Three Things to Know Before you IPO

North America is in the midst of an entrepreneurship boom. A surge in business applications post-pandemic remained consistent despite inflation and recession rumors. And while the IPO market is sluggish, EY predicts an upswing. Many first-time founders may soon find themselves navigating the public listing process.

Listing your company for trading on an exchange, or as most say, “going public,” can help companies raise capital and gain mainstream traction with consumers, media, and investors. But navigating a successful IPO isn’t easy. Listing is not a one-time transaction; it is a part-time job that requires extensive preparation. Beyond the bell ringing, it’s also easy to forget the trials and tribulations of actually being a public company.

Over more than a decade of working with capital-raising companies, I’ve encountered several misconceptions about the listing process and the early phases of going public. Here are three common unknowns and how to tackle them:

1. TIMING IS AS CRUCIAL AS PRICING

Stock pricing is key and often talked about. Generally, an explosive first day builds momentum and the right valuation entices investors. But deciding when to go public and preparing for the consequences is equally important. The ideal timing for your listing depends on the nature of your industry and the phase of your business.

For companies that are less capital intensive—where the proximity between product creation and revenue is relatively close—initial efforts revolve around go-to-market strategy. Founders will need access to capital once operations run smoothly. Start-ups that go public too quickly, before they are sufficiently established, will be distracted from the core business and risk a failed IPO.

That said, there is no universal formula, and profit is not a requirement for listing. Biotech, for instance, is research intensive, with regulatory hurdles impeding revenue. This space requires substantial capital, and public markets might be the best way to access it, even before profitability. For example, in another regulated industry, Beyond Meat had never made a profit before going public in 2019. After the stock price nearly tripled following its initial IPO price in a record-breaking rise, the company’s name became synonymous with plant-based burgers.

What sets apart the most successful founders, post-IPO? Oftentimes, it’s a strong and engaging story—one that demonstrates your purpose beyond profit and explains why you matter. Make sure your internal teams are aligned on your brand story before sharing it with the Street. If you haven’t established your purpose internally, how will you demonstrate it to shareholders?

To sum up, the right time to go public is when smooth daily operation of the business doesn’t require the founder’s constant attention, and after your brand story is solidified. Listing is labor intensive, requiring more time and stakeholder management than often anticipated.

2. LISTING IS LIKE STARTING ANOTHER BUSINESS

Going public comes with new obligations that are often underestimated. Your leadership team must fulfill regulatory requirements, write reports, and manage shareholder communications. All of this is time-consuming for the C-suite and the business.

Before listing, it is imperative that you consider your team’s capacity, especially the CFO and CEO. I worked with a founder in the medical space who was an accomplished surgeon and had raised significant private capital. As we went through exchange listing requirements, we realized he could not be CEO. He was one of the smartest people I’ve ever met, but he lacked the skill set to serve as CEO of a public company.

The wrong person in a key position can be perilous. As a founder, ask yourself if you’re ready to be constrained by social media commentary and intense public scrutiny. Your corporate structure—and your own behavior—must be beyond reproach.

Raising capital looks very different in public than it does in private. Founders need support with the business and demonstrating its purpose—the why of the company. Does your executive team walk the talk? Why should investors feel compelled to buy in? Consider this when hiring.

Finally, to bolster your team, stack the board with the right expertise. Private companies recruit people who know the business, like product, e-commerce, or marketing. Public companies need more advisors and board members with expertise in legal matters, regulatory issues, and capital markets.

Founders, if this sounds overwhelming, remember: You don’t need to go public to access funding. It’s a business decision that, like any other, requires homework and carefully evaluating all available options. It’s also possible to accelerate growth plans with private capital and traditional lending.

3. ENGAGE YOUR COMMUNITY

The assumption that your stock will trade actively when you go public is false. If it is not trading well, your company can be orphaned on an exchange. The lower the equity, the more investors will ask for discounts on any future raise. No amount of valuation exercises can salvage investor impressions if you don’t appear liquid. In my experience, this is rarely discussed.

To avoid becoming an orphan, choose the right exchange and retain an investor relations firm. Shareholder relationships are critical to becoming a well-known actor on a public stage, and IR firms—along with your lawyers and bankers—will help streamline communications, including strategy and tone. Your IR firm should leverage your most meaningful metrics and your mission to share a compelling story with potential investors. Engage the whole community in the purpose of your business, not just your customers.

And to really increase activity in your stock, consider intralisting for access to global capital and secondary liquidity by making your stock available for trading across multiple markets, trading time zones, and currencies.

Ultimately, going public is a complex project that requires careful management. If you time it right, reinforce your team, share your purpose, and drive interest in your stock, your listing is far more likely to be a success.

Disclaimer: This article represents the views of the author and not the organization. The information provided is for general education and information purposes only. No statement provided should be construed as a recommendation to buy or sell a security, future, financial instrument, investment fund, or other investment product (collectively, a “financial product”), or to provide investment advice.

Erik Sloane is the Global Head of Company Listings for Cboe Global Markets.