Reflecting on My Three Rules of Successful IPOs

A set of rules I wrote in the mid 1980s that I referred to as my Three Rules of Successful IPOs.

I hope you will indulge me regarding an article I read which I thought had some very good observations regarding expectations of investors and issuers regarding IPOs, both now and during the Internet euphoria.

In the third paragraph, the article discusses the profile of companies that should seek out the public market: “It’s about what kind of company can join the public equity markets. In these depressed times especially, it’s clear that only large, mature companies with strong balance sheets and adequate reporting infrastructure should attempt to IPO. Clarity, liquidity, stability: these are the watchwords for public equity issuance.”

I found these words (clarity, liquidity, stability) to be remarkably reminiscent of the speech I would so often give to companies with whom I was discussing their prospects for accessing the public markets. Some of you have heard me refer to the characteristics a company should evaluate as Brad’s Three Rules of Successful IPOs:

  • The decision to go public should be driven by corporate need, not market opportunity. Clarity of purpose for an IPO.
  • 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.
  • The company must be able to achieve a sustainable public market value, [in 2002 this was] about $50mm. This means the IPO capitalization must be sufficiently above the $50mm level so that a market adjustment does not cause the capitalization to fall below this level where the company effectively becomes a “private” company with public market responsibilities. Adequate liquidity to ride through market adjustments.

I hope you find this thought provoking.

Picture of Brad Harries

Brad Harries

Brad regularly shares his unique insights and investment banking expertise with readers, viewers and listeners of various forums like The Information, LinkedIn and other online publications that invite the views of their readership. His writing and speaking covers a wide range of topics critical to business owners, CEOs and those who advise them. He can offer simple explanations of often hidden information behind complex private valuation structures that imply one thing in a public market context but something very different among pre-public companies that aren’t required to disclose the details. Above all, Brad's not shy about challenging his peers and readers with an alternative perspective on market activity and health.

Leave a Reply

Your email address will not be published. Required fields are marked *

Search

Welcome to Chessiecap's Insights Blog

Find savvy guidance for growing your company, leveraging opportunities, attracting investors and buyers and ensuring your ideal exit. Above all, we’re here to answer your questions and love a good debate. Use the comments and let’s have a real conversation.

Doug Schmidt
Partner and Investment Banker

Doug is one of the most respected middle market investment banking professionals in the Mid-Atlantic and has actively contributed to the growth of the region’s business community for over 30 years.

Brad Harries
Partner and Investment Banker

Brad spent the majority of his 40-year career with Wall Street firms developing unique expertise in serving the corporate finance needs of emerging growth companies.

Don't Miss an Article

Get insights on growing and selling your business delivered straight to your inbox.

Is there a Topic or Question You'd Like Us to Cover?

Our Insights blog is designed to help business owners and those who advise them better understand the complexities of selling, buying, valuations, investors, markets/sectors, trends and more. 

What topics or questions would you like us to cover in the future?

About Chessiecap

We earned our reputation for doing one thing exceptionally well – getting our clients’ deals done on the best terms possible. We specialize in:

Is there a Topic or Question
You'd Like Us to Cover?

Our Insights blog is designed to help business owners and those who advise them better understand the complexities of selling, buying, valuations, investors, markets/sectors, trends and more.