What are the most common IPO mistakes to avoid?

Timing the IPO is important and should be distinguished from timing the market. An IPO is one of the most important milestones for a company. It represents an achievement to management and staff of reaching a certain size and growth potential to attract external investors to invest in the company. It is also a critical crystallization for existing shareholders as they can now exit and crystallize some of their shares into cash. These would include founders, venture capital funds, private equity funds and also employees. Bear in mind also that investors in IPOs prefer for their money to be taken as a capital injection of fresh equity rather than to pay existing shareholders for the secondary shares. Cwm5

Based on our research, we found that timing of the IPO and media sentiments are the two main factors which decide the fate of the company's IPO. Therefore a company should not float their IPO when market and media sentiments are not favorable. In the recent past we found many companies like Paytm and others which are able to sell their shares successfully at a higher price. Hence, what is going to be a fair value, no one can make a bet on that, but if market and media sentiments are favorable, the probability that a company can successfully sell their over valued IPO is quite high.

When considering an IPO, it's crucial to steer clear of some common pitfalls that can hinder success. One prevalent mistake is underestimating the importance of thorough due diligence. Ensuring that all financials are in order and compliant with regulatory requirements is paramount. Additionally, overlooking market research and failing to accurately assess investor sentiment can lead to missteps in pricing and timing. Another common error is inadequate preparation of internal systems and processes for the increased scrutiny and reporting demands post-IPO. Lastly, neglecting to cultivate strong investor relations and communication strategies can hinder post-IPO performance.

I believe that avoiding common IPO pitfalls is crucial for a successful launch. One significant mistake to avoid is choosing the wrong timing for your IPO. It's essential to assess market conditions, demand within your sector, competitive dynamics, and your financial health. Launching too early can lead to scepticism about your growth and profitability, while going public too late might mean missing the market's peak interest. Conducting in-depth market research, seeking expert advice, and aligning the IPO timing with your strategic objectives are vital steps to mitigate this risk.

There are umpteen numbers of research that show the importance of timing in the success or otherwise of an IPO. Notwithstanding the IPO process, which is cumbersome, lengthy and procedural, a company needs to build a story around the IPO on all possible channels such as TV, print media, social media, and IPO circles. The story must be engaging and related to the intended audience. The lead manager should have a constant eye on the mood of the market. So it's not only the strong fundamentals that determine the fate, but also some engaging stories are needed to the success of an IPO.

Perhaps the most significant reason for an IPO's success is the right pricing. If the IPO is rightly priced, there are brighter chances of getting it over subscribed by the public. Researches have shown that the oversubscription and the higher listing gain go hand in hand. Pricing and IPO is very tricky. It requires a substantial amount of background work and iterations on the part of the lead manager and the book builder. The key is to keep the enthusiasm and over-optimism in check.

I think that accurately pricing your shares is pivotal for a successful IPO. Striking the right balance is critical; setting the price too high can deter potential investors, while too low a price might undervalue your company, suggesting a lack of confidence. To sidestep these pitfalls, collaborating with esteemed underwriters is crucial. They can guide you to an optimal price, factoring in market demand, comparisons with similar entities, and your financial outlook.

Selecting the right underwriters is crucial for the success of an IPO. The consequence of choosing poorly can range from unfavourable pricing and diminished demand to excessive fees and potential legal complications. It's essential to assess the history, reputation, knowledge, and connections of potential underwriters carefully. Ensuring you secure the best terms for your deal involves thorough evaluation and negotiation, setting a solid foundation for your public offering.

Choose underwriters with a proven IPO success record in your sector. For instance, if you're in tech, partnering with firms known for blockbuster tech IPOs—like Goldman Sachs for Facebook or Morgan Stanley for Google—can be a game-changer. Their expertise and networks ensure optimal pricing and demand, avoiding the pitfalls of overvaluation or underperformance. Short, sharp due diligence here pays long-term dividends.

Maintaining focus on your core business is essential during the IPO process. The excitement of going public can easily distract from day-to-day operations, potentially harming performance, customer satisfaction, and innovation. To prevent this, delegating IPO-related tasks to a specialised team, engaging external advisors, and ensuring transparent communication with your staff, customers, and partners are strategic moves that can safeguard your company's integrity and valuation.

Prioritize your core business amidst IPO prep by forming a dedicated IPO team and engaging expert advisors. This strategic delegation allows you to maintain operational excellence and innovation, safeguarding customer satisfaction and company culture. Remember, a strong business foundation not only supports a successful IPO but also enhances long-term valuation and market credibility.

I believe it's imperative to balance enthusiasm with honesty in your IPO narrative. Overhyping your company's prospects can lead to unmet expectations, attracting negative attention from media, regulators, and investors, potentially resulting in legal troubles and a damaged reputation. Ensuring transparency and reliability in all communications, backed by factual data, is critical to maintaining credibility and fostering trust with all stakeholders.

Avoid overhyping by balancing enthusiasm with realism in your IPO narrative. Ensure your messaging is transparent, consistent, and backed by solid data. This approach builds trust with investors, regulators, and the media, mitigating risks of backlash or legal issues post-IPO. A credible story enhances reputation and supports stock price stability.

Post-IPO, pivot swiftly to address heightened scrutiny, competition, and regulation. Plan for quarterly disclosures, exchange compliance, and managing stakeholder expectations. Anticipating these changes helps maintain performance, trust, and value in your public company phase. Adapt strategy, structure, and culture accordingly.

The most common IPO mistake in venture capital is technically making investments into early stage ventures that do not make it to IPO. Try to get a sense of your own conviction around IPO potential. Avoid red flags like if the founder doesn't want to go IPO in the first place. How do the founders define success and failure from their own track records? Did they learn from their mistakes? Is the founder willing to take advice? Do they seem like people who create their own talent gravity? Do they have a clear focus on product-market fit? Are they honest about what works and what doesn't? If a lot of these things aren't there IPO might be a problem.