On October 1st, Mintz Levin, New England Clean Energy Council (NECEC), and Grant Thornton hosted “On Your Mark, Get Set, IPO,” a panel discussion concerning recent trends in the public offering market for cleantech growth companies. Industry veterans John Fairbanks (Aspen Aerogels), Mark Marano (Canaccord Genuity), Steven Berkenfeld (Barclays), David Lewandoski (Grant Thornton), and Sahir Surmeli (Mintz Levin) provided insight on the public offering process to help attendees determine whether their company is indeed ready to go public.
Worried that you missed out on this important event? Don’t be! Here are 10 key takeaways from the IPO panel discussion:
1. The market’s appetite for public offerings continues to be strong, including for small-to-mid sized growth companies.
Steven Berkenfeld emphasized that institutional investors continue to show interest in small and medium sized IPOs. More than fifty percent of recent initial public offerings involved proceeds of less than $100 million. What’s the bottom-line? IPOs have been and continue to perform better than the S&P 500, meaning that investors are making money off initial public offering investments.
2. Every company needs to have a clear, articulated plan for how it will use the proceeds of its offering.
What was the most important question John Fairbanks was asked by investors during Aspen Aerogels’ recent offering process? He said it was this: “How are you going to use the proceeds from your IPO?” All of the investors he dealt with had a strong interest in his company’s plans for using the proceeds, and as a result, he advised that every company approach investor interactions with a concrete, well-thought-out plan.
3. Approaching the IPO process with a long-term perspective is crucial.
Sahir Surmeli and David Lewandoski both stressed the importance of companies taking a long-term approach to their IPO. Does your company really want to commit to an IPO? Are you in it for the long haul…the entirety of the life cycle of a public company? They underscored the fact that companies should think about where they want to be in three to five years and ensure that this image aligns appropriately with the IPO path.
4. Mark Marano identified five key characteristics that institutional investors are looking at:
- A large market opportunity with strong underlying secular trends.
- A long-term sustainable competitive advantage.
- A robust business model – helpful to have revenue visibility and good operating leverage.
- A compelling financial story in terms of growth and margin expansion.
- A strong management team who can articulate the story and preferably has a track-record.
5. A successful IPO can sometimes be the best branding event for your company.
Steven Berkenfeld pointed out that successfully completing an IPO can, in many ways, be one of the best branding events for your company. You’ll likely achieve an unprecedented amount of exposure with potential customers, investors, and members of the media, all of which will cement your company’s standing in the public sphere.
6. You must prepare to be a public company, not to simply complete an IPO – there’s a difference!
John Fairbanks and Sahir Surmeli doubled up on this critical point, accentuating the fact that becoming a public company requires a total shift in mindset. Both at the board level and the management level, the decision-making process must be formalized and made more process-oriented. A private company’s focus on a small group of investors and venture capitalists turns into an external, investor-side focus during the IPO process. This new pool of investors must be made to feel like any road-bumps are dealt with in a steady, in-control manner.
7. Companies thinking about an IPO must show a concrete strategy for dealing with material weaknesses and significant deficiencies.
David Lewandoski extended a caution that many growth companies don’t have the proper systems to catch errors in a timely manner. To him, these institutional weaknesses and deficiencies must be on every company’s radar to ensure that they are dealt with proactively. Steven Berkenfeld did point out, however, that many companies with material weaknesses are still able to complete their IPOs. The key is to be able to show investors that you are aware of any problems and have a plan to deal with them quickly and intelligently.
8. It’s important to begin planning for an IPO as early as possible, but your company has to prove that it is ready for IPO consideration.
Steven Berkenfeld revealed that some clients come to him ill-positioned to begin preparing for an IPO. To him, companies have to demonstrate that they have accomplished significant business goals and have achieved a sufficient scale for an IPO. Marc Marano confirmed that having a certain minimum size does help companies: of the approximately 100 technology companies that went public over the last 18 months, the vast majority had a value at the time of IPO in excess of $200 million and trailing revenue greater than $50 million. However, it is important to note that investors typically consider forward-looking financial estimates when performing their evaluation.
9. Determining how to position your company is a vital step in telling a compelling story to investors.
How does your company define itself? In what slice of the market are you best positioned for success and investor interest? Sahir Surmeli and Mark Marano all underscored the importance of thinking consciously about the positioning of your company as it moves from the more flexible private side. Once public, your company will be defined by your IPO prospectus and attached almost permanently to a specific subset of financial analysts, researchers, and potential investors. Will you market yourself as a software company and not as a clean energy company? And what will you do if your chosen positioning begins to fall out of favor with investors, as happened to a recently public smart-grid company? These decisions require incredible amounts of background research and should be taken very seriously.
10. Anyone can ‘help’ your company go public…you need to find the team that will do it right.
John Fairbanks told attendees to find advisors – bankers, lawyers, auditors, and accountants – who truly know your industry and are excited about it. Anyone might be able to say that they ‘can’ take you through the IPO process, but you have to look for the people who you know will do it right, and those are the people, firms, and companies with direct, recent experience with IPOs in your industry. Your IPO is one of the most important things your company will ever do, so you have to make sure you have the right people guiding you through the process.
To watch video insights from each of the panelists, please click here.