To be or not to be … a public company

“Should I take my company public?” is a question I often encounter. More dreadfully: “We’re vending our (early stage) company into a public vehicle” (shudder!).

Many entrepreneurs are cognizant of the desire for exits or some other liquidity event amongst angels and other early stage investors. These entrepreneurs feel that being a public company serves the purpose of liquidity (for the investors) and raising big sums of capital (for the entrepreneur). For early stage companies, going public may or may not be a good idea for the entrepreneurs or for the investors.

When does it make sense to be a public company?

• Strategic quality – The company has a clear strategic vision and the business plan to execute on that vision to make money. It has a demonstrable competitive advantage; and can sustain this competitive advantage into the future. The core business is capable of sustaining growth and shareholder value in the future. Its capital needs to meet its growth plans can best be satisfied by the public markets.

• Operational quality – The company should enjoy growing demand for its products. It should demonstrate the ability to keep growing its market share. Its infrastructure and operational processes should be aligned with its strategic direction.

• Reporting quality – The company must be able to predict and forecast based on good business planning. It must be credible in its message to financial audiences to ensure trading activity that warrants its corporate performance.

• Receptive public markets – Are the markets ready for your company to go public?

Too often, entrepreneurs only consider the receptiveness of the public markets without paying enough attention to the strategic, operational and reporting qualities of their company. Without these qualities to sustain its share price, the newly public company quickly languishes on the markets and has great difficulties in raising additional capital.

I can count the number of happy endings to early stage companies who went public before achieving any significant milestones on a single hand – and considering the number of early stage companies that have gone public since the late 1980’s when I started keeping track … well, you can do the math.

Believe it or not, the angel investors I hang out with are in this business of angel investing because they really, really (!) want to help the entrepreneur’s business to succeed. The thrill of helping to build and grow truly great companies may actually supersede their other investment priorities. Going public makes sense only if the benefits to the entrepreneurs and the investors are sustainable.

The Pitch IS the Packaging

It isn't fair but we all judge books by their covers. No matter who we are, what we do or what side of the bed we happened to awake from, we form our impressions within the first few seconds - and then spend the rest of the time either validating or refuting our initial impressions. Anecdotal evidence abounds about how investors - including the VANTEC angels - use their first impressions to decide whether they will listen to the rest of the entrepreneur's pitch, pursue the due diligence process, and then ultimately invest their funds in the entrepreneur's venture.

The Elevator Pitch is merely the packaging to the juicy contents inside; and it's also the first (and sometimes only) chance that an entrepreneur can interest a potential investor. It's not right but it's true that often the investors never go beyond this "packaging" if the first impressions don't entice them to pursue the venture further. Since we're not about to change human nature any time soon, let's just accept this as part of the fund raising terrain. So here's a quick guide to how entrepreneurs can pass through the "inner gatekeepers" in the investors' minds:

1. Why are you here? “We are here because ... [looking for CEO, looking for marketing planning help, looking for advisors, etc.]

2. Who are you? “We are [COMPANY NAME]. We make/provide/sell [COMPANY PRODUCTS/SERVICES] for [TARGET CUSTOMER] who need [SOLUTION] to solve [PROBLEM].”

These points should take no more than 20 seconds. One or the other (or sometimes both) is often enough to pique an investor's interest. If the entrepreneur is successful in eliciting a "tell me more" response, then continue with:

3. What is the market opportunity? Describe the problem that you are solving with your company products/services including size, why it hasn’t been solved yet, etc.

Pause for another "tell me more", then:

4. Why do you think you will win? “Unlike [COMPETITION], we [GIVE UNIQUE VALUE PROPOSITION].” Also, identify some management expertise you have or can access to deliver on your business model, identify your intellectual property strategy and other barriers to entry, etc.

Pause. Still interested? Then:

5. What do you want from us? Identify what your company needs in terms of “talent” (e.g. prototype development, marketing, finance, etc.) to get to the next level.

Pause. Did the above 2 to 3 minute exchange elicit even further interest? Congratulations on making a positive first impression. The entrepreneur's next meetings with the potential investors will go over the exact same 5 points - but in much further depth and details.

Good luck - may your audience be attracted enough by your "packaging" to delve into the content.