The initial public offering (IPO) market is revving into gear, with consumer technology stars including Uber, Airbnb, and other Silicon Valley heavyweights planning to go public this year.
However, these offerings all come in the controversial wake of ride-hailing app Lyft, which raised more than $2.3bn (£1.76bn) in a seriously – 20 times – oversubscribed IPO in March.
The company’s market capitalisation has seen a dramatic dip from a high of $30bn when the business floated, to around $20.2bn last Friday as shares traded around the $60 mark (down from around $83 on float day).
The blame game has already begun, with leading technology fund manager William De Gale reportedly pointing the finger at big banks and asset managers last weekend for “crazy” valuations.
This phenomenon has not been limited to the US technology sector. Aston Martin, which listed in London in October last year, has seen its share price steadily decline since it went public.
Likewise, peer-to-peer lender Funding Circle has seen its market capitalisation bounce up and down since its own October IPO.
A good communications strategy is crucial in order to create strong demand in the IPO aftermarket and set the right sort of market expectations that won’t leave management teams red-faced in the inevitable investor meetings and AGMs to come.
For instance, when Uber’s IPO filing was published last week, the media honed in on a rather big admission from the transportation network company: that Uber, which is expected to raise $10bn, “may not achieve profitability”.
In this frank instance, the company should be commended for its openness and honesty – two qualities that Mr Market very much appreciates.
With the Uber example in mind, companies looking to list should be consistent while thinking about the long-term future of the business.
Make it clear what your company’s key performance indicators are from the outset. It is critical to set goals and targets that you are comfortable being measured against for the foreseeable future, not just for the time being. Investors will not take kindly to inconsistent reporting and, as such, companies will be punished, typically with a drop in the share price.
To help establish trust, businesses considering an IPO need to clearly explain what they are going to do with the money from potential institutional and retail investors. Perhaps you want to use the cash to expand internationally, or to acquire new assets?
Companies seeking to go public must also prepare for when things don’t go to plan. It is much better to be prepared for the worst, rather than to be desperately in need of a crisis communications strategy after the event has happened.
Most investors accept that something is likely to go wrong at some point in your journey, so what really matters is how you deal with it.
A crisis exposes the character of an organisation, and if responded to in the right way, the experience can enhance the credibility of and strengthen trust in management. Therefore, a comprehensive crisis plan is key, particularly with increased activism being seen across the market.
Read more: Uber IPO: Six things you need to know
Finally, IPOs used to be the start of a journey for some companies, but it seems that many investors in these super brands are no longer in it for the long term. For businesses seeking to retain and attract shareholders, you need to explain why they should back your management team, what your growth strategy is, what you are offering the market and why people should buy now.
Do not make your business look like a short-term punt with an Uber-style surcharge.