When talking with clients about their company’s prospects for accessing public markets, three words guide my advice:
Clarity
Liquidity
Stability
Here’s what they collectively mean and what I consider to be a wise initial litmus test for making the decision to go public – also known as Brad’s Three Rules of a Successful IPO:
Rule 1
The decision to go public should be driven by corporate need, not market opportunity. Clarity of purpose for an IPO.
Rule 2
The company must have achieved a level of business maturity that it can manage to the quarterly expectations of Wall Street. Stability of the business model.
Rule 3
The company must be able to achieve a sustainable public market value.
This means the IPO capitalization must be sufficiently above a level at which a market adjustment does not cause the capitalization to fall below a point where the company effectively becomes a “private” company with public market responsibilities. In other words, the company must have adequate liquidity to ride through market adjustments.
While there are many additional complex considerations, if your company doesn’t meet the criteria set by these three rules, an IPO should be a discussion for another day.
