Key Takeaways: Optimizing the IPO Process with Early Marketing and Strategic Financial Modeling

For many pre-IPO companies, targeting a select group of investors and research analysts six months to a year ahead of engaging IPO underwriters can be a critical component of optimizing the IPO process. But when does a pre-IPO company know it’s ready to start telling its story to investors and analysts, what is that story, who should they tell it to and how do they go about orchestrating this early outreach?

Recently, Fenwick capital markets partners Per Chilstrom and Michael Pilo spoke with independent equity capital markets advisory firm Solebury Capital’s founder and CEO Ted Hatfield and Director Shivani Dasani about these questions and more.

Some takeaways from the conversation include:

  • What’s the Window for Pre-IPO Activity. Federal securities laws place significant restrictions on the types of publicity and communications that a company may issue and engage in while it is “in registration” in connection with its IPO. As a result, there are restrictions on what and how a company can communicate to potential investors. Generally speaking, these limits start when a company engages its IPO investment bankers. When done correctly, investor and research analyst meetings prior to these limitations kicking in can help your company to be in the best position when its going-public journey begins.
  • Meet, Educate, Listen. Prior to engaging bankers, a company can start educating, building relationships with and obtaining feedback from investors through "non-deal roadshows" or “NDRs,” as well as meetings with the research analysts on a “two-way” basis who will cover the company following the public listing. This can aid the company in positioning and marketing its story down the line, both with the potential investors in the IPO as well as with the underwriters you hire in connection with the IPO bakeoff.
  • Make a Good First Impression, Focus the List. During NDR meetings with potential investors, companies can share their story and educate investors about the company’s business and leadership team, without discussing a specific offering or forward-looking financial information. Management won’t have a second chance to make a first impression with investors, however, so it is critical to be prepared with conviction in the business, its execution and key proof points ahead of these meetings. Meeting exclusivity is important, targeting around 10 to 15 investors, this will vary based on a company’s size, opportunity, focus and initial investor enthusiasm.
  • Get to Know Research Analysts. Engaging with research analysts before formally working with bankers for your IPO business (in accordance with the guidelines outlined in FINRA rule 2241) is a critical part of the process. Research analysts serve as a proxy for investors, therefore these relationships may have a long-lasting impact on your company. Prior to engaging the banks, conversations with research analysts can be “two-way” in nature. However, once bankers are involved and a solicitation period has commenced these conversations become “one-way” in nature–hence starting early is paramount. Importantly, these "two-way" interactions with Research Analysts before a mandate must not involve any discussions of valuations or Investment Banking activities. During these discussions, prioritize sharing the company's story and competitive market positioning, and engage in dialogue to gain valuable feedback and perspective.
  • Financial Modeling and No Surprises. Prior to and during the IPO process, it is crucial to maintain control over your company’s financial model – its financial projections for the next several years. Companies should work to convert their internal budgeting model into a street model early on that is structured to focus on the metrics that the company believes investors and analysts should focus on when analyzing its business. The model should include the appropriate level of conservativeness and confidence in its projections.
  • Cornerstone Investors Can Help IPOs Perform Well. Securing cornerstone or anchor investors can help distinguish a company's IPO, particularly in uncertain markets. Investors that participate in pre-IPO rounds can be valuable cornerstone investors for an IPO. These investors act as validators of a company’s success and contribute to generating enthusiasm for the offering. Engaging early on with investors through NDRs can help attract these cornerstones.

To view Fenwick's previous IPO preparedness webinar focused on strategic steps a company can take 18+ months prior to listing day, please click here.

Be on the lookout for more tools and resources to help you be well prepared for your debut as a public company, the expiration of your lock-up, your first quarterly earnings release and beyond.

For more information, please contact Per Chilstrom or Michael Pilo.