Experts: What Houston Startup Founders Need to Know to Succeed in an IPO

Home to a host of world-changing innovations and a highly skilled labor pool, Houston has attracted startups and digital technology companies for years. Today, the city is at the forefront of promising times with seven Houston startups kicking off the year strong with more than $380 million in venture financingand the city is ranked among the best emerging startup ecosystems in North America

Houston-based startups planning their exit strategies have good reason to be optimistic about a booming initial public offering, or IPO, market in 2024. After two years of slowing startup investment, some market watchers predict that the IPO window could reopen as the economy improves and inflation and interest rates cool.

But good timing requires good preparation. The window of opportunity for preparation now appears to be microphonewindow. As any company that went public during the height of the dot-com or post-COVID boom can attest, preparation is key to moving quickly when the time is right. Hitting this micro-window will require Houston IPO-bound companies to be strategic in planning their IPO readiness. A lack of planning can result in an IPO experience that is not well-planned or a completely missed opportunity.

It’s unclear when the next IPO window will open, or how long the window will remain open, but it could happen sooner than expected. This unpredictability suggests that Houston startups looking to go public should begin their legal, financial and regulatory planning now. The important period for many companies planning an IPO begins six to 18 months before listing and lasts until six months after the IPO.

Preparing for an IPO

We learned several lessons from our discussions with CEOs and CFOs who have recently led successful IPOs, to provide insights for companies considering IPOs when the next micro window opens . A comprehensive business preparation plan can be essential to performing well in the market, whether it’s up or down. Below is a summary of the key areas that many senior executives struggled with as a publicly traded company and, looking back, areas they wish they had addressed earlier in the process.

1. Internal forecasts. Internal forecasting is paramount. In fact, it’s one of the key takeaways from our conversations with executives who have been through the IPO process. Houston companies going public must be prepared to provide accurate forecasts and deliver on their projections in a timely manner. Missing projections can result in significant regulatory repercussions.

2. Key Performance Indicators and Non-GAAPmeasures. Take reasonable steps to conduct a comprehensive benchmarking study to determine relevant KPIs and non-GAAP measures and metrics to report on; be prepared with frameworks in place to report in quarterly and annual reports.

3. Growth story. The ability to communicate the company’s growth story can be essential to an effective IPO. Company leaders must be able to clearly convey topics such as the company’s growth, vision and strategy, its plans to improve performance indicators, market opportunities, its competitive advantage and how whose products or services will meet market demand. Meetings with analysts and other market influencers are also necessary to gain investor support. Executives we spoke with said that when they don’t invest time in this awareness step, they often find themselves in a rush to get the word out as the offer date approaches.

4. Financial infrastructure and human capital. Understand the infrastructure and operating model required to operate as a public company, as well as the human capital needed to support operations. Identifying the necessary skills and bandwidth within the team allows for a smoother IPO process. Collaboration with experienced and independent advisors is also essential. These advisors help organize the process, outlining SEC reporting requirements, updating SEC-compliant financial reports, preparing management’s discussion and analysis (MD&A) and pro forma financial information, and providing guidance. guidance throughout pre-IPO preparation.

5. Governance. Companies going public should anticipate new corporate governance requirements as a publicly traded entity, particularly with respect to their board of directors. Good board governance and oversight can be critical to supporting the quality of financial statements produced by management. Executives told us that recruiting the right board members is often a significant challenge prior to an IPO. Identifying these members early is critical, as adequate resources may not be available later.

Final Thoughts

If you are one of those companies planning to go public in the near future, now is the time to get your house in order. Companies are often surprised to discover how much preparation it actually takes to operate as a public company. In fact, we generally recommend beginning the preparation process 18 to 24 months before the expected public listing date. Simply put, if you wait until the IPO window opens before preparing, you will likely prepare for the next window.

Deloitte Free IPO Self evaluation This tool can help you assess your ability to make your information public through a personalized assessment. The tool provides you with useful information and identifies potential areas for improvement based on the feedback you provide.

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Will Braeutigam is the head of U.S. capital markets transactions at Deloitte & Touche LLP. Laura Evans is an audit and assurance associate at Deloitte & Touche LLP.