- Bruce E. Aust, Executive Vice President, Global Corporate Client Group, The Nasdaq OMX Group, Inc.
Panelists:
- Robert Liptak, Managing Partner, Clarus Ventures
- Paul Deninger, Vice Chairman, Jefferies & Company
- Jay Markowtiz, Vice President, T. Rowe Price Associates, Inc.
- Marc McMorris, Managing Director, General Atlantic LLC
- Greg Ingram, Managing Director/Co-Head Equity Capital Markets, Robert W. Baird & Co.
Since last year, the IPO market for companies backed by VC and private equity (PE) capital has dried up. But entrepreneurs can circumvent many of the obstacles to going public, according to panelists at the Strategic Growth Forum.
One of the big impediments today is investor confidence, said Paul Deninger, Vice Chairman at Jefferies & Company. When public markets perform poorly, institutional investors tend to consolidate, looking hard at their portfolios and deciding what to eliminate. That's a difficult situation for IPOs, especially early-stage companies. “We're not sure an IPO market for pre-revenue companies exists currently,” said Jay Markowitz,Vice President, T. Rowe Price Associates, Inc. Nevertheless, he added, “If there's a compelling IPO opportunity, it will get funded.”
Some panelists pointed to company mindset, rather than company quality, as contributing to the slowdown. “We have not seen a lack of quality companies, but we have seen the lack of a systematic perspective that says, ‘I need to grow bigger and stronger in order to get buy-side interest,'” said Marc McMorris, Managing Director, General Atlantic LLC.
Some companies may feel that the requirements for going public are too stringent. “We need something that smoothes the path to Sarbanes-Oxley compliance,” said McMorris. “Public companies must be compliant and are suddenly looking at a huge bill to do it.” Management knows that spending this money will affect company earnings. He added: “The joy and the cachet of being a public CEO has diminished in a lot of people's minds, and rightly so.”
How, then, to overcome these obstacles? Traditionally, most management teams have wanted to build a great company, observed Deninger. Today, he said, the goal is to achieve maximum value, perhaps because investors have a short-term orientation, or because a decade of negative investment returns has led them to push for more. Once the focus returns to building great companies again, said Deninger, “Investors will want to invest in them, and the rest will follow suit.”
Panelists advised companies to ensure that institutional investors understand their stories. Interesting companies that don't fit into an easily identifiable mold may have trouble attracting investors. In advance of the IPO, spend time getting to know the players and finding out who can help you develop and market your story. Moreover, ask yourself “What is Act 2?” That is, 18 months after your IPO, what's going to make you interesting then?
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