Postcards

How the power players do it - by Fortune senior editor at large Patricia Sellers

How to do a successful IPO

November 3, 2011: 12:43 PM ET

Photo: John Hausner

I knew Lise Buyer when she was a hotshot technology analyst at Credit Suisse (CS) in the late 1990s, during the first Internet bubble. Since quitting Wall Street in 2000 to become a venture capitalist, Buyer has been low-profile--but she's active in the world of startups. She now runs Class V Group, guiding IPO-bound companies. I asked Buyer if she'd share her advice on Postcards. Today, the eve of Groupon's IPO, seems an ideal time to pass on the wisdom of Buyer, Founding Principal of Class V Group, on doing a successful IPO:

Twenty years on the front lines of the finance world--as a Wall Street analyst, an institutional investor, public company board member and Google (GOOG) executive when it went public--led me to understand this about initial public offerings: Management teams frequently make small mistakes that have large, expensive, long-term consequences. Wild swings in the market can't be controlled, but a savvy team can orchestrate a launch that should lead to smooth sailing. Today, at Class V Group, I advise companies that are IPO-bound. Some tips for a successful debut, in any market:

1. Don't go too soon. If next quarter's results aren't reasonably predictable, your company isn't ready. An "open window" is not beneficial if you step through and free-fall four stories. Just ask the folks at Sequans Communications (SQNS), RealD (RLD), NeoPhotonics (NPTN) or TeleNav (TNAV). Those companies, all publicly traded, have missed earnings expectations right out of the gate, and the stocks got clobbered. Hell hath no fury like an investor burned.

2. Get your accounting in top shape.  The Supremes sang, "You can't hurry love." But love is a breeze compared to accelerating an audit. Want to be public in 2012? Get your outside accountants going NOW. More IPO plans are delayed by incomplete audits than by any other cause.

3. Don't wear your Sunday best on Tuesday. Too many soon-to-be-public companies strain to publish unsustainably robust margins in their filings. The investors you want are not fools: They buy stocks because of expectations, not current results. If you're pulling out all the P&L stops for deal day, your margins and your stock price can only go one direction. See point 1.

4. Hire bankers, not logos. Assuming you are choosing from a list of well-regarded firms, pick bankers based on the individuals you'll be working with. Ignore the propaganda showcasing a bank's hot deals from yesteryear. I regularly see pitch books from Morgan Stanley (MS) and Credit Suisse highlighting the Google IPO--but most of the actual bankers now work at Goldman Sachs (GS), Citigroup (C), UBS (UBS), and elsewhere—or toil on the golf course.

5. Clean up your act before you take it on the road. Investors care about people as well as numbers. And it's more fun to research the former. If there is available off-topic information about you online, they'll find it. For example, high on a current short-interest list is a company with a CEO prone to posting photos of his hunting exploits. In one of these glamour shots, Big Cheese grins over a deer that, as it turns out, he shot while trespassing. Oops! These days, background checks take a click or two. Want to be public later? Deal with this now. Specifically:

•    Review your status updates.  Once you are as accomplished as Google's Eric Schmidt or Starbucks (SBUX) CEO Howard Schultz, feel free to use your celebrity to broadcast your political views. Until then, control your prosthelytizing. Why alienate half of your potential investors?

•    Clean up your photo links. And uncheck the Facebook photo-tagging option. Now.

•    Flatten your public profile. Your age and salary will be in the prospectus, but there are likely troves of freely available information that you may not want to share. Before outsiders know your net worth, run the free privacy scan at Reputation.com. If you don't want everyone to know that your kids, Flopsy and Mopsy, attend Local Elementary--or that you were your fraternity's most successful bookie--hire that firm to keep your secrets secret.

My best advice? Don't get distracted by near-term volatility. Keep the long-term top of mind. And bank on your own good judgment.

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