Some entrepreneurs wait until what they believe may be the “perfect time” to monetize their business investment through the public markets. Advisors also often recommend that business owners wait for a stable economic environment or upcycle before pursuing an initial public offering (IPO) of an owned or controlled corporation. However, there are numerous factors to consider when seeking to monetize an investment, including stakeholder objectives and market cycles.
Focus on your and your stakeholder's objectives
An IPO is, first and foremost, a capital-raising event. An IPO typically allows a company to sell 15% to 20% of equity ownership to the public to, among other things, fund future endeavors. Ask yourself:
- Is the capital that you aim to raise critical for your business's growth?
- Is there is a specific investment, product, or territory that requires funding?
- Have your shareholders expressed interest in a liquidity event?
- Are you expected to meet specific exit targets on shareholders’ behalf?
- Is M&A part of your strategy? If so, both the raised capital and availability of publicly traded shares could help facilitate these plans.
The availability of publicly traded shares to be awarded as equity incentives could also enhance your ability to recruit and retain a leading management team. Going public can also serve as a significant branding opportunity, since an IPO often brings a wave of "free media" coverage on the day of listing and over subsequent weeks. These opportunities can be even more attainable in a slower-paced market. As the cycle matures, securing time with potential advisors, investors, and analysts may prove more difficult.
Consider the cyclicality of markets
In a down market, timing may be challenging. Rather than seeking to time the market, consider the elements that are within your control, including initiating a process that typically requires significant advance planning. The overall process – from the moment you decide to pursue an IPO to the actual listing day – can take anywhere from 6 to 12 months for most domestic issuers. It is typically the time spent prior to the IPO process that is the most critical to the success of the endeavor. And, if you commence a listing process in a down-market cycle for IPOs, by the time your offering is ripe for public release, the markets may have come around to a suitable position (assuming your business is at a stage of public readiness). Advance planning can often help a company identify the most suitable approach to exit, regardless of shifting market conditions.
Blue Edge Growth Advisors LLC (“Blue Edge”) provides consultancy and financial advisory services to emerging businesses. Blue Edge is a subsidiary of DLA Piper LLP (US) that does not provide legal services.
