Mistakes to Avoid During Your IPO

Written by Johnnie Walker
Business PlanningStartup Finance
Young businesswoman with laptop and smartphone

Your company has reached a new level of success. After years of hard work and determination, you have achieved profitability and are ready to take the next step. You decide to go public through an initial public offering (IPO).

IPOs can be a great way to grow your company and increase shareholder value, but there are also a number of things you need to keep in mind in order to execute it successfully.

Most startup companies and small businesses dream of one day going public through an IPO, but few understand the complex process and all that’s involved. Making mistakes during your IPO can be costly, time-consuming, and damaging to your company’s reputation. Here are some of the most common mistakes to avoid during your IPO.

Don’t overhype your business – let the numbers speak for themselves.

When a company goes public, there is a lot of excitement and hype surrounding the event. While it’s natural to want to put your best foot forward, it’s important to remember that being honest about your company’s strengths and weaknesses is essential. Overhyping your business during your IPO can create unrealistic expectations that can eventually lead to disappointment. It can be difficult to maintain the same level of excitement after the IPO, which can damage your company’s reputation.

It’s best to let the numbers speak for themselves and be honest about your company’s strengths and weaknesses. IPO investors are sophisticated analysts who can spot false claims and hype from a mile away. By being open and transparent about your business, you’ll build trust and credibility with potential investors.

So, while it’s essential to put your best foot forward, it’s just as important to be honest about where your business stands. IPO investors are looking for a sound investment, not a get-rich-quick scheme.

Be realistic about your valuation – don’t try to inflate it just to make more money.

Initial public offerings (IPOs) are a risky undertaking, and it is important to be realistic about your company’s value when going public. Trying to inflate the value of your company in order to make more money is a mistake, as it can leave you with too few resources to actually grow your business. On the other hand, if a company is undervalued, it may have missed an opportunity to maximize its potential.

Another thing to keep in mind is that IPOs are often subject to market fluctuations. Trying to time the market is generally a bad idea. IPO valuations are often higher than what the company is really worth, and it can be tempting to try to time the market by waiting for a “perfect” time to go public. Your IPO price should be based on your company’s long-term growth potential. It should not be timed to try to take advantage of short-term market conditions. Focus on long-term growth, not short-term gains.

The best strategy is to focus on long-term fundamentals and use debt wisely to finance your IPO. By using too much debt, you’re putting your company at risk of default if the IPO doesn’t go as planned. Too much debt can jeopardize the success of your IPO, by making the company look risky and unattractive to investors. Instead, focus on building a strong foundation for long-term success.

Get all your ducks in a row before going public.

Going public can be a great way to raise capital and increase awareness of the company, but only if it’s done properly.

Make sure that you have a solid business plan and financials before going public. This business plan should outline your company’s financials, strategy, and goals. This will give potential investors an idea of your potential for growth and profitability. If you have a professional-looking business plan and financials, it is more likely that potential investors will take your IPO seriously. Additionally, if you have a well-thought-out business plan, it will be easier to explain your company to potential investors and answer any questions they may have.

IPOs can be complex and there are many regulatory requirements that must be met. Failure to do so can result in significant delays or even legal problems. It is important to get professional help if needed. A professional can also bring valuable expertise and experience to your team, helping to increase your chances of success.

Be prepared for intense scrutiny.

This scrutiny could potentially come from investors, shareholders, analysts, and the general public, just to name a few. They will be looking at your financials, your business model, your competitive landscape, and any red flags that could indicate that your company is not a good investment. One way to prepare for this is to have a strong IPO story that articulates your business strategy and why you believe going public will help you achieve your goals.

The media will be interested in your company’s story, and they will also be looking for any negative news that they can find. You should have a plan for how you will respond to negative stories, and you should also be prepared to do damage control if necessary.

You should expect shareholders and analysts to closely scrutinize your stock price after your IPO. Don’t overprice your stock – setting your stock price too high can scare away potential investors and make it harder for your company to raise money. This can lead to problems down the road if shareholders feel like they have been misled about the value of your company. As a result, it is important to make sure that your stock price is realistic and in line with the expectations of investors.

This scrutiny can be intimidating, but it is important to remember that they are just trying to protect their investment.

Don’t forget about the little details – they can make or break your IPO.

An IPO is a big deal. Companies go public to raise money and increase their visibility. But there are many details that must be taken care of in order to have a successful IPO. For example, the price of the stock must be carefully calculated in order to maximize investment and ensure that the company can still meet its financial goals. Make sure all the required financial statements are in order and complete.

Don’t underestimate the amount of paperwork and red tape involved in going public. The Securities and Exchange Commission (SEC) has very strict requirements for companies that want to list their stock on an exchange. Companies must file numerous documents, including a registration statement, financial statements, and disclosures about the business. The SEC then reviews these materials and decides whether or not to approve the IPO.

Failure to comply can result in delays or even scuttled IPO plans. In addition to the usual filings required by the SEC, there are a number of other documents that must be completed and filed in a timely manner, for example, a letter of intent and a red herring document.

While attempting to time the market perfectly is generally not recommended, you should still pay attention to the timing of your IPO. For example, if the stock market is down, it may be difficult to generate interest in the offering. Likewise, if the company’s financials are not in good shape, investors may be hesitant to purchase shares.

It is crucial to have a team in place that is familiar with the IPO process and can handle all of the necessary paperwork. Get a good group of lawyers and accountants to help you.

Keep your cool under pressure.

The IPO is the culmination of years of hard work and preparation, and it’s a chance to show the world what your company is worth. It’s a big day for your company. But it’s also just another day at the office. Now is the time to keep your cool and stay focused on the opportunity to raise capital, increase visibility, and build momentum for the future.

You should communicate clearly with your shareholders and investors about your plans for the future. This communication is important because it sets the tone for the future of your company. It will also build trust and confidence in your leadership. The IPO is not the end of your journey; it’s just the beginning. If you can stay calm and confident on IPO day, you’ll send a strong message to everyone involved that you’re ready to build a successful company.

Don’t rush!

Remember to consider the amount of time and effort it takes to prepare for an IPO. It can take months, even years, to ensure that the process goes smoothly and that the company is able to maximize the benefits. For example, taking the IPO process slowly can give your company a chance to build up financial reserves. This way, if the IPO doesn’t go as planned, you’ll have the resources on hand to weather any storms. You can also take this time to build excitement around the listing or ensure regulatory compliance.

There are a number of important considerations that need to be made before going public, and haste can lead to poor decision-making. IPO valuations are often based on projected earnings, so if a company rushes into an IPO without thoroughly assessing its financial situation, it may end up overvalued. In addition, IPO costs can be significant, so it is important to have a clear understanding of the potential benefits and risks before moving forward.

Take the time to plan out your IPO and make sure everything is ready before you go public. This preparation includes putting together a strong management team, developing robust financial systems, and establishing solid communications with investors. Rushing through the process can lead to problems down the road. Instead, take the time to prepare both financially and legally, so that the listing can be a success.

Going public is a huge decision for any company. Before you take the plunge, make sure you avoid these key mistakes. Overhyping your business, overselling your valuation, and not being prepared for scrutiny are all recipes for disaster. Attend to the details, stay organized and level-headed throughout the process, and don’t rush into anything – an IPO is a major life event for your company, so make sure it’s done right.

About the Author

Johnnie Walker

Co-Founder of Rooled, Johnnie is also an Adjunct Associate Professor in impact investing at Columbia Business School. Educated in business and engineering, he's held senior roles in the defense electronics, venture capital, and nonprofit sectors.