The IPO journey: Tales from a tech CFO

From leadership appointments to choreographing investor relationships

Mar 04, 2019
Technology industry Technical accounting Mergers & acquisition Going public

Despite a volatile stock market and somewhat unstable global economy, this year initial public offerings (IPO) for the technology industry appear to be full speed ahead, with many middle market companies considering the IPO leap in the coming months. If you happen to be one of those organizations, are you taking the necessary proactive steps now to completely optimize your public launch when the time is right?

At a recent RSM Tech Connection, Steve Vintz, chief financial officer of Tenable, a cybersecurity company that went public last year, shared insights and lessons learned related to the company’s IPO journey. The following are key takeaways from that discussion.

Positioning the business for the best IPO

Before the public launch, Steve indicated it was important for his company—which offers a Cyber Exposure platform—to fortify the business’ operations and leadership, as well as change its core business delivery model. The efforts made the company stronger and a better IPO candidate, according to Steve. Changes included:

  • Converting the business from a perpetual-license model to subscription model, which significantly increased the percentage of recurring revenue, improved the operating efficiency of the business and expanded revenue channels for the company.
  • Appointing new leadership positions, including chief marketing officer, chief revenue officer and chief people officer to address the accelerated pace of hiring and to provide a more cohesive marketing and go-to-market approach for the company going forward.
  • Implementing a customer success team to address subscriber needs and identify future opportunities of engagement.
  • Successfully completing Series B investment round, which attracted a top-tier growth equity investor reduced stock concentration.
  • Completing ASC 606 revenue recognition compliance before the public launch. As an early adopter, this allowed the company to make key changes to systems, procedures and internal controls.

Additional proactive steps for companies thinking about a future IPO include creating an IPO road map that starts with the end date in mind, working backward to determine whether the IPO date is even realistic. Typically, planning should begin two to three years before the anticipated IPO date. This road map should include a detailed task list that identifies and prioritizes gaps in projected timelines and budgets for remediation before the IPO.

In addition, companies should review a due diligence checklist to know what underwriters will be asking for, and assess accounting processes and internal control systems to determine whether they meet public company requirements. Is the company prepared to handle U.S. Securities and Exchange Commission requirements, Foreign Corrupt Practices Act regulations and other compliance needs of a public company? Likewise, companies should examine the last three years of balance sheets and two years of income statements to identify any potential issues, and to determine if those issues might result in a restatement. Assessing and addressing as much as you can as early as you can is key to IPO readiness.

It’s an important process that requires time and one that can’t be forced. Time is a luxury you don’t always have during an IPO.
Steve Vintz, chief financial officer, Tenable

The CFO as choreographer

Amid Tenable’s important changes related to the business structure and leadership, Steve indicated the actual launch timing for his organization was moved up by several months in order to leverage optimal market timing. This ratcheted up all efforts to ensure the company was IPO-ready. According to Steve, this meant a variety of things were happening at once, all choreographed by himself, the general counsel and other key team members. From meeting with a number of banks during the bank-off period, as well as assessing cash flow, share count, billings and more, his leadership role leading up to the IPO could not be stressed enough in balancing all the vital elements that needed to happen to ensure investor interest was sustained and valuation was optimized.

In addition, Steve indicated it was incredibly helpful during the lead-up to his company’s IPO to leverage key relationships with sell-side analysts and institutional investors, which led to strong aftermarket support. Likewise, he stressed how essential the role of the equity capital market (ECM) team at the investment banks was to his company’s successful IPO, noting, “ECM was an important part of the process, probably more important than one would realize. We were overwhelmed with interest and demand from investors. Our management team was on the road to tell our story [garnering attention]. We were getting meetings. But ECM is really concerned with the allocation of shares and puts the shares in the offering in the hands of the investors whom they think want it,” ensuring the stock performs well post IPO pricing.

Our CEO had the point of view that everyone should get equity. But there’s a ton of stress over equity, just getting it right and making sure that people are excited about it.
Steve Vintz, chief financial officer, Tenable

Other lessons learned

Finally, when asked about lessons learned, Steve indicated that, while appointing an independent board of directors is very important to the process, it is time-consuming. The CEO and board spent a lot of time before the IPO interviewing and selecting new board members whose skills and experience would be helpful to Tenable as a public company. Steve said, “It’s an important process that requires time and one that can’t be forced,” and if they were to do it over again, they would have expanded the board years in advance. However, “time is a luxury you don’t always have during an IPO.”

 In addition, he stressed the importance of working through the equity compensation planning process. “Our CEO had the point of view that everyone should get equity,” Steve said, “but there’s a ton of stress over equity, just getting it right and making sure that people are excited about it.” He indicated there were a number of factors to address, such as how to integrate the equity administration system with payroll in multiple countries as the company’s workforce spanned the globe, but he recognized that equity was an important tool to attract and retain talent.

Other important IPO-readiness tips include structuring the company to minimize potential international tax issues and minimize any foreign or domestic tax obligations. And, it’s critical to protect the company’s ideas and innovation, too. Secure the organization’s intellectual property (IP) by conducting an inventory of your company's entire IP, ensuring it is properly licensed and safeguarded prior to your public launch.

RSM contributors

  • Charles Carr


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