Carl Chiou
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Carl Chiou, Managing Director, Equity Capital Markets at William Blair, in a look-back at the last 12-18 months of Technology IPOs, collected learnings from CFOs who’ve taken companies public.
Below he details a list of “Things We Think You Should Know**: Reminiscences of a Tech CFO”.
Pre-IPO Preparation:
- “Focus on key IPO workstreams earlier. Everyone’s busy and you need to prioritize certain tasks, especially if you haven’t raised money recently… Nail down the story, the path to long-term growth and profitability, and stress test your model.”
- “Things move at lightspeed after you press ‘Start’ on the IPO process… Engage with bankers and analysts sooner, get to know them and have a short list before the bake-off.”
- “Find a ‘trusted’ bank advisor that gives you the good and the bad – don’t want sugarcoated advice.”
- “Telling your story to outsiders is not easy, don’t take it for granted… Use the banks to critique and refine the story before meeting the buyside.”
- “Educate the CEO and board about the process... Don’t assume they understand IPO discounts, the bookbuild, allocations, etc. If they’re not prepared, it can be a bottleneck during execution as key decisions need to be made.”
- “Build a one year cash runway to IPO. If you need to raise a final small round before the IPO, don’t lose sleep over the dilution… Don’t be in a position where the cash balance is trickling down and the IPO is delayed for internal or market-based reasons.”
Equity Research
- “Research analysts are not just a ‘plus 1’ to your banking group… Bankers are gone after the IPO, but you’re stuck with your analysts forever.”
- “Letting brand of the banks, not the quality of research dictate my syndicate decisions, was a mistake…”
- “Fully leverage your best analyst(s) during the IPO. Empower them with the right syndicate position, so they can maximize buyside influence and drive the IPO outcome.”
- “Your analyst group should fill 3 roles. 1) Who best abstracts technical details of my product or market into laymen’s terms? 2) Who has the best grasp of the financial model and will be the go-to numbers guy for the buyside? 3) Who has the longest-term view, truly believes in the company and will defend the stock when it’s down?”
Working With The Banks
- “Everyone jokes about ‘slice and dice’ league tables, but the data dumps were overwhelming. As you put together syndicate and economics, run the data yourself or ask an unbiased source to run it for you.”
- “Don’t be beholden to tradition or common practice. Pick the team you enjoy working with and trust to give you full transparency and best advice throughout the process.”
- “Use NDRs as a test drive for each potential bookrunner. Identify who understands the story and is thoughtful in investor targeting. You’re also ‘living’ with these guys for 3 – 5 months, so make sure you enjoy working with them.”
- “Had too many banks in the room… End of day, only need 1 or 2 banks in the room for drafting, otherwise there’s not enough oxygen.”
- “Own your S-1. Banks are great with high level positioning, KPIs and TAM analysis, but nobody knows your story better than you do.”
- “Don’t underestimate the importance of a syndicate that works well together.”
Buyside Perspectives
- “Get to know a broad group of investors, not just the high profile ones… I met too many investors for the first time on the IPO roadshow, which meant I didn’t know what they were thinking and we spent too much time talking about high level details…”
- “Investor education must happen before the IPO roadshow… Non-Deal Roadshows (NDR) and Testing the Waters meetings are invaluable for refining the story and educating the buyside.”
- “I used multiple NDRs to create a time series evaluation of investors. Who was best prepared for the first meeting and how did their understanding of the business evolve from one meeting to the next? The best investors dug a little deeper each time versus just asking the same high level update questions.”
- “Use NDRs to meet the “bad cops” of the buyside who may not be your long-term shareholders but will ask tough questions and give candid feedback.”
- “Learned a lot about investor behavior after the IPO and wish I’d spent more time beforehand... Some high profile blue-chips flipped my stock after small gains while some higher quality hedge funds I didn’t know before the IPO have been my best shareholders.”
Final Words of Wisdom
- “Timing is dictated by when the company is ready, not the market.”
- “Flexibility is king. Get your ducks in a row sooner than you think you need to be… Especially now, you never know when the IPO window will be open or closed”
- “Understand what metrics / KPIs the market will be focused on and have two quarters fully baked.”
** if you’re wondering about the subject line, Reminiscences of a Stock Operator is a timeless classic published in 1923 that inspired me in my career in finance.
