Capital Raising — Pre-IPO: What do you look out for and need

Published on
November 3, 2022
Peter Brocklebank
Managing Director, Partner
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There is an ongoing debate on whether or not private companies should work toward an IPO or “go public”.

On the one hand, the benefits are ten-fold. Going public can mean further growth via an injection of more resilient capital. This can then be allocated to finance research and development, pay off existing debt, or even fund capital expenditure.

With the buzz that IPOs generate, entrepreneurs can launch their products and services into untapped demographics, subsequently leading to increased market shares. Founding members can even cash in and use IPOs as an exit strategy.

On the other, the required added disclosure of consistent updates (regardless if positive and negative), data, and operational details that impact the business may present risks for some entrepreneurs as these details may turn off potential investors.

For new companies, SEC regulations can put a strain on their financial resources as the cost of complying with regulatory requirements can be steep.

However, regardless of the cons, it is undeniable that the rewards are worth the trouble. In fact, some of the world’s most valuable tech companies to date — including Amazon, Apple, Alphabet (Google), Facebook, and Microsoft — went public relatively early in their journey and were long managed by their respective founders.

So, the question that comes begging is: what should entrepreneurs consider when thinking about going public? Here are 3 questions to ask.

1) Is an IPO Feasible?

How realistic is going public for your company? There are certain criteria your company needs to meet.

First, you need to consider how big your market is and how fast you can grow. The bigger the market, the more money you can generate and the faster you can scale. Ensure you have a market massive enough to support your growth strategy and metrics in order to effectively and consistently work toward your IPO goals.

Next, you need to assess how disruptive your product is. For your business to tower over competitors, you need an innovative product that transforms how things are done and makes daily life generally easier for your consumers. If you think your product or service ticks this box, then you can move on to the next crucial benchmark.

Of course, there is the issue of predictability. Accurately predicting how your product will fare in the market and what direction your company is going — whether quarterly or annually — can set you up for future IPO success.

Another thing to consider for IPO readiness is your level of competitive advantage. Is your product or service easily replicable? Have you established brand loyalty among your consumers? Is your reputation second to none? Is there a surplus of other opportunities that you can easily explore once you have gone public?

Among other things, having the right answers to questions like the ones above will allow you to determine whether or not your business is on the right track.

2) Is There Significant Revenue and Are the Profit Margins Headed in the Right Direction?

For businesses, cash flow is the oxygen that keeps it alive. Are your current sales thriving and healthy? If yes, you are getting there.

For public market investors, future profit and the potential for creating more profit are what brings them into your alley. Your stock will only become valuable to them once they see either impressive or acceptable profit margins that they can use as future revenue streams.

3) Is There Consistent Growth and Are Business Operations Measurable, Repeatable, and Predictable?

When we talk about consistent growth, we mean the stability of both your company and target markets. If growth is fickle or non-existent, then your company may not be ready for an IPO.

One way to achieve consistent internal growth, however, is making sure your business processes are clearly defined. Measurable, repeatable, and predictable business operations empower your business to continuously improve while mitigating costs and boosting efficiency, productivity, and effectiveness — all factors that will give potential public market investors confidence in your company’s future.

As you can see, most of the answers to these questions interconnect. This brings more emphasis on just how important every criterion and milestone is when it comes to your scale-up going public.

It is not enough to simply meet them once — there must be consistency in order to prove to public market investors that your company can perform and exceed their expectations; that their cash is in the right hands. Ensuring you satisfy and hit these criteria and milestones will set your business up for the most success and become truly IPO-ready.

As scale-up specialists, we at BeingIconic have successfully worked with companies from various industries in creating effective IPO strategies. We have helped strengthen value proposition and profits, managed complexity, and better positioned them for long-term, sustainable success in capital markets. Partner with us today to learn how we can do the same for you.