Before management meets with investors, here are some best practices to make your IPO standout:
- Be Different: Disruption may be prevalent across converging industries, but don’t be tempted to hitch your company to the comp group with the highest multiples just to chase valuations. Investors will want to understand how your business fits within existing business models—today, as well as over time. Focus on highlighting distinguishing strengths of your company, product and service and be able to articulate addressable market size and scalability. Investors want to know your company’s potential to grow and dominate within a promising growth industry.
- But Also Be Consistent: Investors don’t like surprises. With certain disclosure rules eased by the JOBS Act, it’s sometimes harder for investors to assess the predictability of a company’s future earnings potential. Less financial information makes it more difficult for investors to see trends. A company’s executive management team needs to be able to give institutional investors the utmost confidence that management can accurately forecast financial results. To become comfortable with the company’s valuation, investors will need to understand the forward multiples and financial ratios to assess the company against its comps.
- Have Experienced Management and Finance Teams: Investors want to be impressed by your executive management team’s conviction, confidence, and ability to share a compelling story. It is critical when first meeting with investors that executive management demonstrate expertise and credibility by being able to accurately discuss their equity story and business model. Investors want to know that management has the capability to reliably forecast financial results, as well as foresee and plan for any emerging risks.
We recently surveyed 150 institutional investors that invested in IPOs in 2015. These are very active IPO investors – 68 percent said they typically invest over $100 million a year in IPOs. Our findings confirm what we’re seeing in the IPO market: Sophisticated investors are asserting more control over the information flow during the IPO process and have access to more information about you and your competitors than ever before.
Investors rely on various factors to find IPOs that best match their investment style, return profile and outlook. No matter how the market is performing, your core equity story is what will matter the most to prospective IPO investors. Even if an IPO is priced attractively, pricing alone won’t draw in investors who can’t understand the strategy and fundamentals behind your company’s financials and valuation.