At a time when so many business activities have been disrupted, companies have continually found ways to raise capital for future growth and expansion.
During our recent Strategic Growth Forum® — held virtually for the first time — my colleague Jackie Kelley welcomed Ashley MacNeill, who leads the Technology Equity Capital Markets Americas group for Morgan Stanley, and Andrea Tarbox, CFO of Live Oak Acquisition Corp. I and II, for a discussion about the expanding and evolving options for going public in 2021 and beyond. It is, they agree, an unprecedented time for innovation in capital markets.
More options for issuers
The growth in non-traditional approaches to raising capital is being driven by two factors: the desire of entrepreneurs to better control the process and investors’ willingness to embrace change. Those two shifts are bringing what used to be considered atypical approaches to capital raises into the mainstream.
For private company founders, pursuing “go-public” strategies such as direct listings and special purpose acquisition companies (SPACs) can provide significant benefits.
SPACs boomed in 2020, and the reasons are obvious: they offer a faster route to market; allow companies to lock in valuations, providing certainty in volatile markets; and permit companies without long histories to provide a forecast of future financials vs. the historical data required in an IPO. Private investment in public equity (PIPE) financing, which often accompanies a SPAC transaction, also allows founders to choose a handful of additional investors who believe in the company’s potential.
Beyond SPACs, direct listings offer lower costs, greater price transparency and no lockup requirements. The new regulations permitting concurrent primary capital raises alongside direct listings serve to broaden the audience for this listing path.
IPOs themselves continue to evolve, as well. For example, companies are increasingly instituting non-traditional lockup periods that better serve the need of existing shareholders. And anchor orders — pre-IPO subscriptions for shares from high visibility institutional investors — are growing in popularity, too, as companies seek to better control who owns large holdings of their stock.
The evolution of these approaches means that private companies don’t have to follow a traditional route to public markets. They can curate a customized process that best suits their unique financial interests and long-term business strategies.
Is your company ready?
One other lesson came through loud and clear during this recent conversation on the evolution of public markets: regardless of the strategic approach you choose, your organization must still be ready to operate as a publicly held company from day one.
Doing so requires planning, organizational changes and, in many cases, an experienced advisor who can help you prepare properly for any of these paths to market.
Being ready to be a public company means having:
- Financial statements and record-keeping processes that facilitate SEC reporting requirements
- Strong internal controls to ensure the integrity of financial information and other key metrics
- The organizational structure of a public company, with clear reporting lines and delineated responsibilities, including board governance and committees
- A strong investor relations function to work with both private and institutional investors
Many privately held firms lack leaders with public company experience who have the skill sets to implement and manage critical large-scale processes such as financial reporting. And while the traditional IPO decision-making process brings these needs into focus, companies involved in other forms of going public, especially SPACs, are often unprepared for the rapid transformation they’ll need to undergo.
Multiple pathways to investment and economic growth
The growth in non-traditional approaches to public markets is exciting. Increasingly, the market recognizes that bespoke offerings, tailored for individual companies, can be just as successful — if not more so — than the old ways of going public. These advancements have helped sustain market enthusiasm despite the challenges of COVID-19, and ultimately they will channel more investments into more companies, in turn spurring innovation and economic growth. And that’s good news for everyone in 2021.