Perspectives

A how-to guide to virtual IPOs

Hardly a day goes by without news of another Canadian company planning to go public through an initial public offering (IPO). The sheer torrent of listings in life sciences to tech and renewables is even more remarkable considering it wasn’t that long ago that the IPO was thought to be disappearing as money and businesses flocked to the private markets.

The pandemic has triggered a tectonic shift in investor appetite that has opened up a field of opportunity for private equity to monetize its investments and for private companies in key, COVID-19-resilient sectors that would have normally had to go through rounds of seed financing, to run to the open market.

But while the heady valuations of newly listed companies like Dye and Durham and Lightspeed point to significant upside potential, going public is not as easy as it looks. The IPO process can be extremely challenging, especially in a pandemic, and newcomers should approach the public markets with a healthy dose of appreciation for the “unknown unknowns” that may materialize on what can be a long and winding journey.

Having supported a number of companies through the listing process before as well as during the pandemic, we at National Capital Markets wanted to share some of the key considerations, both big and small, strategic and logistical, that can enhance success and unexpectedly trip you up.

The numbers matter, but so does the story

Investor appetite is high, but so is the competition. After a 20-year IPO drought, particularly in the tech sector, the marketplace is crowded with new entrants, and institutional investors are being inundated with new pitches. With so much choice, an IPO candidate needs to have a tight, compelling story that will capture the interest of an investor who has already heard five pitches that day.

To get it right, it’s important to remember that your story starts with the prospectus, that endless doorstop of a document that only your lawyers will ever truly read end-to-end. It contains the all-important investor highlights and growth catalysts that synthesize the value proposition and frame—and constrain—your story.

Constrain because all promotional documents that are developed for the IPO must conform to the language in the prospectus. There is no ad-libbing or revising once the prospectus is filed with regulators, who will rigorously scrutinize it for any off-side assertions. Making sure the language, financial metrics, charts and visuals that are used fully capture the offering, is critical.

The investor highlights anchor the story but there are differing approaches as to how and when to deploy them in the roadshow deck, which is the pitch presentation for investors. Whether they kick off the deck or one builds up to them, they need to be punchy, relevant and complementary (vs repetitive). Run-on sentences with multiple concepts followed by several explanatory sub-bullets are a sure-fire way to confuse the story and potential investors.

Roadshowing in a remote world

Like many other things, roadshows had to be done in person, until they did not. Billions have been raised over Teams, Webex and Zoom. But it’s still a new phenomenon and there are good and not so good ways to pitch over videoconference.

Let’s start with the message track that accompanies the slides. Attempting to ad-lib through a 30- to 45-minute presentation is not advisable and potentially risky, especially if the roadshow pitch is recorded and you inadvertently go outside the lines of the prospectus language.

You also want to avoid squinting into the screen to read a script, which can be distracting for the audience. Keeping prepared notes by your desk is a good hack that allows you to stay on message as you present without the stress of dealing with too many things on the screen.

Your appearance is magnified on screen, so traditional best practices are even more important when presenting remotely; keep the energy consistently up throughout the presentation, and avoid looking away, checking your phone or appearing disinterested when your colleagues are presenting. And practice. Speaking to a screen is a lot harder than to an audience.

Production value also matters. The backdrop can range from a cheap and cheerful corporate title slide to custom roll-up banners, or a socially distanced boardroom with plexiglass barriers between presenters. The slickest option is the full-blown studio treatment, with presenters socially distanced in a meeting room with a camera crew and the presentation broadcast over Zoom. It’s more expensive, but definitely a deal compared to a typical pre-COVID-19 IPO roadshow, which could run as high as $100,000, for airfare, hotels and group lunches.

The IPO is just the beginning

With all the work that goes into the IPO, it’s easy to forget that it’s really just the beginning of the process. The newly public company may have hit its valuation target on listing, but it needs to continue to support and build on that valuation while meeting its disclosure obligations.

Not unlike a marriage, a lot of work went into planning the wedding, but now comes the rest of your life together. It’s therefore important to think about your investor relations needs before the IPO so that there is a seamless handoff once the company is listed. For many companies, particularly for micro and small caps, outsourcing the function is the easiest solution until the issuer is of a size to bring it in-house.

All told, it is an exciting time for Canadian capital markets, as more diversity from non-traditional sectors is brought to the exchanges and great homegrown innovation is being recognized. But like any debut, you only have one time to make a good first impression, so it’s important to get it right.

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