Monday, April 24, 2023

Words of Wisdom from Leslie's CFO panel at the 10th Annual IPO Summit

     On April 17, 2023, Class V Group co-hosted the 10th Annual IPO Summit at the NYSE attended by hundreds of private company founders, CEOs and CFOs. At that event Leslie moderated a discussion entitled  “CFO Leadership in Times of Uncertainty” featuring Tricia Tolivar, CFO of CAVA and John Rucker, CFO of Arcadia.  Below are a few insightful takeaways from that event.

  1. Uncertainty is the new normal. It is important to have a clear mission.The mission should be the North Star of the organization in times of uncertainty and for the CFO, to be the steadying force. Develop a strong 3 to 5 year mission-driven plan and 12 month rolling tactical plans. Stay agile and communicate, communicate, communicate. Develop clear KPIs for workstream owners.

  2. Do not expect a magical period of calm in which you will have time to focus on maturing the organization and developing public company readiness. You should be doing both simultaneously, operating the business and actively maturing the organization.  Almost everything you need to do to operate successfully in the public markets, you will want to do anyway to build a sustainable/thriving/enduring business, whether an IPO window opens up or not. 

  3. It takes time to become IPO ready. Pick a date 18 to 24 months in the future and work back. Develop a multi functional work plan that includes each part of the organization that will have a role. In addition to finance and legal this includes HR, IT, Comms and more. Start with your data. A sound data strategy is critical to public company readiness. 

  4. Expensive top down IPO readiness assessments may not be the best place to start for most young organizations. We prefer more tactical focused assessments with subject matter experts as partners who can not only help assess a technical area but can also provide tactical, affordable resources to help your team learn and remediate.

  5. Build knowledge within your organization, Do as much of the tactical readiness work as you possibly can in house because that knowledge will be critical to your success once public. Bring in advisors to support your organization's learning so that your team is strong and ready. An advisor should act like a personal trainer, helping you develop the internal discipline and muscle to succeed as a public company.

  6. Hire an experienced independent advisor to help you develop and execute your cross departmental IPO readiness plan and project. Some advisors are focused just on the transaction or investor relations. The best advisors provide senior level attention and get in the trenches with management and their teams building public company know-how..The right advisor can help you avoid costly mistakes on the path to readiness and should be 100% independent, working for the company and company only. Beware of advisors who get paid by your bankers, if they are paid like bankers they will operate like bankers.

  7. A CFO should be ready to step up to lead the company through the IPO process to take your company public. If you are the right financial operations leader for your business you can be the CFO who takes the company public. Let your chosen advisor help you navigate what you do not know.

  8. Be Prepared. Emerging growth companies are held to a public company standard as soon as the meetings with bankers and public investors begin. Work to develop relationships and a track record of delivering before you go public but make sure your story is crisp and clear.  Be confident that your organization is ready to deliver before you step out on the stage. 

  9. Bring your board along for the journey. Visibility and delivering by successfully leading the public company readiness process underpins support. Your board can be tremendously helpful during the IPO process and you can learn from their experience, but at the end of the day, your team must call the shots. You will have to live with the outcomes. 

  10. The Panel Projects that the IPO window opens later this year. At the Summit, our panelists painted an optimistic outlook for the IPO market citing signs the market is healing and potentially opening in the back half of this year. For example they saw block trades and marketed follow-on offerings coming back at increasingly narrow discounts indicating investor appetite for new issuance is recovering.

Monday, March 20, 2023

From the Ashes of Disaster Grow the Roses of Success

(Song  from the 1968 film Chitty Chitty Bang Bang, based on Ian Fleming’s novel by the same name)

No question, there are some ashes of disaster in the Silicon Valley Bank debacle. 8500+ people at various SVB entities are currently uncertain about their jobs and livelihoods, and sadly not at all uncertain about the value of their equity.  From every perspective the collapse of the Silicon Valley Bank, to put it mildly, is a very sad, very disruptive, just plain awful occurrence.


However, sticking with song titles, this is not the end of the world as we know it.  Many of those employees will recover under the bank’s eventual ownership structure, whatever that will be. Others will be snapped up by competitors trying to get a better handle on the magic that made SVB so important for so long. The companies that carefully saved money in deposit accounts at SVB, rather than say on an ego-trip Super Bowl ad, will find other places to stow that cash. In all likelihood, it is only the bank’s management that may well be cooked and, from everything we know so far, perhaps deservedly so.


But is this the end of Silicon Valley and ecosystem that spawns and grows innovative companies? Perhaps, the end of the county’s biggest engine of economic growth? That is surface-level thinking.  This is a big miserable bucket of cold water on the undeniably overheated economy that prevailed in start-up land until early last year.  When there is too much money in too many funds thrown with too much enthusiasm at too many companies, the timing is uncertain, the catalyst unknown, but the ending is a forgone conclusion and not a pretty one. 


However, the thing about being doused in a bucket of ice water is that after a good shake, it’s not that hard to warm up and dry off.  Just wait and see.  So shake off the panic, take a deep breath and look around. 


As many have stated for years and with clear evidence, this is not 2000, a time when, for many companies, behind the fancy website and astronomical valuation, there was no there there. Many of those internet darlings had optimistic slide decks and fancy-logoed t-shirts but not much (or anything) in the way of a sustainable business.  Contrast that with today when many still well-funded private entities have real products and services that real customers want.  These companies offer solutions to actual problems and therefore, compelling opportunities ahead.  For them, even before the SVB debacle, the sushi was already gone from the lunchrooms.  With the swoon in technology stocks, came an abrupt change in message from the boardroom from “Grow, grow, grow” to “Cut those expenses and aim for profitability ASAP”, a 180 that involves plenty of friction.  Painful ? Yes but do-able and in process.  Thanks to piles of cash raised in 2021, many have the runway to pull it off.


So we can check the first box. The ecosystem has spawned real products from real companies with enough resources to button up operations and soldier on.  Unfortunately, the challenge isn’t just about what can be controlled by the finance department.  Young company teams aren’t slaying a serpent, they are dealing with a Hydra. Specifically, while scrambling to adjust their operating M.O., these businesses also must contend with the incremental angst of ongoing macroeconomic uncertainty. In this environment, it is very difficult for long established companies to read the tea leaves and offer guidance with any accuracy. It is virtually impossible for younger businesses that have never been through one of these cycles to have a clue. Therefore, and quite correctly, many are being very, very cautious with their outlook for the next couple of quarters, hedging big-time on forecasts.  Of course, what follows cautious forward-looking commentary from public company CFOs is, inevitably, lower stock prices. And these "value adjusted" companies? They are also known as “comps”.


And that may prove to be the good news.


Macro uncertainty, a change in the focus of the operating model, dramatically reduced valuations may not appear to aggregate into compelling catalysts for the re-emergence of an active IPO market.  Appearances can be deceiving.


Until the SVB uh – event – many, not all but many, management teams and boards at private companies already at scale were content to rest on their balance sheets and proclaim the IPO simply won’t happen while valuations are wallowing beneath the sub-flooring. Stout treasury accounts and a renewed focus on cautious spending suggested that approach would work. Plenty of conversations this past 6 months that went like this: “Tighten up the P&L, heads down and when valuations come back, we will hit the public markets full speed ahead and bound for glory.


But that was then.


Everything changed last week when that virtual bucket – no tank - of ice water landed on the collective head of the Silicon Valley ecosystem (which by the way, is not geographically restricted to the west coast but rather every state that has any sort of entrepreneurial economy). 


Suddenly, the meaning of the old saw “hope is not a strategy” is painfully and irrefutably clear. 

·  The easy money is gone - for most

·  The relatively inexpensive lines of credit for “just in case” just got a lot more expensive and harder to land.

·  The venture funds, so recently at-the-ready to fund every AI (or other) entrepreneur knocking at the door as they scrambled to find opportunities to disperse the oversized funds they raised, have concurrently opted to yank back the reins.  Don’t call us; we’ll call you.

·  The balance sheet that looked plenty strong enough suddenly looks less certain. The days of “What, Me Worry?” have been replaced by sleepless nights and badly gnawed fingernails.


The times, they are a changin’.


But. but, but…… these are still real business with real opportunities. While growth may be slower, operating models for many are growing stronger.  Talented employees are more likely to stay put and, given the substantial layoffs of Q1 2023, it’s just a bit easier to selectively add to the teams.   These companies still want growth capital, solid balance sheets and liquidity. Reiterating: companies are still looking for, and to some extent now driven, to find liquidity.


Welcome back to the IPO market.  Q1, is about over and there was almost no IPO action. Q2 will be a time of continued adjustment and model re-alignment. By the time Q3 is over, many companies will have operating expenses under control, solid systems in place to measure outcomes from marketing, sales, engineering and overhead, a practiced ability to close quarters efficiently, and the painful recognition that stalling in hopes of attaining something near 2021’s valuation may be akin to sitting about waiting for a dude named Godot.


Some companies won’t get there from here. Plenty will.  They will take this pretty-shocking SVB wake-up call to spiff up the engine, check the oil, study the course and get the right driver in the seat, ready to put that pedal down when the moment comes.  About that timing…Will there be comfort about the direction of the economy and interest rates by Q3? Maybe. As 2024 will be an election year, it’s not unreasonable to assume the crystal ball will be less cloudy by then. 


Will valuations have rebounded? Maybe some, but to previous levels?  Nope. That shouldn’t matter.  The thoughtful, well-prepared teams will likely recognize that going public isn’t just about the price on deal day. It’s about a fully liquid market, a message of on-going stability, an enhanced treasury account and the opportunity to earn, not hope, the way back to a more fulsome market cap. 


How? Complete a smaller-than-originally-dreamed-of IPO, hit your forecasts, prove that yours is really a company, not a just a product or worse, a feature.  Demonstrate to the throngs of institutional investors with too much cash on the sidelines today that the management team understands the responsibilities and frankly challenges of being public, and remind your employees that the stock goes up only if the business delivers. 


You can’t win if you don’t show up and if you don’t get on the track, a competitor will take the pole position.  Management teams, looking at you. Now is the time to put fuel in the tank and rev those engines. Class V can help. The IPO market is coming back sooner than you may expect.

Sunday, January 22, 2017

Pearls of Wisdom from CFOs at the NYSE IPO Bootcamp 1/2017

In return for their time, the audience founders and management teams in attendance at The 2017 NYSE IPO Summit, held in January 2017 at the New York Stock Exchange heard an enormous download of first-hand, practical and useful advice about how to approach the IPO market. The advice came from a panel of accomplished CFOs who had recently been through the process. This august group included Michael Fleisher CFO of Wayfair, Peter Campbell CFO of Mimecast and John Gavin CFO of Acacia, all who offered the following words of wisdom to Leslie, the moderator and to the assembled crowd.  We think these tips are well worth repeating.  Paraphrasing the best we can, we repeat here the most important suggestions for all those of you considering the move to the public markets.

On IPO Timing

Don’t wait until the company is certainly ready. The fact is that  “You will never be 100% ready”--  but the same instincts and skill set that helped the company grow to the point where it has the opportunity to operate as a public company will get your team through the process.

On How to Prepare 

Know that: 
The role of the CFO in the process is critical. It is the CFO’s time to shine as a leader within the company.  

How to optimize the process – the details do matter.

  • Surround yourself with experts that you can trust and who have only the issuers’ best interests in mind.        
  • Reach out to others who have been through the process. Almost everyone is happy to talk and offer advice on lessons learned.  Pick up the phone and call.
  • Build a strong FP&A team and hire a controller with public company experience if you can. Be prepared to pay whatever it takes; these roles are critical to the success of a public company CFO.
  • Be pragmatic but do not listen to everything the lawyers and bankers say. Remember that they are oriented towards zero risk.  A strong IPO and aftermarket requires that companies accept some uncertainty.  That is the nature of public markets.
  • Have conversations about board transition and identify candidates early so your company can conduct a controlled and well planned transition to a public company board. Some of your early investors will want/need to step off the board and equally importantly, public boards require different skills and experience than private boards.
  • Communicate with employees about what a public stock price means and explain before it happens that the stock prices go both up and down. Remind the entire company that they key to economic success is a focus on the long term business not this month’s stock price gyrations.
  • For the founder who want to retain control, dual-class stock is worthy of consideration. The bankers generally are not initially supportive of implementing this structure but, if your rational is thoughtful and sensible, and if the tiers are structured reasonably, dual-class can be an important tool to allow the company to focus on the long term, not always on this quarter.
  •  Be actively involved in deciding who your shareholders will be. Do not leave this decision only to the banks.
  • Hire a talented, smart person to do the internal IR role and make it a training ground for leadership roles within the organization.
  • Go into the IPO process with the clear belief that publicly reporting is not going to change your business decisions—management needs to maintain a long term view which may not be best for the current quarter.  Be prepared to deal with that.
  • Do not put too much focus or weight on the IPO price, it is just a day. It is more important to get the best group of investors than it is to grab the last dollar.

Finally, having a publicly traded stock is not for everyone. 

There are pros and cons to being public but for those solid enough to earn the right to be public, there are many more pros – perhaps most importantly that your company remains in control of its own destiny.  Furthermore, an IPO:

  • Provides liquidity for long-time investors and employees.
  • Is an potent tool for attracting talent.
  • Can accelerate business growth, not only from increased awareness but also by reinvigorating our leaders and employees. 
  • Is a major branding event

These are just a few of the tips that can help distinguish a “completed IPO” from a “successful IPO”.  The former can be achieved by many. The latter applies to a more rarified group.  We at Class V Group stand ready to help companies understand the differences as and land in the latter class.