European IPO markets raised €5.4bn in the first half of 2020 compared to €12.2bn in the same timeframe in 2019.
Although down from a year ago, this suggests there is serious pent-up demand, as witnessed by strong showings from several US companies in recent months
PwC expects that market appetite for European IPOs will gather momentum and we are already seeing positive shifts. Software listings look set for a notable rebound, Europe has a new most valuable fintech after significant funding, while smaller startups are being encouraged to explore IPO avenues.
The bar for startups that want to stand out and get noticed will be that much higher in 2021. The key to standing out all lies in preparation and planning. These two things are critical to attracting investors and to help ensure future growth.
So, what five steps can startups take to improve the odds of future IPO success?
Build a solid finance foundation
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 disorganised 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 help 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.
Establish investor relations
While investor relations can’t sell product or secure big contracts, it can help an organisation to preserve its reputation through the ups and downs that every organisation 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 visible and transparent reporting as the organisation grows.
Practice sound corporate governance
The public market doesn’t reflect kindly on organisations 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 organisation and its stakeholders.
Be ready to scale and show investors rapid growth
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 organisation, a business is enabled to implement process automation for handling payments, shipping, orders, stock management, and other business functions.
This will help organisations to grow fast and hire quickly as revenues increase to maintain this growth. Cloud ERP is the foundation from when an organisation is small and can take on more complex operational tasks as businesses grow into larger enterprises.
Know how to tell your company’s story inside out
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 could provide. They need to tell their narrative in a way that bolsters confidence that attracts customers and investors in order to help enhance future growth.
It’s clear that future IPO success will only be found by those willing to follow these steps. Without the preparations above, or a robust system underlying them, the process becomes more challenging indeed. On the other hand, taking these actions and supporting them with an effective ERP deployment may significantly improve the odds of future IPO success.
About the Author
Dave Rosenberg is Head of Business Development and Private Equity at Oracle NetSuite. Oracle NetSuite Global Business Unit provides a suite of cloud-based financials / Enterprise Resource Planning (ERP), HR and omnichannel commerce software that runs the business of companies in more than 100 countries. For more information, please visit http://www.netsuite.com.
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