Mark Fasken: So, Catherine, I wanted to start off by talking about the IPO process from the issuer and IRO perspective. You're hired to lead a company through its transition from a private to a public company. Where do you start as an IR leader? You know, how do you set the stage, the narrative—obviously there's a lot of preparation both internally and externally.
How to set the stage for an IPO
Mark Fasken: You have to think about timing. So what are some of the things that you take into account as you think about starting that IPO process?
Catherine Buan: Yeah, it's high. And first of all, thank you so much for having me, Mark. I really appreciate having the opportunity to talk about anything IR, but in particular the IPO process, because it's such an interesting one and somewhat elusive.
And there's also been a lot of new ways of going public. So the role of the IRO has evolved a lot because of the introduction of IRO's coming in early into the IPO process. So where do we begin? I think just stepping backwards and then getting right into some practical matters. That, whether you're public or about to go public, the role of the IRO is a product management role, product marketing role, really product marketing and your product is the equity product.
So the biggest transition for a privately held company is to get through this concept that while they might sell cars or hardware or software, when you go public, the IRO is marketing your company as an equity product. And that's your competition, every other equity out there.
So what do you do? Where do you start?
Whether you're already public or you're going public, you have to understand your company, the market dynamics, what's growing, what's driving the growth in that space. And what's driving the growth for your company in particular. And who are your leaders? Because those are the characters in your narrative.
So from that, you also want to understand who the target investor is for your financial profile of your company, in this current investing environment. So really, when you think about it, it's a product marketing job and you're taking an equity product to investors and you need to know what the product market fit is first. That's the first stage.
And then, you mentioned the narrative. It's interesting when you think about the narrative, because I've just told you that we're a commodity equity product. So what does it matter? And I've had this debate with so many CFOs before whose argument is, look, it doesn't matter what we say, because at the end of the day, people are going to buy us for our long term earnings potential.
And I said exactly for our long term earnings potential. They don't buy us because of what we performed this quarter, but what it implies and what we say about the narrative for the future. You're selling as a product marketing manager for this stock. You're selling sustainable long-term earnings growth, and that's where the narrative comes in. What's the story behind this stock? And why is this going to be a sustainable long term earnings growth story?
In some cases, it's the first time for the company. So when you talk about what you do to prepare people internally, is really have this exact conversation that we might be selling software, and we might be selling in my case, ride share but from this perspective, the day we go public, we're introducing a new product into the market and that's an equity product for investors. And it's a financial product where the fundamental growth drivers need to be understood. So that investors can model the free cash flow analysis and discount it back to determine what today's stock price should be.
Mark Fasken: That's a great way to think about it. I imagine, I know that you operate in a lot of software companies, technology companies.
So I'm sure that product marketing manager analogy works very well. And so that process that you're describing, I mean, talking to the CFO, talking to various people in the company leads me to my next question, because from everything that I know about IPOs and having spoken to other people that have gone through the process, I mean, it's a team sport, running a company is a team sport in general.
Assembling the internal team
Mark Fasken: So who and what departments do you approach to assemble that internal team? Who are the most important people in your mind to have on that team?
Catherine Buan: Oh yeah, absolutely. Well, I'll stick with the same analogy on the product marketing manager side because if you're developing an equity product marketing strategy, there's, I'll simplify it, there's two things.
There's the content, what's our narrative and what are the metrics that support it and what does guidance imply? And then there's the go to market strategy. Who are the investors we targeting, who are the influencers slash analysts and media. And so, in that paradigm where you've got content production and go to market production, lies in your best friends.
So your best friends for sure are the head of FP& A and the FP& A organization. So that's the metrics and the forecast. And then the narrative, you're tightly aligned. I think at my wedding, the head of corporate marketing at my first IPO was one of my bridesmaids, that's how close we are. We could finish each other's sentences. So corporate marketing helps with the narrative. Legal keeps you out of lawsuits. That's the imperative partnership.
But even down to, across the organization, you know, at Asana, we do work management software. So I have a very keen look at who my working group is. We are partnered with the events production group. We are partnered with the data science group, even with R& D on what our R& D process is. And even the workplace, because every time we have investors coming in, it's a mini event. So we honestly partner across eight departments and 65, 70 people on an ongoing basis.
Which external partners should you engage?
Mark Fasken: And from an external partner perspective, you've gone through a number of IPOs now. Are there specific partners, not naming any firms, but particular subject matter experts that you would say you have to have, that should always be from an external group?
Catherine Buan: Oh, interesting. All right. So loosely you're talking about vendors, but I guess also
Mark Fasken: surveillance or proxy advisor and things like that.
Catherine Buan: Well, you know, on the subject of best friends, my current company, Asana, we are listed on the New York Stock Exchange, and our market makers are Citadel. So Pete Giachi is our, is my best friend. We always are on fast dial with each other to gauge what's happening with the stock or even in the macro environment, and how that's impacting the overall SaaS or tech space.
That's one really great partnership. Honestly, this is on the vendor side. And I've tried every vendor in this space. They change constantly. So there's not one that's been the best for 20 years, but every IRO needs a CRM, a customer relationship management platform. Who are these investors, and they vary.
And what's the best today is going to change three to five years from now. So if you ever want to offline, ask me about what vendors I have used in the past and what you want to think about in the future. I could tell you I'm actually reviewing a new one right now.
Mark Fasken: Awesome. That's good to hear.
And so I want to follow along your example of the product marketing manager, because now we're talking about product launch, right? The actual time that you're going to go public. So from that point that you announced that you have the intent to list, the intent to go public, what does that timeline look like?
What should the IPO timeline look like for IR?
Mark Fasken: Or maybe perhaps what should it look like? And what are some of the things that need to happen internally, maybe specifically as it relates to, you know, material and things that you need to have prepared to go out and start speaking to investors in the investment community.
Catherine Buan: So there's two big events.
There's several big events, but there's two in particular that come to mind when you ask that question. A critical one for an IRO is the org meeting. So once you've had the org meeting with the bankers, there's a bunch of SEC doors that just shut. You cannot do any more media. You cannot do any marketing.
You have to be careful who you're talking to because now you're within the SEC realm of compliance. There's a second one where there's double doors start to shut and that's once the S1 is filed, and that's, you know, that's the safe. Those are the two critical, in between.
Then though, I think this is where the question of, how early does a company need an IRO? And I think there's some misperceptions that, well, you need the IRO when you need to get your earnings call done. And that's not untrue for sure. But I think because you've got those big sealed doors that shut at some point—and once you cut off your ability to talk to analysts, talk to investors and talk to media in particular, your largest ability to market just shuts down. So I'm of the strong opinion that you've got to get a new IRO on board 18 months beforehand and give them a full year to establish your persona within the financial media. All the time.
Every company that's getting ready to go public has some media presence, but usually within their own industry vertical, which is not the same as getting in the Wall Street Journal as a hot IPO that's upcoming. To Bloomberg and to all the financial media and even on Twitter and things like that.
You've got to get a presence as an investment vehicle. That's very different than a presence as a product in your vertical. So I would say 18 months in advance, you've got a bunch of media and communications that have to happen for the org meeting. You have the org meeting, you start negotiating with all the bankers who you're going to work with, how you're going to work with them, and at what level. You've got a testing the waters roadshow, which is not the official roadshow, but it's basically a mini roadshow. It's basically a roadshow. You need to practice the earnings call at least once, but better twice, which gives you another six month window, internally practicing your earnings calls and using your board of directors and some of your private investors as your pretend audience.
And you've got to go through every single part of that discipline as if you are truly a public company, because it's painful, and it's detail oriented, and you'll want to not screw it up.
The other thing would be during the quiet period, you do have incoming media issues because you can't respond.
But you got to do something. And that's where you really got to partner with your legal folks to make sure that you're making judicious decisions on how to handle things. And then the other thing is the analyst model and guidance is something that IRO, I feel like for some people that takes them by surprise, and they wait till the last minute because there's nobody externally that's driving that.
And so, a professional IRO needs to know in advance, and has got to drive that process internally, because it requires 30 inputs from different people to figure out not just what the income statement, and balance sheet, and cash flow analysis historically is, which I think sometimes the existing team might be like, you got that already. You got the three statements.
But you need for the S1, for example, some people, you're only required to put four quarters in there, but it's the IRO who's got to advocate for eight quarters, because the analysts need year over year comparison. You're not required to put that, but from an investor relations standpoint, your investors are going to be pissed off at you, if they can't do year over year trending.
And then they just, you know, they may not say that they're pissed. They just might quietly move on to another option. So these are things you just have to know before you're actually in that seat. And then, of course. The thing that everybody knows about is the roadshow. And so you really own that marketing deck for sure.
But that's just the punctuation at the end of the sentence.
Mark Fasken: Absolutely. Well, and that actually leads me to my next question talking about the, you know, the investor presentation, you talked about the practice roadshow, I think was the term you used. But so now we're onto, okay, we're actually starting to do the roadshow for the IPO out there talking to the investment community.
How to ensure your management team is set up for success
Mark Fasken: And my question there is, how do you ensure success? Because I remember in speaking to you previously, and I've heard this before, is that, it sounds like a lot of management teams will say, we've raised money before, we've spoken to venture capital and private equity and whatnot.
We know how to raise money. We've been there and done that. And then they go out into the public equity investors, and it's like, they get hit by a truck. And so how do you walk them through that process. What is so different that they need to be prepared for?
Catherine Buan: It is such a good point that you bring up because in raising, you know series C, D, E, where your investors are more expansive, you might end up with 20 investors in your last private round and that means you've talked to a hundred, or a hundred twenty investors.
So it makes sense that the CEO feels like they've done this. Like just do the slides, IR person, because we've talked to investors before, but I think what's really interesting in it and everyone gets it once you've actually pointed it out, the private investors have a longer landscape, they're generally in a stock for, they expect to return after seven years, five, seven years. And, while they do pretty deep analysis and a lot of due diligence. At the highest level, they're looking for a large and growing market, and a team they trust.
On the public side, once you walk through that public door, they're still looking at a large growing market and a team that they trust, but now you've got a stock that's liquid every single day.
And so now the horizon's got to be what's going to happen in the next 12 to 18 months, that's going to impact the stock today, tomorrow and the third day and the fifth day and the 30th day of trading. So, it's a much more short-term-oriented universe. And your stock is getting traded every day. I had one CEO that we did an IPO for, it's a really hot stock. And he said to me, he said to me on the second day of the roadshow, he's like, you know, after this roadshow is done, how much marketing do you really have to do? And I just, I looked at him cause I just knew he wasn't going to love this. He was, you know, very introverted, intelligent, highly intellectual guy who needs his time to think.
And, if I said. Every single day, we are marketing the stock every single day, in some way, shape or form. It doesn't mean we're on a road show every day, but either your IR person's on the phone or working with the media, or there's some information channels that are constantly churning. And by the way, if we don't market our stock, somebody else is going to be telling our story for us.
And that's the incentive. And then he's like, Oh, his eyes were wide open. He's like, I got it. What did I sign up for?
Mark Fasken: So I think setting that stage for them. You mentioned even before the meetings having practice sessions helping that management team understand what questions will be asked.
How are these meetings going to be different from, you know, venture capitalists or things like that? So it sounds like you're doing a lot of prep and almost role playing before even going out and meeting with investors. Is that correct?
Catherine Buan: That's great, and it's a great tactic. The role play is the best.
And I find that the best way to role play is to not ask them to role play. I just jump right into role play and I go, okay, if someone asks you this, what are you going to say? And then instead of talking about it theoretically to them, what are going to be the key drivers of your growth in the next six months?
And that's not something your venture capitalists are going to ask you. They might ask you casually, but you know, again, they've got a seven year time horizon. So they're more concerned about competition over the next five years. And I just think that, by the way, you can have public investors that have long term horizons as well, but they still have to manage the risk of owning you, with the short term volatility of the stock.
So even if they're intending to own you for three years, or two years, or four years. They're still concerned about any short term volatility factors. And so as an IRO, you need to be disclosing the possible range of outcomes in the next three months to three years. And what factors—actually, I don't even think that we go out to three years, I'd say more like 18 months—the possible range of outcomes on every line item on the income statement and the balance sheet and the cash flow statement, and what could be the drivers of the downside or the upside of those possible range of outcomes.
Mark Fasken: Got it. Yeah. One thing, one tip that I heard at NIRI actually I thought was a good idea.
There was an IRO on a panel that I was moderating. They were mentioning that for their earnings calls, they actually bring in a partner with a retired buy side investor, retired portfolio manager, and they bring him in and he picks apart the earnings call. He picks apart the script and he asks questions as if, you know, he were somebody on the call.
And I thought that's also probably an interesting tactic from the perspective of an IPO, right? These are the questions that you're going to get. So how do you find those friendlies? I don't know, but I'm sure people can figure it out.
Catherine Buan: Yeah, no, I think it's actually a great idea. It's always a question of getting your legal guys to approve that person, I'm sure they sign, you know, disclaimers and all that stuff. But also they're honestly, aside from signing a contract that they're not going to share any non public information, they're governed by the SEC. So they answer to a greater God than even a contract that the company could give them. They can't trade on that information.
What to look out for during the IPO process
Mark Fasken: Right. Awesome. Okay. So now you've got, like I said earlier, you've done a few of these IPOs. In retrospect, are there things that you would wish, I'm sure there's lots of them, but some things that you wish you'd known going into those IPOs, maybe one or two things where you look back on it and you're like, if you are going through or about to go through this, look out for X.
Catherine Buan: There's a lot of them, but I'd say the biggest ones are everything you think you need ,to do, you need to do it earlier, period. Because the dynamics in the market change on a dime. Who your analysts are that are covering you can shift. Your head of FP&A could come to your desk and say, Oh, something just changed.
So you need to be five steps ahead of whatever your plan is, so you have the ability to be nimble. It's a really competitive environment being a public equity. I just read somewhere. It's like 5,996 or something public companies in the US alone, just in the US. And if you take out the small caps, so let's say you're going to go public and you're probably a mid cap.
If you take out the small caps, I think it's still 4,200. 4,200. That's your competition. So you may have three major competitors in your core industry, but you have 4,000 competitors for your stock. So you have to be ready to market every day and to change on a dime.
Oh, the other thing I would add to that is, because you brought this up, the internal work you do with internal constituents, never underestimate, especially because we're talking about a new IPO. Sometimes new IPOs are billion dollar companies with 1000, 2000 people already. That does happen. Oftentimes you've got 500 employees, and you maybe have only been around for seven years. I've been at some of these hot startups where the vast majority of the people have been our team. Have never worked for a public company, and have never worked for a company larger than a few hundred people.
So the internal cultural change and education takes more than just a month. And that actually takes a lot of the IROs time. It will pay off, if you identify who your key partners are internally, establish a working group, start educating them, create a deck. And educate them on this, what you just did or your management team, when they brought you on board, and you told them about what the difference is between being a private company and a public company. Take that deck around like a briefcase, and internally market and educate everyone, and it helps you establish partnerships across your critical FP&A, marketing, R&D, the R&D folks love it.
And even in workplace, literally every single, the legal guys are usually more tuned in because they're usually public company legal folks that you're working with. Thank goodness. It takes a lot of time.
And also, as you're advocating at the senior level, it may influence some of the leadership to hire more public company experience. Which I know that might seem a surprise to you, but it's a huge surprise to me. And I wish I advocated more for that—how important it is to have public company experience at, in every, even when you're talking about the product group, because they understand the urgency of product launches, the urgency of information dissemination, the urgency of, you know, what your products are compliant with. Everyone across the company, the more we have public company experience, the better.
Mark Fasken: And so I have one more question, but I maybe have a bonus question. So I'll ask my next one. You know, obviously you go through this IPO process. It's a marathon. It's a lot of work in the way that you've described it. But that's just the beginning. Right? So now you've gone public. And the work really doesn't end. You go public, hopefully the price goes up, and stabilizes.
What you need to know to ensure success post-IPO
Mark Fasken: And that's really when the real work begins. And so when you think about priorities post IPO, maybe in that first year or so, what are some of the things that you would be really focused on to ensure continued success?
Catherine Buan: So I think there's internal and there's external. On the internal side, and I think if you're an IRO that got hired from the street, from the sell side or the buy side, this is one that goes underestimated.
As soon as you come in, you need to create your working group. Because you are not an island. You are literally a cross functional manager, to keep extending our analogy. But you're managing this equity product, but you're making stone soup. You're like, here's the vision, and here's what I need from you, here's what I need from you, here's my, are you on the team? Here's how we're going do it, here's the process.
So you need to develop your internal working group, and systems, and get your vendors in place, your CRM in place. And then keep a rhythm of communication. You're constantly marketing internally about what it means to be a public company and what's going to make a difference in your equity product. And the more you do that, even though it seems kind of mundane, the better your outcome is going to be as a public company as well.
On the external side, people tend to think about the earnings call as the strategy, and it's not the strategy. The earnings call is having a quarterly product launch, and every time you do the earnings call, you're updating all your financial metrics and your outlook, and those are going to be the key drivers of the stock.
However, your mark, then you take it on the market every day, and then, you've got to be marketing every day, but, that's just the beginning of the process. The earnings call to me is the beginning of the cadence of the IROs routine. I would say, look at the earnings call as the opportunity to establish the content and starting with the day of the earnings call the next six weeks, because we all have quiet period after that, is your marketing window.
And suddenly you realize how small that marketing window is. How are you going to use that time? And then what's your target investor base look like? Everybody says they just want to have long term targets. The board always says that, but, it may or may not be true. I won't just debate that here.
My opinion is that you need, I don't know, 40, 50% of your base to be long term, somewhat, some in between, you need probably 15 to 20% of your base to be short term because it's the portion of your investor base that's willing to take on some risk and will bring some loftiness to your stock, particularly if you're highly valued. So I wouldn't say that you only want long term shareholders. You want a good mix. It could depend on what type of equity you are, what your financial profile is, but figure that out and then market to the investor that is appropriate for your financial profile.
Everybody wants Fidelity and Capital Research, and TRL, but it's not true. You want the fund that fits your financial profile to own you at the Fidelities, at the Cap Researches, at the T Rowe Prices, and they don't all fit.
Mark Fasken: Great. Okay, well my last bonus question is:, it seems like a really cool job taking a company public.
Advice for IROs interested in taking companies public
Mark Fasken: And it only happens so often, not as often lately, but hopefully very often in the next little while. How did you come into a role, in terms of taking companies public and going through the IPO process? And do you have any recommendations for IROs who are interested in going in that direction?
What should they be doing to try and open up the opportunity for themselves?
Catherine Buan: That's such a good question. So I'll tell you my story and then how that might apply to somebody else. So the first IPO I did was the Ariba IPO in 1998. It was a super hot IPO.
We went up, I mean, 60 times in the first year. It was just a crazy time. It was the beginning of the bubble. So timing is everything. What positioned me well for that one was I was in a hot industry, enterprise software, and I was at one of the biggest large caps. So whether or not you think I was the best person for the job, or at least competent, I was probably one of the best known IROs.
So that helped coincidentally, not by design, prepare. Set me up for success because there was just visibility because I think when CFOs are looking for an IRO for an IPO, there's a lot of acronyms there, they're going to ask other CFOs, they're going to ask investors, they're going to ask analysts.
So some of it's just awareness of who you are and that you're a competent person. I think, that's the opening gate for that. And then, to the extent that you've got some experience with establishing new sell side relationships, understanding who on the buy side is a good target for your industry. Those relationships are really key too.
So I think positioning yourself in a visible platform, and then as you always do anyway, as an IRO, really nurture the relationships with the buy side and the sell side, because they're your references for IPOs.
Mark Fasken: Awesome. Catherine, this has been super helpful.
Thank you so much for your time.
Catherine Buan: Thank you so much, Mark. I really appreciate being here.
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