- 8 minutes ago
Too many businesses spend time preparing for the day they IPO, not the life that follows as a public company. Lenka Haase, VP, Partnership Manager at Fidelity Investments, shares the biggest mistakes she’s seen companies make as they plan for their next stage. In conversation with journalist Adam Rogers, she’ll also discuss how companies can prepare for acquisitions and other liquidity events. Session presented by Fidelity.
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00:03All right, I want to go from talking about a $2 trillion valuation to being a little
00:08bit more of a downer for a minute, because I can't resist. Despite what we've been talking
00:14about tonight, most companies do not have IPOs. 75% or more of startups don't get to
00:23merger and acquisition or IPO. And when they do, the ones that do are often – I read
00:27one venture capital researcher, they get there in some version of distress. So how does
00:36a company avoid the distress? How much of an IPO is the exit to look for, is the end that
00:44they want? What do they have to do before any of these things happen to not be distressed
00:51and have a better outcome?
00:53Okay, so I can promise you're not going to be distressed. And for that answer, I would
00:58have to have like three hours, and you only gave me two minutes.
01:00No, I would do like two and a half. Two and a half, okay. But in all fairness, I think
01:05I can say a few tidbits that we have learned over the years with working with companies
01:10that went public that have used tips or tricks or adopted company cultures that made a difference
01:18in the process. You know, sitting here with a bunch of leaders, it's very hard to give
01:23a strategic advice that actually matters. If you guys would be administrators or like the
01:27day-to-day providers, I would be rolling in with checklists and all sorts of things.
01:33But again, with very high level audience, I think the devil is in the details. I've spent
01:40probably one too many or I have attended one too many meetings where the leadership really focused on
01:46the IPO date as the end game, right?
01:48The actual, like when you get there, somebody rings the bell, and now you're on the...
01:53Yes. And the culture was that, well, you know what? If we go through an IPO successfully,
01:58then that means we can successfully run it and operate a public company, right? Well, it's not
02:05directly correlated because suddenly overnight leaders find themselves with a much broader audience of
02:13shareholders, investors. Now you're suddenly exposed to public reporting requirements, audits.
02:22And the question is, are you ready for it? Did you plan for it? Or did you just plan for
02:25the day
02:26of going IPO? And are those not the things that, like the venture investor like Matt would have said in
02:34advance or that the people who already were sort of giving you the money to be on that journey in
02:40the
02:40first place would be telling you about on the way? Well, that depends because Matt is probably
02:45not worried how you're going to pass your next Deloitte audit, right? Maybe, but I highly doubt
02:50that's where he's spending time. And usually those are the things that later kind of catch up with you
02:55and can make a big difference in the amount of distress you're experiencing or how long you're
02:59experiencing it for. And listen, I get it. IPO is really busy. Tensions are high. Sleep is low.
03:06So everybody's focused on the day and how to pass and get through the day. But the reality is,
03:13the best advice I've heard is prepare and plan for day one just as much as you plan and prepare
03:20for
03:21day 100. Because the real work starts after IPO. You will get through the day. One way or the other,
03:27you will get through the day. But then what? Are you ready for all the things that come?
03:31And a very, very simple and highly overlooked advice is, especially looking through the lens of
03:39stock and equity administration, is a project manager. It sounds silly. Oftentimes people say
03:44You're hiring somebody internally, or hiring somebody or promoting somebody, making somebody
03:49from inside the company. Who does that? If you can dedicate the role, maybe promoting somebody
03:55internally may not be a bad idea. Oftentimes with smaller companies, I see, oh, give it to Joe from
04:02payroll. But Joe from payroll is busy and he's already not sleeping. So don't give it to him because things
04:07are going to fall off. And hiring just a company that manages project but has no idea about how
04:14a company needs to operate can also be pretty detrimental. And that's not what a transfer agent does.
04:20Transfer agent is because I thought sort of transfer agent was like just the SEC tells you to fill out
04:25forms.
04:26But you've said as we were talking about this, that is not the case. Close.
04:29Yeah. So as a private company, you're tracking your company's ownership on a cap table.
04:34And then when you go public, you need a transfer agent. That's where your record of ownership is tracked.
04:39A lot of people are confused transfer agent with a broker. Broker is where the transaction seriously takes place.
04:45And then the transfer agent tracks the transfer of ownership that happens as a public company.
04:50So is that keeping track of investors who aren't in the company? Is that keeping track of who is the,
05:00like if the C-level people have their 50% of equity, is that the equity that employees have?
05:06All shareholders. So oftentimes companies will roll out RSUs as they're approaching an IPO.
05:14And that second trigger on that RSU is an IPO. And then all of a sudden on closing day, they
05:19have
05:19maybe hundreds of thousands of more shareholders than they expected.
05:25So that's something to keep in mind.
05:28And so what are the, are there tasks that a company should be looking for from one of those folks
05:35to be doing specifically? Do they vary from what the kind of company is, what they expect out of the
05:40IPO?
05:41What does that, what do they have to do?
05:43Well, yeah, this conversation actually has changed quite a bit in the past couple of years,
05:47just the transfer agent conversation in general and the choices that people have.
05:51I used to be on the, for the majority of the last decade, on the pre-IPO side of this
05:55conversation.
05:57And really how this conversation went was, here's a list of transfer agents. You have to choose one.
06:03Nobody loves any of them. Honestly, you have to choose one.
06:07And now today people have more options. You know, I think a lot of the times people are looking at
06:13legacy transfer agents. They see the word legacy or they're, they're associating it with the safe
06:19option and the safe choice. But today with digital first options that, that companies have to choose from,
06:26um, you know, they're, they're able to, to, to choose from those versus having to, to look at legacy
06:33providers that, um, these legacy transfer agents are, they have outdated systems. I can really nerd out
06:39here and I'm trying not to. Um, but, um, they have outdated systems with modern technology layered on top,
06:45um, which actually can expose companies to operational risk, fragmented shareholder experiences.
06:51Um, and so oftentimes people have been leaning on these safer choices when actually they're finding out
06:57after they go public that it really wasn't the safer choice and expose the company to risk.
07:01Okay. One of the things that we also talked about earlier was the, the, the difference sort of at
07:08IPO and after of what happens to employees with equity versus investors who are happy that the IPO
07:16happened. Um, so what are differences there? How, how, who, who does a company favor? How do they treat
07:23those employees? What has to happen for the people who are actually working there?
07:27There's not enough time for me to answer that question. You keep complaining about time limits.
07:32I am, you like limit me, but, um, I am going to take it a step further or higher a
07:38little bit and say
07:39that one of the things that can really make a difference is education, communication, and the
07:44overall employee experience. And that applies to both investors, employees, everybody almost equally.
07:50Because, um, if you treat as a company, um, giving equity as a line item or an expense or just
07:59not a
07:59process you have to administer, then you instantly, completely miss the whole point of giving equity.
08:04And again, this goes across the board for investors.
08:06Do you, you find that with companies that are doing that, that they're, because I feel like those are the
08:09people who, who work there, right? I mean, that's the, like, they, they don't get paid as much.
08:13The, tell me if this is true. The structure is they don't get paid as much because it's a startup,
08:16but they have equity because that's going to pay out at the end. So are you saying that one thing
08:21that companies do is then sort of give those folks short shrift after the, how naive am I to,
08:26you have to forgive me, journalists don't have equity in anything. So I, maybe I don't understand.
08:31Yes, and my jaw did drop and then I had to go back. But you know what, companies like that
08:35do exist.
08:35I actually work for a company and manage, um, a department where we didn't appreciate equity at all.
08:41And that directly was affecting the employee culture and how much they were
08:46participating because Fidelity recently did a study that 40, about 43% of people have a first
08:53experience with investing in stocks through their employee or employer plans.
08:59Oh, they don't like the, the first time is when they walk in there and that startup and they're
09:02like, here's your equity. And they're like, oh, I own stocks now. They never have before because
09:05most Americans don't own stock. We forget about that kind of stuff.
09:07Exactly. They don't own it yet. And when they don't own it, they don't understand it. And if you don't
09:11understand something, you are not really identifying with it and putting your best forward.
09:18So, ironically, people that do own stock and actually understand the benefits, um, statistically
09:23it shows that they're more likely to really feel like true owners of the company and understand the
09:29direct impact of, hey, if I work more, ideally the company's going to do better, which is important
09:34for the leaders, especially if you're thinking about long-term growth. And then employees then in return
09:38says, well, if the company grows and does better, then I'm going to be the next Apple millionaire,
09:43right? That's a janitor. Right. So... Sorry. Yeah.
09:46No, I was going to go back to your like, you know, talking about your shareholders and your VIP
09:49shareholders and, um, not trying to steal the spotlight back on transfer agent, but a little
09:54bit here, right? And that's definitely a question that people overlook is how is my transfer agent
09:58going to take care of my VIP shareholders? That's, that's, uh, definitely a question that,
10:03that leaders should be asking their teams to ask. And that, that's part of the, of the planning
10:07heading to, barreling toward IPO. You're trying to figure out how you're treating the, the VIPs,
10:12but also how you're treating the employee, the equity holders, the employees. Right. And
10:19how do you make those plans? Who sits down and makes those plans? When does that happen in the
10:24process? How do they know to do that? Like, because presumably also all these people are trying to
10:29actually make the thing that the company makes, right? Like this is all sort of planning for the
10:32planning. So like, what's the timeline? Who sets that, who sets those meetings up? Who's in them?
10:39I think somebody like Wayne may be better answering that because the decision starts always at the top
10:44of the house, right? Because they know first and they may be a little bit more in tune with the
10:48true
10:48timeline. Once you get a little bit more down the ladder and think about the administrators,
10:55you basically start planning as soon as you hear the rumble. Like you, it's just never soon enough.
11:01And essentially you want to start making decisions like the company you want to be in,
11:06not the company you are today. Because, um, secondly, during that process, you also want to think
11:12about what I don't want to do twice. So you asked me earlier if, um, you know, something happens in
11:18a
11:19company and this is similar to that. I actually worked for a company that was a great example that said,
11:24we're going to get through the IPO. And then, you know, they hired me three months later,
11:29we failed audit. And when we failed audit, so did the payroll, so did the finance, so did accounting.
11:34And the domino effect is pretty high. And retracting back, I can't tell you how many companies I had to
11:40pull out of implementation, re-implant completely different process, completely different system.
11:44And all of that is time and money. And when you are focused on growing fast, time and money is
11:52essentially a luxury that you need. And going backwards is not what's going to support the growth
11:59that you're looking for. So tonight we've heard from a company that just had its IPO and is growing
12:06great guns in San Francisco especially. And from, and heard about a company that everyone is sort of
12:12fingers crossed is going to have its IPO. Apparently everyone here is going to be a millionaire in a
12:16couple of weeks. Um, what do you hear in those stories that you think is going well, that you
12:23think went well? And what do you hear as, are there red flags or let's say yellow flags? I mean,
12:27do you,
12:28from what you've heard here, are these folks doing it the way you would be telling them to do it?
12:36Don't put me on stage and ask if this is the right job. Um, but obviously if a company is
12:41successful and you
12:42have, you know, the luxury of having the, um, their CEO speak or an investor, then they are doing
12:50something right. And part of being, uh, doing something right is obviously planning, thinking
12:55about long-term success and goals, right? Not just a short-term surviving, survival, and communicating
13:02very effectively. All right. Lenka, Jill, thank you very much. Appreciate it. Thanks.
13:07Thank you very much.
13:10You