How An IPO Really Works


From IPO fever is definitely back in the tech world. Some of the recent deals include DocuSign, Smartsheet, Pivotal Software, Zuora, Dropbox and Zscaler.

Yet the IPO process is often mysterious and misunderstood. So to get a sense of how things really work, I had a chance to talk to Howard Lerman, who is the founder and CEO of Yext. His company is the leader in Digital Knowledge Management (this involves applying algorithms to public facts so as to boost revenues and find business opportunities) and the customer base includes large enterprises like Arby’s, AutoNation, Marriott and T-Mobile.

Back in April 2017, Howard took Yext public on the New York Stock Exchange, raising $116 million. The lead investment bankers included Morgan Stanley and J.P. Morgan.

Okay, then what was the experience like for Howard? Well, let’s take a look:

#1- Pre-IPO Preparation

Despite recent loosening of the rules, an IPO still involves many regulations. Because of this, Yext started building the compliance infrastructure two years before it pulled off its own offering. This meant hiring a strong team with public company experience. There was also a need to hire a top audit firm.

Basically, before Yext sold shares, the company was already operating as if it were public. “It’s amazing the kinds of systems you need to put in place so you do not have any material weaknesses,” said Howard.

This also meant that millions had to be spent. This is why a company needs to reach a certain scale – such as over $100 million in annual revenues – to be a viable IPO candidate.

See full, original article here.