rolled up by private equity firms.
The transition from a scaling private equity portfolio company to a scaled public company can be an inflection point. While historically the focus may have been on roll-up pace in the market, companies now need to emphasize same-store sales and core performance of the business to demonstrate their ability to deliver sustainable growth.
Market dynamics can influence how a company's equity story is crafted. The story must align with market sentiment, balancing aspirations with tangible business plans. This adaptability can be crucial, especially in times when market enthusiasm varies widely.
The rise of artificial intelligence (AI) has introduced a new dimension to equity storytelling. Companies now incorporate AI into their equity stories, showcasing how their adoption or development of AI technologies drives innovation, improves customer experiences and enhances scalability. This not only illustrates a commitment to future-proofing the business but also positions the company at the forefront of technological advancement, making the equity story more resonant with investors who prioritize investment in companies leading with innovation.
Companies sometimes mismatch their equity story with their actual business model or market position. Trying to leverage the high valuations of unrelated sectors or misrepresenting the company’s sector alignment can alienate potential investors and advisors. Stay true to your company’s core business model and align your story with actual market drivers and investment trends.
This is also important when incorporating AI into your equity story. While AI offers immense potential, avoid exaggerating or misrepresenting the extent of AI integration within the company — a practice known as “AI washing.” Investors value authenticity and transparency, so make sure you accurately showcase how AI enhances your company's operations. By avoiding AI washing and staying true to the company's actual AI integration, the equity story remains credible and builds trust with potential investors.
Equity storytelling can be a powerful tool that can make or break your IPO journey. By crafting a compelling narrative that combines your company's unique value proposition, financial performance and risk management strategies, you can captivate investors and generate interest in your company. Embracing the art of equity storytelling can help you embark on the path to public with confidence.
Special thanks to Shahbaz Rajwani for contributing to this blog.