Perspective

A View from the Road: A Practical Guide for Leaders Looking to IPO

As a follow on from our recent microblog on the key considerations for executive teams as they start to weigh up IPO listing venues, we thought it might be timely to take a practical lens to the often notional beliefs that TDM has consistently put forward in regard to IPO preparation. Our focus as a board member and investor is often on the 'getting IPO ready' phase 18-24 months prior to the IPO green light being lit. This blog from James Revell takes an operator lens to the process itself, providing a deeper practical guide aimed at helping those inside the IPO listing process. James Revell joined the TDM team in 2022 from Tyro, where he sat on the executive team and was part of the IPO ‘deal team’ in charge of the project management and prospectus workstreams. James participated in all the investor & results roadshows. Tyro was the largest ASX listing of 2019.
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For many business founders and leaders, an IPO is regarded as both one of the most gruelling and rewarding journeys one can embark on throughout their career. Yet little is known about the ins and outs of the experience itself as seen from their side of the table, nor how best to minimise the toil and maximise the return. The process is somewhat of a ‘black box’ resulting in apprehension about taking the ‘plunge’, even if the business and the team are well prepared. Or, conversely, teams diving in without fully understanding what they’re getting themselves into.

The themes outlined below represent an attempt to demystify some of the most pertinent aspects of the IPO process that ‘no one ever told you about’. It’s tailored to the experience of the individual versus the corporate machinations that can be found in the ‘prep’ documents. In some sections, I have tried to overlay some practical ‘tips & tricks’ that can, from experience, reduce the likelihood of it being more difficult than it needs to be for you and your team, and increase the likelihood of a successful outcome for all.

Choose people you trust individually

The experience will be defined by the humans you choose to surround yourself with. While you could argue that this may be universally true, it is especially acute through an IPO. Why? The process is characterised by a series of immovable deadlines, rolling global travel, endless document drafting (by committee), innumerable stakeholders, heady legal implications, and large sums of money. This array is then condensed into a short window of time and scrutinised by the press. Don’t forget, on top of this, you’re also trying to run your business.

Therefore, the most important thing you can get right is picking your starting line-up, person-by-person.

This is true for both your internal team members and external advisors. Internally, you should consider the members of management you choose to join you in the core IPO team (typically CFO, general counsel and potentially an investor relations or strategy professional), the board members on the Due Diligence Committee (DDC), and your key finance leaders (e.g. FP&A, financial control). Externally, the key ones to get right are your lawyers, investment bankers, investigative accountants, and public relations agency. Don’t underestimate the amount of work and the responsibility that the lawyers bear, in particular.

Whilst I’ve seen a handful of attempts at applying science to the advisor selection process, I feel strongly about basing your decision on the trust you have in the individual people that will be in the room with you late at night when problems inevitably arise. Obviously consider more technical aspects of the selection, such as fees, reputation/expertise and coverage, but base your final call on the individuals who are assigned to the day-to-day work. This means vetting the junior members of the team just as much as the most senior.

Tip: Consider supplementing your internal team with hired help – particularly amongst the finance teams where a lot of the heavy lifting gets done. There are freelance experts who ‘do’ IPOs for a living (i.e. gluttons for punishment!). They may lack company context but, in addition to the experience they can bring to bear, they also benefit from not being burdened by the day-to-day operational distractions.

Run a lean internal project team

Given the enormity of an IPO and the baggage that comes with it, it can overwhelm, sweeping up more people and head space than it needs to. To avoid distracting the business and derailing performance (in a year you need quite the opposite), in the early stages choose a small project team that will form the nucleus of your internal efforts. Set up a frequent and regular cadence for meeting throughout the process (I recommend daily). Rely on one of these people to track typical project variables: timelines, milestones, risks, actions, issues and decisions.

Outside of this internal mechanic, you will have external Project Management Office and DDC processes. These are indispensable. However, the process is more effective when supplemented with your own internal rigour. A lot of the tasks will fall on your people and the important internal minutiae might be missed at the external program level. It also enables you to keep other stakeholders ‘honest’ by having your own source of truth. For example, when external deadlines, decisions or risks shift unknowingly, you have your own trusted record.

Ensure you communicate clearly with the broader team that this internal unit will be accountable for delivering the project. The perceived glamour and inherent corporate goodwill will attract aspiring contributors. Including them isn’t always possible or productive; excluding them can create resentment. It’s important they understand that the most valuable contribution they can make is through continuing to run the business whilst you necessarily have your attention elsewhere.

Own your own story

Regardless of how committed external advisors may be to your business, fundamentally, they cannot be a substitute for the context and depth of knowledge you have of your own business. Their expertise here arises in the form of shaping the ‘equity story’, moulding it to reflect the prevailing interests and concerns of potential investors. Therefore, write the first skeleton version of your ‘pathfinder’ prospectus and management presentation. It will likely save a lot of ‘back and forth’ time. If you’ve prepared adequately, this should flow naturally from a pre-existing long-term strategy document. Supporting ‘situation analysis’ documentation can also be reshaped into an ‘industry overview’.

Other useful learnings:

  • Read a few other recent prospectuses both inside and outside of your industry. Whilst structure and format are relatively fixed, the process permits a degree of customisation that may better suit your business.
  • Be deliberate with your use of language from the start. Every single word written in the prospectus will need to be ‘boxed’ and verified with supporting evidence. ‘Superior’ than what? ‘Best’ according to whom? Also, source everything from the onset.
  • Don’t overly sweat your grammar – there is a small and fascinating cottage industry of professional prospectus editors that do a better job than you ever could!
  • Establish a process to cross-reference claims made in the prospectus against public-facing materials. The prospectus becomes the source of truth and it’s easy to forget to align to this. For example, ensuring all marketing collateral (flyers) matches the prospectus draft.

Be match fit for the big meetings

When going through the process, the pace and intensity of execution can numb you to the moments that really matter. Worse, you can be physically far below your best at times that your mental faculties and attitude can make or break the whole deal. The most significant of these moments are the two roadshows (‘non-deal’ and management).

The non-deal roadshow

I believe this is the most important chance you have to have an outsized impact on the likelihood of a successful IPO. Assuming you have a good business and the bankers have done their job well, you have an hour with each of the 70-100 most influential investors globally to present your business. This arrives roughly six weeks into the four-to-six month process, during the finalisation of remuneration structures, governance documents and pro forma financials.

The significance of this 7-10 day global roadshow can be lost amongst the noise.

The non-deal roadshow overshadows the management roadshow in significance (and hardship) for two key reasons:

  1. If you don’t adequately tell your story the first time around, the investors won’t be back to hear it again.
  2. The non-deal roadshow represents a more acute mental challenge. You will present the identical 20-page, 60-minute presentation (probably approximately 40 minutes of talking to slides, with the rest as Q&A – with the management roadshow being the reverse of this) over 70 times in less than 10 days. This saps the energy of even the liveliest among us, at a time when they’re most required to surface passion and enthusiasm. It is often the first time many of the investors would have had any exposure to you and your First impressions count.

Therefore, the following tips can help place you in better stead:

  • Recognise the importance of this trip and prepare yourself mentally and physically for it. Allow some extra rest time in the lead-up, if possible.
  • Don’t underestimate the toil of the presentations and be aware of signs of your own apathy and fatigue.
  • Do your homework on investors. This allows you to peak for those you most want on your share register. It pains me to say this now from the other side of the fence, but in retrospect, not all investors are built equally. You will want some more than others on your register when the bell rings (see below). Consider spacing these particular meetings out and avoid doing them at the end of a long day on the road.

The management roadshow

Given investors’ exposure to the first roadshow and prospectus material, the management roadshow is mercifully more Q&A-based, the novelty of which provides some relief. Nevertheless, the management roadshow also coincides with the official lodgement of the prospectus, which can introduce its own challenges.

Be thoughtful and deliberate with stock allocation

You must ensure that the right stakeholders are treated appropriately in the design of the IPO itself and through the specific allotment of shares. This applies equally to stakeholders buying or selling. Unavoidably, you end up following a rather formulaic listing process and structure. This results in constructing shareholder ‘offers’ the way many others have done before you, rather than what is right for your business. Remember, not everyone shares the same incentives. Be mindful of this and stick to your guns – your advisors may come and go, but by championing your most important stakeholders, you will set the business and listing up for success well beyond the moment you are ringing the bell.

In our experience, the three most important stakeholders are:

  • Employees: people (and culture) are the beating heart of successful businesses. Whether past or present, each employee deserves to participate meaningfully in the listing. This usually involves ensuring that they have a chance to sell into the IPO or are allocated a significant tranche of shares that they can buy (usually at a slight discount). Patient early employees have earnt the right to convert years of hard work (in the form of long-term incentives) into cash. Notwithstanding this, the more employees that both retain shares and are enabled to buy into the IPO, the better. This creates a powerful alignment with the company’s success over the long-term.
  • Shareholders: prioritise investors who plan to be long-term and supportive owners of your business. This is likely the last time (unless you eventually delist) that you get to choose your shareholders, so make the most of it. As Warren Buffet wrote to his own shareholders in 1979: ‘In large part, companies obtain the shareholder constituency that they seek and deserve.’ Therefore, when it comes down individual allocations, be intentional with it. Set the company up for success by allocating shares to those investors who were most thoughtful, supportive and diligent on the road (see tips for investors below) and those that have the strongest reputation for long-term and supportive behaviour. Fortunately, they are usually one and the same.
  • Customers: it is very possible to reserve an offer within your IPO for customers. Although rare and not suitable for all organisations, this can be an effective tool to reward customer loyalty and generate goodwill. Block (then Square) allocated five percent of their stock at IPO to merchants ‘in the spirit of levelling the playing field’. This meant approximately 14,000 merchant customers were able to buy into the company, of which only three percent sold on the first day of trading. Medibank, (who created an ‘offer’ specifically for Policyholders), TradeMe, Tyro and Myer represent more domestic examples of this approach.

Some practical tips:

  • Don’t underestimate financial illiteracy (sadly) of employees. You should aim to go above and beyond to ensure all employees are educated about the process and what it means for them. This will encourage participation which ultimately benefits them and the company. This education process takes time and effort and will hopefully long predate an IPO event. It should be inherent to a successful and meaningful long-term incentive program. I have all too often heard examples of employees walking away from significant sums of money simply because the process is overwhelming and confusing – or companies ‘wasting’ money on LTI programs since they don’t incentivise, simply because employees don’t understand them.
  • Keep a real-time, straightforward list of investors you particularly liked during the roadshows. After two roadshows, each containing 70+ investor meetings, unfortunately names and faces can blur.
  • As a business you will most likely need to solve for the mechanics of a customer offering internally. Most investment banks have little to gain from this type of ‘retail’ offering and aren’t set-up to execute on it. Organisations that have a digital footprint can, with some legal advice, execute on this relatively easily.
  • Unfortunately, you may need to push back on certain stock allocation suggestions. In certain cases, advisors are incentivised to ensure select investors get healthy stock allocations, irrespective of whether you’ve met them, liked them or formed a positive view on how they may behave as owners of your business.

Bonus content!

I am now fortunate enough to have sat on both sides of the fence. I have deep empathy for the IPO roadshow experience, and so with that in mind a quick ‘cheat sheet’ for investors meeting management teams during a roadshow:

  • Running a business is bloody hard. Even if you don’t like the business, appreciate their accomplishments and the effort it has taken to get this far.
  • Running a business and going through an IPO is even harder. Show some humanity and empathy. This could be their fortieth investor meeting in five days across as many countries.
  • Be on time (they’ve probably travelled across the globe – you’re in your own office) and address them by their names. Try and smile. You’d be surprised…
  • Signal that you’ve done your work. Couch some of your questions in an anecdote or some context that shows that you’ve read about the business prior to the 5 minutes before the meeting started. Don’t ask: ‘so, what does the business actually do?’
  • Avoid asking them the questions that the forty previous analysts have asked. Or, when necessary, at least vary the way the question is asked and save it for the end. Grilling the founder on next year’s depreciation line as your opening gambit probably isn’t the best way to get her on side.
  • Treat it as a conversation not an interrogation. Try and avoid obviously reading from a list of disconnected questions.
  • Introduce your lived experience in relation to theirs. Speak about interactions you’ve had with their product as a customer, common connections, or even experiences you’ve had in their city.
  • Ask how you can help them, even if it’s only suggesting the best local coffee shop. Most travelling teams won’t have evening or weekend plans (other than catching up on work).
  • Ultimately, be memorable (for the right reasons). When it comes to the end of the road and the founder is editing investor allocations, you need them to remember you and the experience you left them with. Obviously brand is important, but I was surprised by the ability of a little humanity and graft to secure an allocation.

About the author

James is a member of the TDM Investment Team. Alongside his day-to-day investment duties, he supports Block and advises other portfolio companies on growth strategy.

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