TiE Dinner- Preparing Companies for Exit and the current IPO Market

Past Tides
October 19, 2016 By Hai Truong

The Beach had a full room in attendance for TiE SouthCoast’s fireside chat with Joe Walker, Vice Chairman of Investment Banking for JPMorgan. TiE is a non-profit, global community welcoming entrepreneurs from all over the world. Their goal is to change the face of entrepreneurship and growing business through their five pillars of mentoring: mentoring, networking, education, incubating, and funding. Founded in 1992 by a group of successful entrepreneurs, they are currently the world’s largest entrepreneurial organization with over 15,000 members in 18 countries and 60 chapters worldwide. With programs such as TiE Young Entrepreneurs (TYE), which also meets at the Cove, and Mentor Match, TiE is reaching out and fostering the next generation of entrepreneurs.

When asked about the goals of the evening, Shiv Grewal, an organizer of the event and board member of TiE South Coast, shared, “The goal of the event is to educate the attendees on the current state of the public markets and the timing of an initial public offering. We hope they learn at what stage in its growth cycle a company is ready to access the public markets, what would the market look for to make the IPO successful, and what best practices should be adopted.”

Richard Sudek, Executive Director of Applied Innovation and Chief Innovation Officer, hosted the fireside chat and began the conversation by asking Walker about his career path. Walker joined JPMorgan in 1979 after completing business school at Columbia and established his career working both in New York and eventually moving to Asia to build JPMorgan’s advisory business. This line of work eventually enabled Walker to take the lead in large IPOs such as Hertz’s acquisition by Ford. Most recently, JPMorgan helped Glaukos, a local company with technology originating from UCI, go public last year. To date, between IPO and secondary offerings, Walker has helped facilitate at least over fifty in his career.

The conversation continued with things to consider when deliberating between IPO or acquisition. Walker shared that outcomes are very different whether you sell a company or take it public; the decision should be grounded in what will create the most value for the business. Going public provides access to capital and the ability to attract talent with liquidity. A con of this option is the short term pressure on performance, which is why some public companies go private. Taking a company public is just the beginning of growth for an owner, whereas an exit marks the end. Walker stated that going public requires a change of mindset. To be an entrepreneur requires a strong belief in what you’re doing with the willingness to be bullish. However, Walker prefaced that “investors will also want a leader who can under promise and over deliver while being coachable. The end goal of what kind of company you want to be will determine the approach.”

Walked indicated that a good IPO candidate begins with the premise that there is proper management in place, high growth, and a sizeable market opportunity to scale and grow large to attract long-term institutional investors who want liquidity. Secondly, predictability and visibility of performance that investors can evaluate with certainty through metrics and data are crucial. He advised companies that are cyclical, event-based, or commodity-dependent are not good candidates to go public. At the highest level, Walker stated, “you want to think of building the company as a public company while it is still private. Have the right management, performance track record, systems, controls, and business plan in place. Start meeting with investors and research analysts and get to know the investment community early. Get investors familiar with what you’re doing and do a non-deal roadshow a year or two out to hear what they have to say. Get a reaction and see if they are excited about your company to see what else needs to be done and adjust accordingly.”

When asked about when IPOs don’t go well, Walker shared that the biggest problem is when a company misses its earning guidance for the first or second quarter after going public. He stated that preparation to the greatest extent possible helps prevent such a situation. The damage done can take between two and three years to recover, assuming performance is strong moving forward. When a company faces this issue immediately after going public, it shakes investor confidence and takes time to win back their trust.

The fireside chat concluded with questions concerning pricing. Walker stated that “the market sets the price, not the company, and not the investment banks. Pricing is discovery-based. You go out to investors with some rational reason for what you think you’re worth and see how investors respond. The forecast needs to be scrutinized by the board, management, and investment banks involved. Banks will then go through their process to assess a company’s worth. A range is then set so you can talk to investors. There must be a balance between getting a reasonable price for the existing owners who aren’t selling and being diluted down, and investors buying stock to be compensated for the risk they are taking with investing in a new company going public.”