The fintech space saw a boom in IPOs in 2020. According to Kiplinger, this trend is continuing in 2021 with notable IPOs expected to launch this year that include: Stripe, Klarna, Marqueta, SoFI and Coinbase.
However, as the Financial Times points out, Ant’s failed IPO encourages us to see a wider potential challenge with IPOs for fintech organizations. With the added regulations of being a financial organization, fintech companies especially are up against challenges if they want to take their firm public.
While there are many reasons for a failed IPO and many challenges to overcome, one way to get on the right track from the beginning is to look at your hiring and internal teams. With the right people in place, you can better mitigate challenges ahead of time and reduce potential issues during the IPO process. When auditing your internal teams, keep these three key areas in mind.
Don’t Get Caught up in the Tech
Fintech has gone more digital than ever before. Thanks to COVID, everyone has retreated into their homes and out of offices. This means traditionally in-person businesses, like banks, have also had to implement new systems and tools to provide their services digitally while keeping their customers and company safe.
With this shift has come a variety of new technology options, like Artificial Intelligence (AI), Robotic Process Automation (RPA,) and biometric security systems that make the customer’s life easier, but may remove the need for certain employees.
Visha Marria, CEO of Quantexa explains that J.P. Morgan uses AI-powered technology to both answer customer questions and anticipate future needs, and UBS employs virtual assistants powered by Amazon Alexa.
The value is not only in how convenient these tools are now, but how they can provide value moving forward. As Marria says: “These products are the ones that are most likely to replace jobs. The more that these products are used, the more they learn, which means that they exponentially improve in their capacity to assist customers without requiring human involvement.”
However, it’s important to remember the value of maintaining in-house staff. Not just for working with customers, but for managing security, marketing the business, and implementing the new technology itself. Heading into an IPO, don’t skimp on senior-level employees and stronger teams in these areas:
- Marketing: Messaging is critical during an IPO and your CMO and senior marketing staff will play a large role in this.
- Security: With new technology come new security challenges. Without the right senior security staff, you risk a major security issue during the IPO.
- IT: Your CTO and senior IT staff is critical during an IPO when every element of your company and infrastructure is under scrutiny.
Make Board Transitions Early
Part of preparing for an IPO is bringing on new independent board members that meet the will independence and knowledge requirements put forth by the SEC. These new board members need to know how to run a public company, fit within the requirements necessary, and do the job of holding the CEO accountable during and after the transition.
As you update and rebuild your board, consider some important members to include:
- Financial experts: Specifically, an experienced post-IPO CFO who can help the company navigate new and changing market regulations.
- Technology leaders: Fintech organizations need to scale their technology fast and often, while also managing a high amount of security challenges and risk. Experienced technology board members can help manage this aspect of growth.
- Post-IPO board members: These members may not be specific to the financial space, but they have the extensive IPO and post-IPO experience needed to support the company.
- Female and diverse board members: California enacted a law that public companies headquartered in the state must have at least one woman on their board of directors by the end of 2019 and two women on boards with five members by 2021. Underwriting companies like Goldman Sachs are also implementing similar requirements, making this a critical piece to take into consideration as you build your IPO board.
Get a Strong Financial Team in Place
In addition to a strong CFO to head your IPO, you need an experienced team to be by their side and carry out the many tasks that will be required throughout this process. This starts with addressing whether your current financial team is able to reasonably take your company through pre- and post-IPO.
The SEC has significant statutory requirements for public companies. As such, you need a financial team that understands these regulations generally and within the fintech industry, and ideally who has been through an IPO before. There’s no time for learning right now, having an experienced team is critical.
In addition, these employees should have a strong working knowledge of pre- and post-IPO accounting, SEC reporting, and the intricacies of your industry in order to keep up with the financial reporting required of public companies.
Finally, don’t overlook your Financial Planning and Analysis (FP&A) team who can demonstrate and document clear and positive financial growth. This will be necessary when working with underwriters and investors. Poor growth will hurt your valuation pre-IPO, and a great FP&A team can help you avoid this issue.
In summary, more and more fintech firms are taking their companies public, but it’s not coming without its own set of unique challenges. One way to help mitigate those challenges is to have the right team in place. Use these strategies to audit your in-house team to determine who needs to go and who you need to bring in, from board members to marketing and financial teams. With a strong foundation in place, you’re better prepared to have a successful IPO.
About the Authors
Douglas Gladstone is a Managing Director at Comhar Partners based in San Francisco. He has over 16 years of executive search experience within the Technology, Financial Services and Industrial Industries. He specializes in recruiting senior management and C-level executives for clients including small, niche firms, Fortune 1000 enterprises, venture and private equity sponsored companies. Doug brings dedicated expertise in SaaS, FinTech, Cloud, Cyber Security, IoT, AI, Machine Learning, Mobile, Semiconductor, Digital Transformation and Consumer Electronics.
Karen Turrini is a Managing Director at Comhar Partners based in San Francisco, California. Karen brings 25+ years’ experience in retained search and delivers upon exceptional customer and candidate experience staying in constant communication with all parties to ensure a successful result. Karen specializes in senior-level executive search assignments in the technology arena with a concentration on expanding high growth businesses specifically Consumer Internet, Enterprise and Security Software, Digital Media, Data Analytics, Infrastructure and Mobile.