Communications for an IPO
I’ve been holding off on writing a blog post about IPO comms. I mean, it’s not exactly the market for it. Plus, as you’ll see, it’s A LOT to cover. But I’ve had a few meetings recently with people who are starting to prepare for their possible IPO (initial public offering) in a couple years. So, let’s get to it. What follows are, in my experience, the primary communications considerations for an IPO.
As a private company you’ve had a set of audiences you’re trying to reach: customers, prospects, employees, industry analysts, journalists, and so forth. With an IPO you’ll have important new audiences: investors, as well as the financial analysts and journalists that tell them what to think about you.
Upon your IPO, your company’s investors will suddenly go from a dozen friends and VCs that you know personally to thousands of people. And these investors are not a monolith. They are extremely diverse, from some rando with a Robinhood account to an experienced institutional investor with their own research team. That said, by and large, investors care about how much money you made last quarter, how much you expect to make next quarter, and for the rest of the year. Bottom line, they want to know: are you growing now, and more importantly, will you grow more in the future.
A lot of this comes down to a bunch of numbers you probably haven’t paid a ton of attention to before. Revenue, of course, but also stuff like net dollar retention rate, customer acquisition cost, gross profit margin. You, comms professional, can’t control these numbers, but it’s important to understand them so you have a sense of what the reaction will be to your IPO or next earnings call and can prepare accordingly. Even seemingly small changes in your numbers as they compare to official and unofficial (“whisper number”) expectations can have a huge impact on your stock price and the public perception.
Other out-of-your-control factors can impact how your company is treated in the market. For example, if another company has a terrible earnings call and analysts lump you together on some basis, your stock can crater.
So, with all this out of your control, what can you do? By the time you IPO you should:
Get comfortable with your numbers. Get your pals in finance and IR explain the numbers to you. Be that person asking questions like, “What does this mean? Literally explain it to me like I’m five.” “Is this number good or bad?” “Do we want that number to be high or low?” Take a finance or accounting course online if you have the time.
Learn to tell your growth story. You’re so used to telling the “why our product kicks ass” story, but, as I said, the investors want to know something else: how are you going to keep growing? You need to be able to talk about the demand for your solutions, why you’re poised to capture that demand, and why you have a massive TAM (total addressable market) that gives you a lot of room to grow. At Zoom we boiled this down to three messages that we (figuratively) beat into our IPO spokespeople: 1. Zoom is a unified communications company, not just a video conferencing company (i.e. we have a bigger TAM than you might think), 2. Zoom is growing while maintaining profitability (a standout among our 2019 IPO class, of which many were burning cash), and 3. Video is the future of communications, and Zoom is the company that is doing video right. Each of these three key messages had several strong proof points to back them up.
Start looking at your accomplishments from the investor / growth mindset. Does this new product allow you to enter a new segment or make more from existing customers? Does this new partnership or executive help you to enter a new market? Growth will become a larger part of how you tell the story of your day-to-day company announcements after your IPO (within guidelines from your legal team).
Communicate with employee-investors. On IPO day, many of your employees also become shareholders. Some will check the stock price daily and sweat over the most alarmist Seeking Alpha headlines. As I’ll discuss below, providing perspective and education to employees can help keep this in check (to some extent).
So how do you learn about these numbers, audiences, and all the new rules and crap you have to think about when you IPO? From your new BFFs: bankers, lawyers, and investor relations.
Investment bankers are your friends for the IPO process. They’ve typically done dozens (or hundreds) of transactions and they know the process like the back of their hand. They also understand investors and are pretty good at making slides and writing too. They are the workhorses of the IPO. But they need you because you bring the company, customer, and comms expertise to the table.
Your longer term friends are legal and investor relations. Gearing up to the IPO you will probably start seeing more legal and compliance headcount at your company. I find it helpful to think of comms and legal on the same team. It’s not about trying to “get it past legal.” They are here to make sure you don’t make some hugely embarrassing and/or costly mistake. Do ask that they explain very clearly what you can and can’t do leading up to the IPO. You need to know the redlines you can’t cross, the gray areas they’ll want to talk through, and what is green light / business as usual. If you don’t understand their feedback, ask them for clarification so you can begin to understand and anticipate their concerns. And likewise, make sure they understand your goals as their business partner.
Investor relations (IR) is your other long-term BFF. They get investors and financial analysts and can help you refine messaging for this audience. They will also help you make sense of the numbers now and long after the IPO as you prep for earnings calls together. This works best as a two-way street. Comms often has your finger on the pulse of what’s going on at the company, upcoming announcements, and so forth. If you bring IR to the table with you, they’ll return the favor.
So what actually happens?
Now, the world has changed a lot of the past couple of years, but I’m assuming that much of the following process still holds for IPOs today.
Bakeoff: This is where banks vie for to be your “lead left” aka the main bank representing your company in your IPO transaction. Not too much for you as a comms person to do at this point, hang tight.
Exchange Bakeoff: I don’t actually know if this has a name, but it’s basically when the exchanges - NASDAQ, NYSE - pitch you to list with them instead of their competitor. There are a lot of factors at play, but there will be some marketing/comms initiatives in their pitches (spend on advertising, events, and so forth), so you should weigh in on those.
S1 drafting: The S1 is a financial filing in the form of a book all about your company. A lot of this is numbers (all your financial statements, etc) prepared by the finance team and legalese (risk factors, etc) prepared by lawyers. You should know what's in there as sometimes these can be quite spicy, but you won't be drafting those sections. There are several sections where you in comms play a bigger role. Most significantly is the business section, where you talk about, well, your business: products, moat (the thing that makes it hard to compete with you), competitors, customers, leadership, distribution, underlying technology, and so forth. This is, to be honest, a painstaking group writing project with all your new BFFs. Another labor-intensive activity is getting lists of all your top customers across a variety of industries, as well as case studies on a few of them, all approved by the customers to include in the S1. There’s no shortcut, it’s just a lot of emails and meetings. Also in the S1 you should draft (or have a big say in the drafting of) the CEO letter and collaborate on any visuals (cover, back cover, charts, etc).
Roadshow: This is when company leadership and bankers visit various potential investors to do a song and dance about how great your company is so they buy your stock when you IPO. It’s also when they get a sense of investor interest and where you might price. It is mostly the work of the bankers and the finance team, but you will likely need to help on the deck. You will also need to get the vendor for, and oversee production of, the roadshow video, which is the video shown to folks who can’t attend the roadshow in person. I recommend going with a vendor who specializes in roadshow videos, because these videos follow a formula and tend to operate on a very tight timeline. I’ve had success with Glass and Marker.
Internal Comms: Internal comms for public company readiness is a huge topic that deserves its own post, but I’ll provide the broad strokes now. First of all, you’ll be working with compliance and PX to get employees to attend a series of necessary compliance trainings (such as on insider information and trading). You can take your business partners’ lead here on what needs to happen, but you as the comms pros can help make the trainings engaging. For example, we did a compliance Jeopardy that was well received. The company will also likely need to change what information is shared internally and at what cadence. If you’ve been giving detailed, company-wide updates on your financials whenever you feel like it, this may be a pretty drastic change. Systems that house financial and deal-flow information will also lock down to need-to-know employees. You should start to slowly shift this in the year-plus ahead of the IPO so it’s not a sudden cut off. You will also need to do trainings for employees around the logistics of their equity (for example, if you do an ESPP program, if their equity is going to move into a different system when you go public, and so forth). This stuff is confusing to many employees, and it’s worth doing multiple trainings and having a lot of resources available to them. Don’t forget that employees have varying levels of financial literacy, so some of this needs to go very “back to basics” - i.e. what is an IPO, what is the difference between options and stock, etc. Employees are generally pretty understanding about IPO-related changes if you explain to them that this is part of public-company readiness (though don’t get into specific timelines).
Pricing Day: Late in the day or early evening before listing day, you put out a press release publicly stating your price. The price can leak the moment it’s decided, but just publish your PR (which legal basically drafts for you) and be on your way.
Listing day: This is the big day! This is the day you list your stock for sale on the public market, ring the bell, and get that bread. Imagine your biggest announcement ever, and then put it on steroids. You’ll have a set of spokespeople doing dozens of interviews that you have arranged ahead of time (I recommend keeping spokespeople to three or four well-trained executives max), press release and blog published, social media pushed, website hero updated, employee viewing parties and subsequent ragers in NYC and all the offices, advertisements in Times Square, emails to customers and partners, gifts for employees, and much, much more.
Brand refresh and advertising: Listing day is the day that many people (including potential customers) pay attention to your brand for the first time. So in the months leading up, consider not only if your messaging is on point, but also your visual identity, and all your public properties. Make sure your website, social pages, and so forth are looking their best before listing day. Consider if a few months before and after you should do a big advertising push in major metros (especially SF and NYC).
Ok so the big day is done, but it’s really just the beginning and life is different now. A private company tends to set their calendar by organic milestones like funding rounds, industry events, and product launches, along with seasonality and your fiscal quarters. This is still true when you become public, but the planning becomes much more rigid around the quarters and earnings calls (earnings calls occur about four to six weeks after the end of your fiscal quarter and cover what happened in that quarter). There is added pressure to get something major accomplished within the quarter -- launching a product, or closing a major deal or partnership. Investors mostly care about the numbers, but these accomplishments help sell that story, show the how. Your job in comms will be to work with IR to make sure that this gets communicated in a coherent, persuasive way both at the announcement time and in the quarterly earnings call, its materials, and associated media interviews.
You also have to be more careful about when you announce what. Often you can keep doing your "business as usual" announcements such as product releases with little concern, but announcements that are "marketing moving" such as a major acquisition or a stock split should be timed to not run afoul of the SEC. Your legal team can help you make that determination.
The company profile can change a lot pre to post-IPO. Media who never gave you a look before come calling as soon as your S1 drops. Take advantage of this. The new-IPO interest wears off. So spend those first months saying yes to opportunities, continuing to hammer in your core messages. And also start preparing narratives you can roll out when the IPO excitement dies off, whether that’s through new announcements, research projects, and so forth.
After the IPO, you can expect that some employees will be obsessed with the stock price. In addition to the pre-IPO education I discussed above, continue to encourage employees to stay focused on execution and what’s in their control. You can use post-earnings internal updates to provide context about your performance and the market reaction.
So all in all, preparing for an IPO and transitioning to a public company is a big, intimidating comms job. It’s quite simply, a ton of work in the S1 drafting to listing day period (the final six months or so). So I’d keep two things in mind.
First, you don’t have to reinvent the wheel here. It’s such a complex project that your goal should be to get through it and stick the landing, as opposed to redefining the way it’s done in a special way that no one has ever thought of. If there are ways to incorporate your unique company culture, great, but overall I’d focus on just not screwing it up. Look at what some successful recent IPOs have done, talk to your peers who have gone through it, listen to your BFFs, and then take it step-by-step. Educating yourself on your financials and new audiences is a good place to start.
Second, get some help. I had a colleague (shout out Derek Pando!) who was my other half on this project for the year leading up. We split the work 50/50. So whether it’s a colleague, agency, or consultant, make sure you are supported. Feel free to give me a shout if you need help on anything from building out your messaging to training spokespeople to bird dogging your case studies to crafting your internal comms.