The transition from being a privately-held company to declaring your status as a public one is a milestone that can lead to increased capital and long-term business success. Although it may sound straightforward, the process of going public is notorious for roadblocks and, consequently, frustration for the management team executing the public debut.
The initial public offering (IPO) is a complex experience that requires careful planning, significant effort and substantial funding. The formal process typically takes six months but, depending on your approach, can take a few years.
Companies often fail to realize the demands that come with building a public financial profile. The endeavor requires your management team to take on more responsibilities in hopes of meeting shareholder and market expectations, including compliance and regulatory requirements along with risk management and periodic reporting. As more B2B tech companies embark on the journey to go public, industry leaders need to put in the work before joining the public ranks.
Are You Ready To Go Public?
Before laying out your plans, consider this: Why should you go public and is your business a realistic candidate to take this next step?
As a successful technology startup that is outpacing industry growth, going public may offer a better chance of attracting prospective investors compared to staying private. However, the decision to go public should be driven by more than promising results in the short term. A presence in the public eye comes with the scrutiny of potential investors who expect proof of your company’s established track record and projected growth.
While ringing the bell at the New York Stock Exchange (NYSE) or the Nasdaq would make for a great Instagram video, you should have confidence that your business can weather the ups and downs of the public market. A consistently strong performance prior to going public is a good indicator of future success. If your growth is minimal or inconsistent, investors are less likely to engage, viewing your company as too risky to take a chance on.
Think about your track record—is your business a top performer in its industry?
A company prepared to go public can confidently answer “yes” to this question. Other indicators of preparedness include having a large addressable market, a product with a competitive advantage and a well-thought-out business plan. If these qualifications aren’t obvious to investors, it may be time to rethink your strategy and hold on taking the next step. Otherwise, go forth and conquer as a newly minted public company.
If You’re Ready, Which Strategy Is Right for Your Business?
Historically, developing a public company required raising money through an IPO. But the traditional model isn’t the only option available anymore. A growing number of private organizations have turned to special purpose acquisition companies (SPACs) as an alternative to traditional IPOs. While SPAC transactions provide easier access to capital and expedite the timeline for a company to become public, they’re not the right choice for every tech company.
For organizations that are profitable, have an established management team with experience running a public company, and have a strong growth story, an IPO is likely the right choice. To prepare for the IPO process, you’ll need to get your finances in order, partner with a good investment bank, and create a solid investor relations plan.
Companies that have growth potential but aren’t yet cash flow positive should alternatively consider a SPAC. SPACS, also referred to as “blank check companies,” don’t require the scale, profits and predictability necessary for a traditional IPO. In the case of B2B tech companies, SPACs can be a preferred target. While different from their IPO counterparts, SPACS still require significant preparation and come with potential risks. To prepare for a SPAC merger, companies must prove readiness with historical financial statements, reporting requirements, and established goals.
What Is Your Plan To Achieve Success?
No matter which strategy you choose, going public requires buy-in from investors. You’ll need to take specific steps such as the following to prove your company is worth investing in.
- Establish a strong management team. Management must be committed to the time and effort involved in meeting registration requirements, conducting analyst and other investor-facing meetings and providing financial reports required by both the SEC and shareholders.
- Get your finances in order. Make sure you have two to three years of historical financial statements that are up-to-date and accurate.
- Coordinate with legal experts. Going public will require you to comply with a plethora of new regulations. Make sure you have a strong legal team in place to navigate these requirements.
- Plan for the future. Create a solid and shareable plan for how you’ll grow the company and perhaps most importantly, make money for shareholders.
How Will You Maintain Your Duties as a Public Company?
Going public is a single stage in your company’s growth journey. A long road remains ahead.
As a public company, you have many new responsibilities, including reporting obligations, regulatory compliance, and maintaining investor enthusiasm. Failure to comply with these regulations could lead to steep fines and penalties, not to mention a public flop, as was the case with Snap Inc., the parent company of Snapchat, back in 2017.
Understand Your Reporting Obligations
Public companies are required by the SEC to file periodic reports to keep shareholders and the general public informed. Your filing status will ultimately determine your company’s specific requirements. However, most companies can expect to file an annual report to shareholders, a quarterly report detailing financial data and forms reporting specific events. To maintain these stringent reporting requirements, a thorough reporting calendar is needed.
Keep Stakeholders Informed
Once your business is officially public, you have an obligation to keep stakeholders informed of your business decisions and financial status. With this newfound transparency, dips in investor enthusiasm have the potential to wreak havoc on trading results, causing your company’s valuation to decrease.
To prevent losing business due to an unenthused audience, choose an individual within your company to handle shareholder relations. If you are strapped thin internally, third-party firms can be worthwhile investments to ensure stakeholders understand your decisions and are kept up-to-date at all times.
The bottom line is that stakeholders are financially and emotionally invested in your business now. It’s pivotal to schedule routine shareholder meetings and ensure that all communications fully explain corporate results. Communication can make or break a company’s reputation among investors. Ensure your management team is up to the task of meeting these requirements.
Find Legal Support and Comply With Federal Regulations
Public companies are required to take certain actions to maintain compliance with federal regulations.
Newly public companies must ensure that forecasting information complies with Safe Harbor standards. Other federal regulations require your company to keep internal information confidential and perform fiduciary duties. To ensure you maintain regulatory compliance, it’s essential to partner with a strong legal team. If in-house counsel isn’t available, contacting a local law firm that specializes in your business vertical is paramount to complying with the myriad regulations required for public companies.
Whether you choose to go public via IPO or SPAC, making the decision to trade on a stock exchange is only the beginning of a longer journey. As a public company, you’ll have more responsibilities than ever before, and failure to manage those responsibilities can come with severe consequences. By adequately preparing for the process and learning about the requirements for the future, you have a better chance at success in the months and years following your decision to go public.
