I. To prepare for an IPO, companies need to demonstrate strong growth and scale with $100M or more in annual recurring revenue and 30% growth rates, a path to $1B in revenue, and predictable revenue retention and growth. II. Companies also need proven profitability and sufficient cash reserves to fund growth for 1-2 years as a public company without additional fundraising. They must show a clear path to profitability through metrics like unit economics. III. Other key factors include a large total addressable market, differentiated products, a trusted leadership team, financial compliance, and vetting any issues that could disrupt performance. Preparing early in these 10 areas helps companies attract public investors.

1. 10 Things to Get IPO Ready

2. #1 Growth & Scale
I. Scale: Rule of thumb for public investors at IPO: $100M ARR/30%+ growth rate.
II. Co. has line of sight to $1B of Revenue?
III. Improvements in revenue growth deliver 2X valuation impact vs. margin growth. (Mckenzie)
IV. 1% improvement in Net Retention adds $100M to a SaaS Co’s valuation. (Bessemer)
Mendoza line for growth
Growth

3. #2 Profitability & Cash
I. Public investors want to see a self sustaining business. Public investors expect a
SaaS Co. to have sufficient cash on the balance sheet to enable the Co. to reach
cash flow break even within one year or two of the IPO (depending on “risk-on/off”
market conditions). IPO proceeds provide a reserve/capital to increase growth. What
you don’t want is to be forced to go back to the capital markets again once public.
II. Public investors want to see a clear path to Profitability. In the GAAP world ASC
606 takes into account the mismatch innate to SaaS in up-front marketing & sales
expenses and actual period of service delivery, but, SaaS Cos would still be assessed
on a free cash flow basis (which has adjustments that don’t fall prey to other
accounting issues) by public investors.

4. #3 Unit Economics
Pre-IPo SaaS Cos typically show strong top line growth but low earnings margins.
To understand the earnings margins of a SaaS Co. when it matures public
investors want to look at unit economics. See Matrix Partners for metrics
definitions.

5. #4 Predictability
I. Predictability around the business is one of the most important themes for
public Co investors; this can literally sink an IPO. Why?
II. They prefer to invest in Cos where the management team can articulate a
strong and accurate view of the current results and future direction.
Businesses that have lumpy performance make investors skittish because it
suggests that management doesn’t know what to expect and therefore is not
in control of the results; this results in diminished valuation and volatility in
stock prices.
III. Investors want reassurances that the Co is a good steward of their
investment, and that the Co. leadership really, deeply understands the
business.

6. #5 TAM & Competitive Landscape
I. Clearly public investors want to invest in Cos that have a large market
opportunity-They are looking for evidence of wide open and huge TAM.
II. A large TAM means the Co. could become a large franchise even without high
penetration of that market.
III. TAM has to be credible. Use 3rd party researchers and historical financials.
Robust growth at scale is a good indicator of market size.
IV. Competitive Landscape. Is the market crowded with a low barrier to entry?
Less attractive to public investors unless the Co. can show clear
differentiation like a Co. that has built a moat through network effects or is
taking the customers of the more dominant player like Workday vs. Oracle.

7. #6 Product
I. Public investors are looking for the next franchise and don’t
want the Co. to be a one-hit wonder.
II. For enterprise Software Cos product expansion can be
demonstrated through the “land and expand” model where a
Co. establishes a beachhead presence among a segment of
customers and then rapidly expands feature packages from
there. Get a foothold in the enterprise, isolate competitors,
and upsell and cross-sell with a lower CAC. Which in turn
supports the Co’s narrative of margin expansion and
profitability.

8. #7 Leadership
I. Public investors want to invest in Cos where they know and trust the
management team particularly the CEO and the CFO. This trust can be
built by starting to talk to investors one year or two before the IPO.
Investors also want to see a strong head of product, sales, and marketing
to continue to generate an ever growing revenue base, and help guide
new features and products.
II. Build trust with investors by the way the management team has
managed their business to date: How are the Co’s historical financials
and performance? How did they gain market share? Do they understand
what levers got them there or didn’t? Can they articulate a vision for the
Co’s future?
III. Secondary but as important start building relationships with auditors
early.

9. #8 CFO Working With the Board
And Public Investors
I. It’s not always easy to work with board members/investors who may be
pressuring the Co. for faster growth.
II. As CFO you have to balance their expectations with an accurate portrayal
of the Co’s progress. This includes being able to clearly identify revenue
growth (and stagnation) and illustrate the strengths (and weaknesses) of
cash flows.
III. Best Presentation methods and modes of communication are key here.

10. #9 Financial Compliance
I. For an IPO its key to have a full-strength financial operation in place to
sustain all of the above.
II. Meet the quarterly audited reporting demands of a public Co. Needs to
have in place appropriately skilled financial staff, financial policies,
procedures, and systems. These should have been refined and tested for a
year or more before the IPO. It’s the only way a Co. can improve the speed
& accuracy of its financial reporting to the threshold of a public Co. SOX
can present a daunting threshold for many private Cos!
III. A Human resources operation needs to be in place to handle culture and
sticky problems that could result in litigation as the Co. scales.

11. #10 Vetting Issues/Legal Compliance
I. Before submitting to the scrutiny of underwrites and public investors the Co. needs to
manage any issues around leadership background checks, pending litigation,
regulatory constraints, and significant business model shifts that could disrupt or
fluctuate financial performance.
II. Reg FD. SEC rule around selective disclosure & insider trading. It requires that Cos
disclose material information through e.g. press releases to the public.
III. Cos with customers outside the US must be in compliance with various acts.
IV. SEC Forms 10-K and 10-Q reporting.
V. Form 4. Change in ownership (option exercises) for anyone with > 10% ownership.
VI. Legal paperwork with institutional investors like proxies for Corp. meetings.
VII. Independent Board of Directors to ensure management is acting on the best interests
of the Co.

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