To IPO or not to IPO? Four things tech companies must consider
Technology continues to be an agent of change and the explosion in size and complexity of technology-driven businesses has been reflected in their global growth and reach.
With alternative sources of private funding increasingly available, and potentially higher valuations being achieved privately, the motivation to IPO may well be reduced.
However, there will likely come a point in a company’s lifecycle, when joining a public market may be the natural next step.
When is the right time?
Ultimately this will also depend on overall market conditions and whether there is public investor risk appetite for technology businesses with high growth potential.
But IPOs can take many months to execute so it’s important to be prepared well in advance in order to move quickly to access the markets when they are open. In addition, many high growth technology companies are still loss making, or marginally profitable, when they IPO but this is not an impediment provided you can demonstrate sustainable growth, a credible path to profitability and a management team that investors believe can deliver the business plan.
Are you ready?
An IPO is a transformational event for any business and you need to be ready to deal with the additional demands and scrutiny that being a public company brings. Executing an IPO is challenging and key to its success is ensuring that you are really ready, and have sufficient time and resource to dedicate to managing the process, whilst still running the business as usual.
Which market?
The default listing venue for high growth technology companies has typically been the US. However, we have seen London start to challenge the US exchanges with the IPOs of Worldpay, AutoTrader and Sophos in 2015. In addition, London, unlike other exchanges, has a choice of markets for companies at different stages of their growth cycle, namely AIM and the Main Market, which includes its High Growth Segment. AIM in particular offers a regulatory environment more suited for small and mid-sized growing companies.
What are the first steps on the road to IPO?
Defining a robust equity story that is aligned with the strategy and future objectives of the business should underpin your decision to IPO. What is equally important is having a credible and strong management team in place who can lead the business forward to deliver shareholder value. Then you will be in a position to start engaging with the bankers, lawyers and accountants to help deliver a successful IPO.
Going public can be immensely rewarding, but it is a period of intense pressure and change for a company. Don’t forget, an IPO is not the end, but the beginning of your journey.