December 9, 2024
December 10, 2024
As part of our ongoing IPO readiness series, I recently sat down with Leslie Pfrang, a Partner at Class V Group, an IPO and capital markets advisory firm. We spoke about the current state of IPOs and what great companies do to prepare for the rigors of becoming publicly traded.
What follows is an edited version of our discussion.
The IPO market seems to be opening up more slowly than originally anticipated. How would you describe the backdrop right now, and how are you and your clients scoring the current environment?
Despite recent volatility over the past month or so, the IPO market remains open. In terms of macro environment, the upcoming election and decisions around rate decisions from the Fed create some uncertainty, but neither of those things are the core issues around IPOs. Most companies are targeting 2025 more than they were 2024 – and that’s probably a combination of a few things.
Many companies aren’t entirely ready because 2021 and 2022 were such bad years that they weren’t really putting their heads down to prepare, and it takes a year to a year and a half to get your house in order. It's likely that more companies will be ready in 2025 – the setup for them next year looks more positive and robust.
How should companies more generally be thinking about the timing of their offering and balancing the ability to be opportunistic with thoughtful planning?
While optionality is always good, the north star we guide companies toward is being on a timeline that works for your company specifically. If it makes sense for your company to go public, the market will be supportive and accepting of your IPO. CAVA is a great example. They were one of the first IPOs as the market was just re-opening at the time; they had tremendous confidence in the business, in their ability to ramp new stores and in the white space they were exploiting as a company and brand. They went ahead on a timeline that was right for their company and it was wildly successful.
<split-lines>"If it makes sense for your company to go public, the market will be supportive and accepting of your IPO."<split-lines>
So, when you hear CEOs talking about issues around timing their IPO to improving market conditions, does that have the tendency to come across as just being unprepared (even if it’s meant to convey a sense of timing)?
CEOs and founders should not talk about timing the market…ever. It’s not a good thing to say because the best companies can choose when to go public. Certainly you do not want to launch an IPO into a period of volatility in the market but those periods usually pass pretty quickly. Investors want to hear a message of confidence, not that you need to wait for a better market or higher valuation. ‘Wait and see’ is not a message of confidence. It would be better to talk in specifics about why it might make sense for the company to be public at some point in the future and that they will be ready for that moment when the time comes.
<split-lines>"Investors want to hear a message of confidence, not that you need to wait for a better market or higher valuation. ‘Wait and see’ is not a message of confidence."<split-lines>
What’s your advice to companies that might have a more complex or complicated business model as they prepare for the rigors of going public? Maybe they’re establishing a new category or are adjacent to more established categories.
There are a lot of complex businesses going public, so it’s very important to simplify what’s important to investors, to help them understand and be able to make an investment. It often comes down to making KPIs as simple as possible in order to measure and track progress, and telling a simple story. Do not get bogged down in complexity. Focus instead on how to simply tell investors how you make money and how you spend money to drive return. Use simple, quantifiable unit economics for your business and outline your sustainable competitive advantages.
Not having a direct comparison can be an opportunity to really tell your own story and take that to Wall Street without having to carry the baggage of an existing, perhaps underperforming, category. It would be a chance to lay out your story and tell investors how to measure your performance.
As companies look at their IPO readiness must-do’s, what’s at the top of that list?
Let’s start with table stakes: every company going public has to learn how to report accurate numbers on a public company timeline and to quickly and accurately forecast and put out measurable KPIs. What separates the best companies is thinking more holistically about the story they want to tell. Those companies are able to tell investors what they see the market developing, why the assets they are building are going to be the most valuable and what the three to five growth drivers are in the business.
Great companies think about how they communicate around key themes over the next four to eight quarters. By doing so, you can step onto the public stage and, ideally, show that you’re both delivering and reinforcing the story you told investors at the IPO moment.
By reinforcing those drivers, you’ll remind investors that you’re doing what you set out to do.
<split-lines>"Every company going public has to learn how to report accurate numbers on a public company timeline and to quickly and accurately forecast and put out measurable KPIs."<split-lines>
What’s an underappreciated aspect of IPO readiness or part of being newly public that you think sometimes gets overlooked or underinvested in?
It's important for everyone in the company to know the three to five things they need to be telling their audiences, and what they are doing to deliver quarter by quarter as a newly public company.
This goes beyond just the CEO and CFO. It’s helpful to have other executive voices talking internally about delivery, such as on the product and technology side, or on the revenue and marketing side. The entire organization should understand what is expected. And that’s where the larger PR and communications strategy and plan come in – you’re able to really be thoughtful about that quarter-by-quarter storytelling and thematic focus before, during and after listing day.
