IPO readiness through a public and private market lens

Hot or cold, the IPO market is seeing public investors apply a higher bar to valuation, liquidity, disclosure, growth durability, and management credibility.

IPO readiness means preparing for these public owners’ expectations, and we believe that work should begin well before a roadshow.

In this paper, we explore how late-stage private companies could earn a place in public market portfolios, price offerings to support future returns, help investors model the business, articulate their AI strategy with clarity, and build long-term investor relationships.

1. Price for the long term

Perhaps counterintuitively, a cooler IPO market can be constructive for issuers when it brings more reasonable starting valuations and a longer-term shareholder base. Going public at an inflated multiple with short-term-oriented investors can create pressure quickly if the stock resets, damaging both external perception and employee morale.

In our view, companies should enter the public market when the business fundamentals, valuation, and investor base can support a multiyear public company journey. As public investors have limited space in their portfolios, we believe this is particularly relevant in sectors where investors can choose from among many listed alternatives.

2. Give new shareholders room to win

Public investors evaluate IPOs through public market comparables, liquidity, growth durability, and the return path from the offering price. The last private round valuation provides context, but public investors focus more on whether the business can generate attractive returns from the IPO price over the next three to five years. For companies worried about a down round at IPO, we would posit that a lower valuation can be the right outcome when it creates a healthier base for future compounding.

Scale also matters because a company with a US$1 billion or US$2 billion market capitalization may face a narrower buyer base today. Many public market investors need enough float and trading volume to build a meaningful position. This may motivate companies to stay private longer until their market capitalization reaches adequate scale to attract a wider investor base.

In our view, IPO pricing and timing should not look to maximize valuation but instead to align existing owners, new investors, and employees around the company’s long-term trajectory.

3. Understand your “portfolio-market fit”

Public investors need to identify a company’s “portfolio market fit.” In software, for instance, that means showing where the company belongs in a crowded universe of public stocks and why its subsector exposure and growth profile is scarce. Importantly, investors will ultimately decide which peer group a company belongs to, regardless of how management chooses to position it. Understanding the public market comparables investors are likely to use (and how the company stacks up against them) is therefore critical. High-quality growth remains valuable because many public market categories are thinly populated with companies that can compound revenue at attractive rates.

AI has raised the stakes for this evaluation as investors need to understand whether AI supports a company’s potential revenue growth and competitive positioning. If investors have to work too hard to understand why AI is a tailwind, they may treat it as a risk. We believe the strongest companies make their theses easy for sector specialists to explain to portfolio managers when management is no longer in the room.

4. Make sure the business is modelable

Likewise, the S-1 is often the first real test of whether public investors can understand and value the company. We believe strong disclosure means giving investors enough historical context, metric consistency, and business-unit detail to build conviction.

In our view, a useful readiness test is to give the draft S-1 to someone who understands the company’s industry but is not a company insider. If that expert cannot build a reasonable model, public investors will likely struggle as well. Companies should also treat every disclosed key performance indicator as a long-term commitment. Removing a metric in a quarterly disclosure can cause investors to assume that KPI has weakened. Any change in KPIs needs to be made from a demonstrable position of strength.

5. Invest in education

Investor education should begin long before the IPO. Investors need to be able to build a time series, understand the business, and hear the company’s story before the formal IPO process compresses the narrative.

Companies should prepare for two audiences. Sector specialists need product detail, market context, and a narrative they can confidently share with other investors. As an IPO approaches, portfolio managers need to understand the valuation framework and to have confidence in management’s ability to execute. One of the most effective ways to prepare for life as a public company is to begin acting like one before the IPO. Practicing earnings calls, sharing draft disclosures with experienced public market investors, and soliciting candid feedback can help management identify the questions that are likely to matter most once the company is public. This preparation can improve both disclosure quality and management's readiness for the public market.

6. Build relationships beyond the IPO

The first 18 months as a public company can shape how investors view the stock for years. Company guidance on earnings and KPIs should be achievable, with room for normal execution risk. Missing numbers can quickly erode credibility, while a pattern of delivery can keep investors engaged and allow the bull case to develop over time. Importantly, public investor mindshare requires consistent communication and engagement.

The IPO allocation itself can be a critical way for management to build long-term relationships. While public companies ultimately cannot choose who owns their stock, the IPO offers a rare opportunity to help shape the initial shareholder base. A company should look to identify investors who understand its business, want to own it over the long term, and may stay constructive through volatility.

Bottom line on IPO market preparation

We believe the companies that are best prepared for an IPO have a growth profile, scale, valuation, and narrative that makes it easy for investors to find a place for them in their portfolios both at IPO and over the long term.

Visit our Value Creation homepage to access a range of insights and resources on IPO readiness, public market best practices, and much more.