When are you ready to go public?

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When are you ready to go public?

Here’s a simple framework for determining if your company is ready to go public. It comes from speaking with Amanda Whalen, CFO of Klaviyo, one of the few successful tech IPOs of 2023.

You’re ready when you have demonstrated:

Scale: You’ve gotten to a substantial enough size (north of $500m in revenue) to prove you aren’t going anywhere.
Proof points: You have evidence that new initiatives for growth are working.
Upside: You’re actively planting the seeds for future expansion, so investors will reap the benefits.

Amanda applied this framework to her own company heading into IPO:

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“[1] We had gotten to a scale where we clearly were a substantial company. Last year we had close to $700 million in revenue.

We had demonstrated a track record of growth in our core markets. Historically we started out primarily serving retail and e-commerce businesses and serving a lot of small businesses. [2] But we were also starting to see really good traction in the places that we’re going to drive growth going forward.

And for us in our business that was expansion internationally and growth in the mid market.

[3] And then we were just starting to plant the seeds for that future expansion of adding new products and expanding into new verticals.

So it really was from a business perspective the right time where you had that track record, you have the proof points, and you have the runway ahead because investors want to know that you’ve got the demonstrated ability to deliver, but they also want to know that there’s upside so that they can share the upside with you going forward.”

Scale and predictability are the two must-haves constantly drilled into the minds of operators. You need to be “big” and able to “predict” future growth.

But the third point is not discussed enough. Sharing upside with investors is crucial. There has to be some meat left on the bone.

To use a sports analogy, an NFL running back gets to negotiate for a big time contract based on his past performance.

But he gets paid based on the yards the team thinks are still in his legs.

Chris Johnson, aka CJ2K, put up 2,000 rushing yards in one season. He was rewarded with a monster contract. Unfortunately, the best years were behind him, having taken a beating on thousands of carries.

Investors want to know there’s plenty of room for growth going forward. They don’t want to come in and find out you’ve already exhausted every opportunity. They want some runway. They want some upside. They want some juice left to squeeze.

When you tell your equity story - make sure it’s clear you still have yards left in the tank and room to keep running.