Three Paths to Going Public

By Michael Miao, Jason Kong, and Ajay Vashee

Introduction IVP is a later-stage venture capital firm with $8.7B of cumulative committed capital. We've invested in over 400 companies, of which 122 have gone public, including seven so far in 2021. We are experts in helping our companies transition to the public markets and recently strengthened our team with the addition of Ajay Vashee, who was most recently the CFO at Dropbox (NASDAQ: DBX), where he led the company's IPO in 2018. There has never been a better time to consider a public listing, given the strong demand for technology public offerings, and there are now several paths that companies can take to access the public markets: a traditional IPO, direct listing, and SPAC combination. We recently hosted a panel moderated by Ajay that featured the CFOs of three IVP portfolio companies - Coinbase (NASDAQ: COIN), CrowdStrike (NASDAQ: CRWD), and Hims & Hers (NYSE: HIMS). Each CFO took a different path to enter the public markets, and we were fortunate to hear their first-hand accounts. During that event, we discussed navigating the public markets in the midst of a pandemic, managing readiness efforts, and evaluating the trade-offs between the three paths to going public. Our event was hosted on Hopin and if you missed it, you can watch a recording here.

We wrote this blog post to help demystify why companies go public, how companies go public, and what to consider when deciding on a path to the public markets. In it, we've synthesized the key learnings from our event, and also highlighted the tradeoffs between each of the three paths to going public. If you are a CEO, COO, CFO, finance executive, or just someone who is interested in how companies transition to the public markets, this content is for you. Let's dive in!

What does it mean to Go Public ? Why do companies want to go public?

Going public is an important milestone for founders, employees, and investors. When a private company goes public, it begins trading on a public stock exchange (e.g. Nasdaq, NYSE) and the public is able to freely buy and sell shares of the company. There are many reasons why a company may want to go public, but the primary reasons are as follows:

Access to capital

Liquidity for investors and employees

Currency for making acquisitions

Marketing / branding event

Going public allows your company to tap into significantly larger pools of capital that can help finance continued growth, international expansion, and acquisitions. Being publicly traded makes your company's stock liquid and gives founders, employees, and investors an opportunity to sell their shares to the public. Being a publicly traded company also makes it easier to use equity to finance acquisitions because the underlying shares are fully liquid and can be sold for cash at any time. It can also make your company's equity compensation feel more real to prospective employees and can make it easier to attract top talent.

We were able to raise a convert about a month after going public, which then satisfied our need for capital at a very low cost of capital. Once you are public, you just have so many more structures and so many more options for capital. Alesia Haas (CFO, COIN)

Going public is also an important marketing event that can help draw attention to your company and serves as a stamp of approval from public market investors. The process of going public is arduous, and typically only well-run businesses with strong controls and business fundamentals are able to make the leap. Public companies are viewed as less risky than private companies, which can make it easier to do business with larger corporations. Going public is a powerful opportunity to tell your story to the world and elevate your company's profile.

A big reason [to go public] was around brand awareness. Back in the day there were a lot of big competitors who had done well in cybersecurity but we thought that we had a different approach to cybersecurity, one that we felt would be much more effective. So, branding was huge. We were not known in all four parts of the globe so we were trying to bring out that awareness. Burt Podbere (CFO, CRWD)

What are the drawbacks of going public?

Going public creates extensive reporting requirements where companies must disclose financial results, executive compensation, and material updates to the general public. This means that your competition and customers will see your financials regularly, making it much harder to operate in stealth. Public companies file 10-K/10-Q's every quarter and host quarterly earnings calls where discerning research analysts and investors dissect the business in detail. Public companies also face more intense scrutiny from the media, regulators, and investors, and must take extra precautions in regard to compliance and managing MNPI (material non-public information).

We'd also note that most employees at technology startups are accustomed to seeing their company's valuation increase in each subsequent financing round. As a public company, your stock is freely traded, which can make the inevitable ups and downs of your company's stock price a major distraction for employees. Being publicly traded can also make companies more short-term oriented because of the focus on hitting the quarter. That said, we strongly believe that the benefits of going public far outweigh the drawbacks. Going public is an important milestone in any company's journey and is a forcing function that levels up a company's management team, internal processes, and financial controls.

Public Readiness

Preparing for a public listing can take 12 months or longer. Prior to going public, many internal processes will need to be buttoned up and your company will need a deep leadership team across all key functions. You will

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