Six ways startups can boost the odds of IPO success

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The IPO market understandably slowed in the first half of the year. European IPO markets raised €5.4bn in the first half of 2020 compared to €12.2bn in the same timeframe in 2019.

But it’s not all doom and gloom – PwC expects that market appetite for IPOs will gather momentum and we are already seeing good signs. Software listings look set for a significant rebound, Europe has a new most valuable fintech after significant funding, while smaller startups are being encouraged to explore IPO avenues.

While the success of funding rounds pre-pandemic might foreshadow good things for the IPO market in 2021, startups looking for investment can’t rest on their laurels. The bar for standing out and getting noticed will be that much higher.

About the author

Dave Rosenberg is Head of Business Development and Private Equity at Oracle NetSuite

In such an environment, preparation and planning becomes paramount to attracting investors, and that means buttoning up business processes and ensuring an organization is ready to scale.

With that in mind, here are six steps startups can take to improve the odds of future IPO success.

1). Get your financial house in order

The importance of having a strong and comprehensive financial foundation in advance of an IPO goes without saying. Not only is it important to keep in mind that a disorganized approach to buying financial software can prove costly down the road, but without a system in place that gives key stakeholders appropriate and real-time access to critical business data, the journey gets a lot tougher.

Companies looking to go public must be prepared to provide financial data, meaning systems have to be capable of providing that. Investors and underwriters will want to see solid debt-to equity ratios, sufficient market capitalisation and predictable revenue and earnings streams. Cloud-based ERP systems provide the financial data and insight to demonstrate a company’s standing.

Businesses must establish processes for key areas that touch revenue, headcount and all other major expenditures, and the infrastructure must have the necessary controls in place to manage these processes as well as the flexibility to accommodate changes down the line.

2). Prepare for rigorous financial reporting

By eliminating manual reconciliations and data entry, a company can scale more effectively as the business grows in volume or complexity. The ability to analyse past performance and forecast future performance requires investments in business intelligence and analytics. Cloud ERP provides robust reporting and analytics around key performance indicators (KPIs), with an intuitive interface that allows even inexperienced users to perform complex analytics.

3). Establish good corporate governance

The public market doesn’t reflect kindly on organizations that can’t effectively govern themselves. Those considering IPOs should establish a governance framework that keeps board members and executive management accountable. Many private companies don’t fully understand the importance that governance plays in long-term success, and those that do make governance a priority often underestimate the time and effort required to establish it effectively.

When a company goes public, regulators and investors alike demand that it be coordinated, transparent and consistent, unlike the loose policies that may prevail in many private companies. In the public equity markets, governance is not optional, and each director and C-level executive must understand exactly how they relate to one another as well as to the organization and its stakeholders.

4). Establish investor relations

While investor relations can’t sell product or secure big contracts, it can help an organization to preserve its reputation through the ups and downs that every organization goes through.

Once a company goes public, it becomes an open book to any and all, meaning the number of significant stakeholders will start to reach far beyond long-term colleagues and collaborators. A well-oiled investor relations (IR) operation acts like a gatekeeper, ensuring that the company is communicating effectively with its investors by deftly integrating information coming from finance, marketing and legal teams.

A strong IR team, backed by metrics that provide a clear picture of the business, needs an infrastructure that can report on those metrics. This requires closing any gaps and building a visible and transparent reporting as the organization grows.

5). Investors want fast growth, so get ready to scale

Continual improvement is a key component of scaling a business and investors want businesses that scale. By having cloud ERP as the nerve centre in an organization, business can implement process automation for handling payments, shipping, orders, stock management, and other business functions.

This will help organizations to grow fast and hire quickly as revenues increase to maintain this growth. Cloud ERP is the foundation from when an organization is small and can take on more complex operational tasks as businesses grow into larger enterprises.

6). Know your company's story and how to tell it

Effectively articulating everything from product roadmap to brand identity and growth objectives attract investment once a business goes public.

It’s not enough to simply have a good story; it’s critical that the company’s leadership can both tell it and back it up. That means having an investor relations and communications team that’s as adept at proactively conveying the brand.

Company storytellers need to be armed with the financial performance and KPI information that a robust ERP system provides. They need to tell their narrative in a way that bolsters confidence that attracts customers and investors in order to enhance future growth.

It’s clear that successful future IPO success will only be found by those willing to stay ahead of the curve. Without the preparations above, or a robust system underlying them, the process becomes a lot bumpier. Conversely, taking these actions and supporting them with an effective ERP deployment significantly improves the odds of future IPO success.

Dave Rosenberg is Head of Business Development and Private Equity at Oracle NetSuite