Since Venture Capital is one of the very first steps to kick-start a business, IPO will be one of the eventual realisations for the venture capitalists to exit their investments. According to CB insights, after a good year for tech IPO in 2013, the wave of IPOs will remain as heated in 2014, assuming there is no massive downturn in market sentiment. As in December 2013, there were 590 tech companies that were valued at USD$100 million or more in the IPO pipeline, all of which were either backed by venture capital or private equity, a 25% in volume more than the previous year.
Although taking a private company public is a very time-consuming and costly process, an IPO can provide massive capital to fuel growth and liquidity for the founders. Some other benefits are listed below:
- Given the high valuation of public companies in recent years (for example Facebook, Tencent, and possibly Alibaba in the near future), IPO can grant the founder the access to capital to fund their growth and not to worry about future funding.
- It grants you with enough capital to acquire other businesses and a valuation if your business becomes an acquisition target.
- It serves as an exit strategy for private company investors such as venture capitalists.
- It serves as a marketing campaign for the company to attract more public attention. It can enhance your brand image, public profile as well as credibility.
According to CB insights, it shows that the average duration for a tech company to go public will take an average of 7 years from the very first funding to an IPO exit. As there is no overnight success story, a great deal of work and stress will always be involved during this 7-year period, from fund raising at the angel-investor stage to accumulating customers and getting confident enough to the pipeline of the IPO. So in order to ensure that your IPO is a success, consider the following points.
Hiring a CFO is crucial because he/she knows how to play the game of Wall Street. As soon as he/she understands your business, then he/she will be able to integrate the future path of your business so that he/she can communicate and present the vision of your company during the market campaign.
Choose the investment banks carefully
Picking the right bank is crucial in determining the success of your IPO. While most banks possess some qualifications and competencies, knowing them well prior to your IPO can ensure you can pick up the best and most flexible terms on the deal. The managing underwriter will coordinate with a company to develop the registration statement, prepare the road show, underwrite certain risks, and also form a syndicate.
A company can always go public without an underwriter, but as mentioned the process of IPO is so complex that it should be left to the experts. They can assure you that the IPO is properly managed and supported throughout the pre and post IPO journey.
Assemble your IPO Team
Despite the investment banks – the underwriters, there are also three groups of team that are vital to your success of the IPO.
- The underwriter’s counsel
The underwriter counsel is generally involved in drafting the underwriting agreement, and they will ensure on behalf of the underwriters that the registration agreement is accurate and not misleading before the files are sent to the regulators for approval
Prior to the IPO process, it is necessary for your company to employ an independent auditors for strategic and technical advisory. The services these auditors can provide are strategic advice to establish a plan to enter the capital markets; technical advise on how to prepare the registration statement and obtaining approval from the regulators; guidance of accounting issues, and providing audits of the financial statements.
- Other professional advisers
Other advisers will include public relations firms and other consultancy firms. They will assist and guide your company through the marketing campaign period, such as preparing all sorts of materials required for road shows and analyst presentation, and even coach management on presentation skills.
Craft your ‘story’ – the road show
This step is basically about how to position your company, highlighting your company’s strengths, strategy, the market opportunity, and why your company will be a good investment in the future. As investors are looking for great growth potentials, especially for tech companies. It is crucial that you tell potential investors a story compelling enough before they even start to scrutinise your company and dig deeper into the bottom-line performance.
Last Stage – Post IPO
The last stage of the IPO journey begins after the shares are priced. For the next 24 months of post IPO, there will be more work to be done to attract investors and analysts. As a new public company, the management team is now accountable to hundreds or even thousands of investors compared to perhaps a dozen of them when your company was private. It may be correct that a newly public tech company may enjoy high share prices fuelled by the enthusiasm of the market of tech companies, however unless the company is able to maintain the interests of investors and sell-side analysts, the euphoria will quickly vanish.
Major Domus Family Office Services
Major Domus Family Office Services (MDFOS) and BBD Enterprises (BBD) have partnered to offer private enterprises in-house merger, acquisition and corporate restructuring services. The partnership puts together a team of senior executives with many years of legal, accounting, regulatory and investment banking experience. For any size of capital raising, the MDFOS and BBD team can act as your structuring team, including capital raising, and when necessary work with other licensed investment banking partners to execute public offerings.
Our in-house services are substantially less costly and more efficient than pulling together a panel of separate and individual external firms which usually have a view of getting for themselves a maximum piece of the pie. Controlling cost and information internally with a team that is financially aligned to the owners is an emerging trend worth considering.
Please note that Major Domus does not carry a Type 6 license from SFC for Advising on Corporate Finance (stock exchange listings, mergers or IPOs); BBD is an independent professional services firm and is not licensed to offer legal and tax advice. The services our team provides are for private non-listed companies only.