To IPO, or not to IPO? That is the question

Going public might be considered a rite of passage for maturing startups, but it’s not a foregone conclusion. Some businesses thrive amid the hectic pace and spotlight of an IPO and subsequent listing, while others find it a yoke around their neck.

‘To IPO or not to IPO?” is a question that keeps the founders of thriving startups awake at night. If so, when?

I have overseen three major Initial Public Offerings: Vocus, a fibre and network solutions provider that I founded in 2007; fixed wireless and wholesale network infrastructure provider Swoop; and sharing economy marketplace Airtasker. 

I can confirm there is no instruction manual for getting through the complex processes and restructuring to become a listed business, but having someone around with experience certainly helps a lot.

Not only have I overseen these IPOs — at the time, becoming the youngest Australian to create and lead an ASX 100 company — nowadays I’ve also become a venture capital investor, raised or help to raise over $800 million in equity and completed around 20 merger-and-acquisition deals worth over $2 billion.

That means I’ve seen the operating structures and balance sheets of dozens of up-and-coming businesses. 

Why go public? Two key reasons

In my mind there are two key reasons why any business would initiate an IPO.

The first is to exit the business and realise some of your hard work. The second is to obtain capital to continue to grow the business amid the fast-paced challenge of running a public company.

If what you’re trying to achieve doesn’t fit into these categories, have a good think about why you want to list. What problem are you trying to solve? If it’s because you think it will be exciting, think again. 

The journey to an IPO can be volatile and risky. People underestimate the impact and distraction it can have. The costs are also very high and the impact of the market losing confidence in your business can have an extreme impact on your ability to raise additional funds. 

How risky? Brisbane’s YouFoodz recently discovered an IPO can quickly turn sour — seven months after listing on the ASX, its board recommended a buyout from a competitor, Berlin-based HelloFresh, at a 38% discount to the listing price for a total value cut of more than $62 million from the indicated value in the prospectus. 

It’s a real-world lesson in the value of getting your IPO spot-on, especially the initial listing price (more on that later). You only have to look at the articles for NUIX to see how easily you can get an IPO wrong. 

The case for and against

Let’s look at the factors in favour of going public. Once listed, you can gain almost instant access to capital. At Vocus, I raised $50 million from an acquisition, and the entire raise was done in only 48 hours. 

Everything in a listed company happens at greater speed, which can be liberating or potentially stressful, depending on your outlook.

Becoming a listed company adds cachet to the business — you’re immediately more impressive and trustworthy in the eye of the customer. Similarly, the prestige of working for a listed company promotes staff loyalty, and you have the option of rewarding your best and brightest with an equity stake that further strengthens their ties to the business. 

But a word of warning from personal experience — if your share price does too well, staff may well be so incentivised they can take their money and take a few years off. 

On the negative side, going public brings significant additional scrutiny to your business, potential acquisitions and especially your balance sheet. Analysts will try to predict your earnings — too low or too high and it will impact on the share price and ultimately, the company value or even your ability to raise money. 

Everything material that could affect the share price has to be announced as it happens, and it can be difficult to keep an acquisition from being leaked ahead of an ASX announcement. 

You also need to shift your thinking and expectations. You can no longer be totally transparent on all the data and information with your staff, which can be a difficult adjustment particularly for staff who have been with you for a long time. Think of an acquisition where the staff can’t find out about it until the news is released to the market.  

As CEO, be prepared to spend a lot more time on investor and media relations, especially during financial reporting periods. You may have to move into a more high-level strategic role, delegating others to handle the day-to-day operations.

You’ll also gain a lot more media coverage, which is great for brand recognition, good for the share price, and a handy tool for recruitment. But the potential for missteps means you also need to allocate time for planning and reviewing key messages and preparing crisis management strategies. Everything gets amplified when you are public. 

Ready, set, IPO — what to do next

Once you decide to go public, there are some key things I’ve learnt about what to do next. The first, and I can’t emphasise this enough, is to know your numbers. At Airtasker, we spent about six to eight weeks working on the financials that went into the prospectus, making sure we had targets that would stand up to white-hot scrutiny if we didn’t meet our prospectus forecast. 

What you put into the prospectus is all-important, and pretty much the first test of market confidence in your business. Some equity partners planning to leave the business might be pushing for higher numbers, but this will do the business no favours after they’ve cashed out and gone. Having an experienced and hard-working board is critical, so take the time to get your board structure right from the time you decide to list.

Expect a faster pace once you’re on the ASX. There’s a very different rhythm to life in a listed company, with many more institutionalised processes and responsibilities to tick off. Yet also, once you start listing, resist the urge to make wholesale changes to the way you work. Avoid upheaval, try to keep the operations of the business simple and without major change, and make small tweaks as you go. 

Challenging, but rewarding

I’ve found the IPO process to be challenging but rewarding, with significant extra workload yet also opportunities for personal growth. In the case of Vocus, it was very satisfying to launch something I built from scratch into the world, and now that I’m no longer involved, I have watched with quiet pride as it evolved into one of Australia’s biggest telcos and has recently been taken over for $3.5 billion.

Both Airtasker and Swoop have gone public fairly recently, which is exciting, and the market like both businesses and their growth profiles. I’m also working as a major investor with a startup called Beforepay, which has announced plans to list towards the end of the year. 

In each case, the excitement and trepidation of the IPO process is familiar. But every business is different, and there is no one-size-fits-all set of instructions. So once you’ve decided to go all-in, dedicate the time to finding the people and partners that you’ll like to work with — the lawyers and brokers are some of the most important picks.