Preparing to go public: 5 IPO lessons learned

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At Wellington’s Venture Summit, an intersection of public- and private-market experts dove into key topics for private companies navigating their next stage of growth.

One major takeaway was how early IPO preparation can help companies better navigate potential pitfalls on the way to the public markets.

Below, we highlight five IPO-preparation lessons learned from our panel of Sam Cox (public-market portfolio manager), Josh Sommerfeld (private-market deal lead), and Drew Morales (the associate director of our Value Creation team). With the IPO market currently on pause, we think these tips can help companies that are months and even years away from a public offering.

Going public takes longer than you think
In most sectors, we would suggest companies plan for the process to take at least 6 – 12 months (and often 9 – 18 months for all but the most prepared teams). Companies generally need to address several thorny issues in the run up to a public offering, which can extend the process. This can include potential board changes, scenario planning for different IPO pricings, hiring for key G&A functions, and numerous other challenges.

Just as one example, substituting a board member can take 6+ months alone to avoid damaging key relationships.
There’s no rush to go public
We believe there can be major potential benefits to going public later, such as higher revenue, greater scale, a bigger market cap (meaning more analyst coverage), and increased long-term clarity, among others.

Moreover, in our view, it’s much easier to make major changes while you’re private. For instance, replacing a senior executive like a CFO, launching a new product, or otherwise pivoting your business can all be more challenging to do when public. We believe patience can pay off with a much stronger first impression in the public markets.
You have one shot at doing this well
In our view, companies need to ensure they have their board of directors, compensation plans, governance structure, and leadership team buttoned up prior to an IPO. Public equity markets can be unforgiving of major changes or signs of management uncertainty.

Notably, a false start toward IPO can also have significant impacts on internal stakeholders. We believe companies should be very thoughtful about human capital management broadly and, specifically, about how a false start can affect an internal team’s morale and cause departures.
Be prepared to explain everything
In the private markets, companies and investors are able to get to know each other really well through frequent, in-depth engagements over several years. In the public markets, your investor base is much broader, and you may only speak with them one to two hours a year.

Companies should be prepared for this new dynamic with their investors. In practice, as you prepare for an IPO, we believe you should aim to be able to explain any issue in less than five minutes.
Stocks self-select their investor base
In our view, companies should be careful about the type of investors they attract. If you view an IPO in a transactional way, we believe you are likely to attract transactional investors. But if you take your time and do your due diligence, we think you can end up with an investor base that reflects a longer-term lens.

We think companies should therefore be involved and intentional in the share allocation process. By focusing on investors who are aligned with your business (and with whom you’ve built relationships), we believe companies can set themselves up for longer-term success.

Bottom line on preparing for an IPO

Going public is one of the most important moments in the life of a company and it can be just as complicated. In our view, these five lessons are just the tip of the iceberg. Our Value Creation team works alongside our private-market deal teams and public-market experts to help our portfolio companies navigate the challenging (and exciting) path to IPO.

Visit our Value Creation homepage for more information.