A successful initial public offering (IPO) is a combination of timing, talent, execution, and even a little bit of luck. For CFOs, it can be a pivotal moment in their careers as well as the life of the company. 2023 saw its fair share of flops, indicating the market for IPOs continues to be challenging to evaluate.
CFOs looking to take their companies public this year should be aware of several factors that may impact a successful offering.
Profitability and Post-IPO Strategy
In the past, IPO valuations have been based on a company’s financial health, revenue projections, and strong leadership. But as of late, there is a renewed desire for profitability before taking the company public. Dean Quiambao, chief relationship builder at Armanino, a consulting and advisory firm, said he is having these types of conversations with finance leaders daily.
"Everyone’s been asking me lately, ‘If interest rates come down a bit, will it re-open the IPO window?’ My answer to that, and what I have been telling people lately, is that if you’re looking to launch an IPO today, it’s all about unit economics and profitability,” said Quiambao.
"I'm speaking with multiple unicorns who are telling me, 'Dean, it's not a matter of if we go public, it's when, but we want strong profit and operating margins first,'." In Quiambao’s experience, this is a fairly new phenomenon.
"Going public can’t be the destination," he said. "All enterprise value from [large publicly traded companies] came from after they went public. The goal has to be getting access to capital, being amazing stewards of this capital, and making the right internal and external investment decisions."
According to Quiambao, the IPO stage is only the beginning of the journey. “Because, if you want to make the money, I get it; everybody wants to capitalize on their dollars. But if you really want to make the money, it’s after you go public."
The Power of Storytelling
The CFO’s responsibilities increase post-IPO, from participating in earnings calls to meeting with investors. It’s important, according to Fresh FP&A’s CEO and fractional CFO Chris Ortega, that CFOs focus on being great storytellers to relay the business’ value to all the newly interested parties.
"An IPO isn't just about raising capital; it's a performance on the public stage,” said Ortega. “While strong financials like revenue growth and profitability are essential, an IPO's true success hinges on a compelling story — a clear vision, a differentiated product, and a leadership team that inspires investor confidence."
CFOs have enjoyed increased visibility as of late, both in the public forum as well as within their organizations. A focus on improved public speaking and storytelling skills comes in handy when pitching investors on their organization’s mission and ability to grow. Ortega said the improvement in communication is valuable but may become possible only after failing to communicate early on properly.
"An IPO's true success hinges on a compelling story — a clear vision, a differentiated product, and a leadership team that inspires investor confidence."
Chris Ortega
CEO, Fresh FP&A
“I failed at communicating a lot early in my career,” said Ortega. “The reason why and how I became such a great communicator and I value it so much is because I failed at communicating in business and had to learn from it. For me, being able to listen to my team, develop ideas, and listen to problems and frustrations, are all elements of communication that play a key role in any part of the business; and I learned it all from failing and overcoming it.”
How this communication plays into IPOs, says Ortega, is being able to articulate the future of the company. “[Launching an IPO] isn’t about showcasing not just where you are, but the potential for where you're headed,” he said.
Post-IPO Readiness
Klaviyo CFO Amanda Whalen, who spoke to CFO last year about IPO preparation, reflected on the lessons learned from the process now that the offering is complete.
"The best advice that I could give would be [when launching an IPO] is to make sure it's the right time,” Whalen said in a recent appearance on NYSE Floor Talk. “And [what I mean is] you need a demonstrated track record of delivering and executing and delivering results driving strong growth, doing it efficiently. But you also need to have growth ahead of year that you could share with new investors who are joining and becoming part of the company.”
“It’s not only technical readiness to be public, but also strategic readiness, and communication readiness."
Amanda Whalen
CFO, Klaviyo
Whalen stressed the ability to be not only sure about the timing of the process but to be sure about your company’s ability to execute during crunch time. She also shared her thoughts on what it’s about a year after Klaviyo’s IPO.
“It's not only technical readiness to be public, but also strategic readiness, and communication readiness,” Whalen said. "And what I mean by that is on technical [readiness], making sure that your accounting is in good shape, that you have strong controls that you can forecast accurately, that is table stakes, you have to do that to be ready.
“Strategically, you need to be making sure that you're building a strong business that's going to drive measurable growth for the future,” said Whalen.