Lessons as the latest IPO window starts to close

Our CEO Mike McCudden recently wrote the following blog for our partners at Fintech Scotland.

“In recent weeks, there has been a flurry of news articles about the bumper run of IPOs, observed as economies globally look to plot a post-COVID recovery. Those ongoing and ultra-lax monetary policies buoy this, though that may be coming to an end. Floats are being postponed or prices slashed by prospective issuers, suggesting that it is inevitable that the window is starting to close – for now anyway.

However, is this such a bad thing? Increasingly IPOs have been looking somewhat disorganised. Whilst fervent day one ‘pops’ in the share prices of newly issued stock may be headline-grabbing, ultimately, it suggests that the advisers have miscalled the market. Founders and early-stage investors could have got a far better price had a more considered approach been taken. Indeed, academic thinking from a little over twenty years ago always suggested that involvement in IPOs was a risky proposition. With savings in transaction costs and taxes offset by the fact that the previous investor ought to be selling at the top of the market and the opportunity cost of having capital tied up during the pre-IPO period.

It is also worth bearing in mind that even if IPO deal flow does become somewhat more constrained, the option is not being removed indefinitely. This market has always been cyclical, so that it will return. Given that, what takeaways are there from the frantic levels of activity seen over the last twelve months?

Arguably the most important for many will be ensuring that your cap table reflects the needs of the business at the time of float. What will an IPO mean for key staff and early-stage investors who have likely played an instrumental role in getting you this far? And how can these valuable participants be convinced to stick around for the next phase of the journey?

Secondly, there’s that opportunity to ensure your business is IPO-ready. Regardless of the time horizon here, there’s a raft of best practices that you can deploy to make sure your company is in the right shape to facilitate a listing. After all, you may find that time is of the essence at a future date and such preparedness has longevity – investments now will yield results in the future. That combines to create a situation where you’re getting closer to having liquidity within your privately held business – something that CrowdX is assisting with already, helping bolster the company’s reputation, its brand perception, and the early stages of institutional engagement.

This all means that it should be easier for prospective professional advisers to make more accurate assessments of your company’s value. Those ‘day-one-pops’ in share prices can largely be a simple transfer of wealth from your company to the institutions that can participate at the very outset. Don’t give away wealth unnecessarily.”

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