Are you ready to be a public company?

Key takeaway

• For entrepreneurs: Ensure your company can sustain 20%+ growth in year 6 and tell a compelling growth story to attract public investors.
• For investors: Look for companies that can demonstrate operating leverage and accurately forecast their business within a 10% margin.

Summary

The article "Are You Ready to Be a Public Company?" by David George outlines the critical factors that growth-stage companies must consider before going public. It emphasizes the importance of sustaining high growth, demonstrating operating leverage, and accurately forecasting business performance to maintain investor confidence and achieve a favorable stock price.

Insights

• Sustained Growth: Companies should aim for 20%+ growth in year 6 of their financial model to excite public investors.
• Compelling Story: A credible and likely growth story is essential, showing how the company will continue to grow through new products or market expansion.
• Operating Leverage: Companies need to grow expenses at 85% or lower of the rate at which they grow revenue to improve margins.
• Stock Burn: Best-in-class public tech companies maintain a 2-3% annual stock burn rate.
• Accurate Forecasting: Companies should be able to forecast their business within a 10% margin and beat guidance by 4-6% each quarter.
• Mock Guidance: Practicing public guidance and earnings calls 12-18 months before going public can help companies prepare for the real thing.

Implications

• For Entrepreneurs: Preparing to go public requires a focus on long-term growth, cost management, and accurate forecasting. Entrepreneurs must be ready to tell a compelling growth story and demonstrate their ability to scale efficiently.
• For Investors: Investors should look for companies that not only show high growth potential but also have a proven track record of managing costs and accurately forecasting their performance. Companies that can demonstrate these qualities are more likely to succeed as public entities.