- Ron Favali
Tech IPOs are Failing. Adding Marketing and PR Independent Directors to Board Positions Can Help
Unfortunately, it happens too frequently. A startup's dreams are dashed. Even with great earnings, when tech startups, especially B2B technology companies, finally IPO, the following months can be painful. The joy of the IPO is quickly deflated as the stock price starts the long and steady downward slope.
According to CNBC, nearly half of the US tech companies that went public last year lost half of their value since the IPO.
Today, companies stay private longer, and the number of Unicorns is steadily increasing. Early investors have had those investments tied up in many cases over a decade. Once the lock-up period expires, it frees insiders to sell their shares on the open market to lock in a return on that investment.
A golden rule for successful investing (at least a golden rule of mine) is knowing and understanding the company in which you invest. In many ways, B2B technology companies make this world more efficient, less expensive, and create better user experiences. However, too many B2B tech companies aren’t well known outside their industry or user base.
Investor Relations firms are great at creating demand for the IPO and sharing the pre-IPO company's story with the right institutional investors, but their scope and expertise ends there.
Nearly every recent B2B IPO company has completely ignored an influential group of investors.
Today, retail investors' share of total equities trading volume is now approaching 25%, up from 20% in 2020 and 10-15% in the preceding decade. Retail investors now account for the same trading volume as all hedge funds and mutual funds combined.
Retail investors do their own research. They read the news, explore social channels, listen to podcasts, and network in various areas. Retail investors need more than positive earnings announcements. They need to understand who B2B tech companies are and what they do. If that happens, retail investors are an ideal cohort to purchase shares that flood the post-lock-up expiration market.
I’ve heard it at least 20 times since the start of this year. Pre-IPO startups are not hiring talented, senior-level Public Relations and Communications professionals because they don’t have direct experience taking a company public.
This is a serious question for CEOs, CFOs, and CMOs at pre-IPO B2B tech companies. Why do you want Marketing and PR professionals with the experience of overseeing valuations cut in half in the months that follow the IPO? They are all missing a massive audience by showing zero interest in communicating your story and value to the retail investor.
An IPO is a massive accomplishment, often resulting from years or decades of founders’ blood, sweat, and tears. As a founder, what would your reaction be if your marketing and sales team completely ignored 25% of your potential user base? I wouldn’t want to sit in the meeting when he or she found out! But this is precisely what’s happening with B2B tech IPOs.
Internal teams will say they don’t have additional time or resources to focus on anything other than core customers driving immediate revenue. That’s a fair point in current environments at pre-IPO startups.
However, we’re reaching a point where companies can no longer afford to ignore the retail investor when the cost of doing so exceeds half of the company’s IPO-day valuation.
There are plenty of examples of successful companies allocating massive marketing budgets to target groups of individuals that can’t directly purchase their products.
The pharmaceutical industry has mastered this approach. They ‘sell’ their products to doctors who prescribe medication to patients. Yet, the industry spends billions of dollars in marketing aimed directly at consumers with a message centered on “Ask your doctor about….”
Intel doesn’t sell consumer offerings. But anyone purchasing a computer after 1991 certainly made purchase decisions based on the “Intel Inside” logo.
Startups must consider adding marketing and PR executives as independent directors to the board to help assess when a startup is IPO-ready from a communications perspective. Addressing marketing, PR, and communications strategies and execution well before the IPO should help resolve the many marketing and communications issues companies are experiencing after the IPO. It will take a lot of work, a lot of time, and some expense, but most companies can’t afford not to have the required direction to succeed.
These directions and strategies must stem from the C-Suite, with the proper guidance and oversight from independent board members with proven marketing and PR experience in understanding how to reach all cohorts important to a successful IPO.