December 9, 2024
December 10, 2024
The 2023 IPO market will end the year only marginally better than it did in 2022, which was the worst in a decade according to Bloomberg data. Eager to put these dismal years behind them, growth companies and leadership teams are looking ahead, asking two questions:
- Will 2024 be a better year for capital markets?
- Will we return to conditions more conducive to capital raising and strategic growth activity?
This is not a prediction piece, but there are some truths guiding our work with clients and our expectations heading into 2024. We know, for example, there’s a large universe of innovative companies – nearly 1,500 private unicorns – that need to find funding next year. Economies, industries and companies want to grow – and like water, markets will work to find their level. The capital requirements and growth opportunity that many pre-IPO companies represent is simply too large to be fully funded by private markets alone. There’s too much value waiting to be unlocked in the public markets.
At Mission North, we’re counseling clients and having numerous conversations with pre-IPO companies. Here are four communications strategies for pre-IPO companies heading into 2024.
Communicate with intention to create liquidity, growth and exit optionality
Not all companies that were on the road to IPO before 2022 will continue that journey. It’s important to be honest about what your ideal outcomes are for an exit, liquidity event or other form of strategic growth. You need to imagine forward and plan backward. If you want to be an attractive acquisition target, for example, it’s best to approach that goal from a position of strength. Doing so will help you attract the right kind of investor by communicating what makes you a valuable and strategic target.
Loom, recently acquired by Atlassian, is a helpful example of how an acquisition can still be positive and accretive even if Loom’s valuation had come down from its previous highs. Atlassian was an early adopter of Loom and bought the first enterprise-wide license of the technology – a huge early win for the company in its earliest days. The relationship between Loom and Atlassian leadership teams goes back well over six years. They both have communicated openly around the strength of the strategic fit based on a shared mission to empower teams anywhere and everywhere, as well as their co-commitment to product-led growth and to developing deep integrations to benefit their customers.
<split-lines>"It’s important to be honest about what your ideal outcomes are for an exit, liquidity event or other form of strategic growth. You need to imagine forward and plan backward."<split-lines>
Bridge valuation gaps by demonstrating resilience and strong fundamentals
For capital markets to regain momentum, buyers and sellers are going to have to find a new equilibrium when it comes to what businesses are really worth. While macroeconomic conditions have improved over the past 12 months, you have to focus on what you can control and communicate with confidence around:
- The relevance of your business model and how you capture and create value
- Your ability to navigate and overcome macroeconomic factors
- The role of innovation – including the role of AI – in what you do and how you do it, with a focus on tangible impact and benefits
- The efficiency of your operations, demonstrating how you’ve made trade-offs to focus the business and set it on a sustainable, profitable path
Bringing those themes to life requires elevating your company’s most capable and credible messengers – your C-suite – through strategic thought leadership and executive positioning programs.
Investor appetite for great companies to invest behind has generally not changed, but what is deemed as an attractive and investable company has. Pre-IPO companies have to understand that new definition and how they fit within it.
While payments leader Stripe conducted layoffs in 2022 and adjusted its valuation this year, its IPO is still one of the most anticipated. The company has continued to demonstrate the relevance, resilience and growth potential of its business model. Recent examples include Stripe launching a service that lets companies pre-order “offtake” contracts for projects focused on carbon removal, which will help companies with emissions reduction goals to finance carbon removal solutions at an early stage, and growing partnerships with customers like Alaska Airlines.
<split-lines>"For capital markets to regain momentum, buyers and sellers are going to have to find a new equilibrium when it comes to what businesses are really worth."<split-lines>
Develop a ‘performance narrative’ that balances growth, profitability and durability
At the heart of a company’s IPO story is performance. Story stocks without substance don’t accrue long-term value, so it's essential for pre-IPO companies to develop and activate around a ‘performance narrative’ that balances:
- Growth – making clear your focus on near-term growth drivers, demonstrating sustained momentum through data and other forms of proof-based storytelling.
- Profitability – investors are looking for profitable companies that are managing capital responsibly. Unprofitable companies must demonstrate a path to profitability with evidence of runway achieved through operational discipline and financial performance improving quarter-by-quarter.
- Durability – demonstrating to investors that you’re ‘built to last, not built to splash’ and that you’ve not only weathered the past 24 months, but you’re stronger because of it. Public markets are the ultimate test of longevity, companies need to point to both examples of resilience as well as make clear their best days are still ahead.
A company doing this particularly well today is Canva. Its performance narrative and messaging powerfully reinforce these three dimensions. The company regularly shares data on user growth and progress against its business strategy, makes clear its focus on profitable and efficient revenue growth, and how it is investing in innovation to be one of the most valuable companies in the world and a leader in the visual economy.
Be prepared from intent to offering
Having supported a number of leading companies with IPO communications – including some of the largest software and science focused IPOs ever – Mission North has developed a phased approach and best practices to help companies move from intent to offering and adjust to life as a public company.
While making predictions about the year ahead is notoriously difficult, investing in the right level of preparation need not be. For companies looking to achieve their ideal growth outcomes in 2024, you’ll need to focus on communicating to investors, markets and the media how you are uniquely positioned to create and capture enduring value in the months and years ahead.
