Companies are ready to go public again

Here’s what CFOs need to know about getting ready for an IPO.
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· 5 min read

As a CFO, everyone wants a piece of you: the rest of the C-suite, your external partners, and your own team—all with their own demands and expectations.

Now, imagine adding a few hundred more people to that equation. That’s what happens when a company prepares for an initial public offering—quite literally inviting institutional investors, stock brokers, and the general public to scrutinize their finances and take a stake.

“There’s so much preparation and so many things to do…You are so busy that you don’t even have much time to think about whether you are excited or nervous,” said Kapil Agrawal, the current CFO of Outschool, who previously helped to take the fashion marketplace Poshmark public in 2021, which was then later taken private again.

It’s a trial by fire that more companies may soon endure. While the IPO market has been notably slow since early 2022, forecasters at EY are watching for a resurgence later this year, especially in areas like tech and clean energy.

“There are tons of companies who are ready to go public and potentially could go public, if and when the market opens up.” Agrawal said.

But are their CFOs ready? CFO Brew recently spoke to several experts to find out what finance execs need to be thinking about during an IPO.

The key questions. In the early stages of IPO planning, part of the CFO’s role is to focus the company on fundamental questions, said Chris Ruggeri, principal at Deloitte’s advisory practice.

“What is the reason you’re planning an IPO? Is it because you need growth capital? Is it because you’re looking to diversify your sources of capital?” she asked. “Is it because market timing suggests that it’s an attractive time?

The CFO has to interrogate those questions and help the executive team understand whether an IPO really is the answer.

“Obviously, you want to minimize your cost of capital, but there’s a trade-off with flexibility. So, balancing that equation … is one of the most important roles that CFOs play,” Ruggeri said.

While going public can bring in major capital, it also means more stakeholders to satisfy. For example, going public too early can hamper capital spending on long-term initiatives, since shareholders often want short-term returns, Agrawal said.

The CFO has to be a voice of reason, arguing for sustainable growth and a view that extends far beyond the IPO, Agrawal said.

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“The biggest thing that I learned is, for every entrepreneur or every leader, the No. 1 job should be focused on building a solid business. And by solid, I mean, a scalable, predictable and profitable business where you are serving your customers in the best possible way. And [the IPO] is just one step in the long journey,” he said.

Playing quarterback. As the IPO moves forward, the CFO plays a “quarterback” role, said Eric Hall, partner with the CFO consulting firm FLG Partners. Hall was Yahoo’s CFO, setting the stage for the company’s IPO, and has recently taken several life-sciences companies public.

“We’re the ones who are making sure all the pieces of the puzzle are in place and that they’re all working together,” he said of CFOs.

That involves the usual accounting work, including ensuring the controller has multiple years of finance data and audits prepared. But at his recent life-sciences employers, it’s also meant coordinating the companies’ scientists and researchers as they draft the business section of SEC forms such as the S-1 or F-1.

Meanwhile, the CFO can continue to develop alternate capital-raising plans, Ruggeri said.

“Creating that financial flexibility and optionality in your capital structure is something that CFOs do that has incredible value to the organization,” she said.

Investor relations. Going public means the CFO’s calendar might start to fill up to 18 months in advance with investor conferences, earning calls and other interactions, Ruggeri said. A public company CFO can easily spend 10%–12% of her time with investors, even more so before the listing, she added.

“That’s a lot of time. So, use your time efficiently. CFOs never have enough time,” she advised.

CFOs have to pick and choose which institutional investors they’ll spend the most time courting, Agrawal said.

“It’s very important during the IPO process itself that you focus much more on selecting the right set of investors, rather than demanding the highest valuation and raising the capital at unfavorable terms,” he said.

Succeeding in those negotiations requires having a strong sense of the business and its goals, and interrogating whether investors truly agree with the thesis the company has crafted.

“I like my investment banks to be participating,” Hall said, and “that they are active book runners; they’re not there for a name on the cover. [I] want them working and bringing their investors in.”

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.