At the MedCity INVEST conference this week, a panel made up of two CEOs who took their companies public and a couple of venture investors talked about the advantages and drawbacks of going public compared with a strategic acquisition. They also drew attention to what’s changing in the marketplace.
Jan Garfinkle, Managing Director at Arboretum Ventures, moderated the panel, which included Annie Huntress Lamont, Managing Partner, Oak HC/FT; Michael DeMane, Chairman and CEO, Nevro Corp.; and Ray Huggenberger, CEO, Inogen Inc. all of whom discussed the dueling processes from a startup to having an exit.
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Here are some takeaways (unless in quotations, insights are not a direct quote):
When and why an entrepreneur should decide between and acquisition or IPO:
Lamont: An entrepreneur needs to decide if he or she wants to continue running a company by going public or if they want to become serial entrepreneurs. IPOs are a much longer process if someone is really looking for an exit, so it requires strong leadership from a CEO to maintain a public company.
Huggenberger: Entrepreneurs need to consider whether there is a natural buyer. If not, you have to restructure your approach. In agreement with Lamont, an IPO is not a liquidity event, but it can set one up a few years down the road. Inogen went public because they couldn’t see a buyer.
DeMane: Despite going public with Nevro, it’s not what it’s cracked up to be. Even with successful trial data it was difficult to go public, but the company needed significant funding to launch.
A poll of the INVEST audience confirmed that a strategic sale is significantly preferable to an IPO.
Key decisions that must be made when taking a company public:
Lamont: Don’t go public unless you have a management team that will scale over at least the next two years, plus solid accounting is critical.
Huggenberger: “Make sure your story resonates with the street.” You must gauge the reaction of public investors up front – and then make sure you pick the right bankers with the right analysts. “You date the banker, you marry the analyst.”
DeMane: Making sure communication directed toward investors is locked down is key. One downside of going public is you can’t be as communicative with your employees — information gets contained within a core group.
At the end of the panel session, Garfinkle asked the panelists what they thought the minimum revenue threshold to be a successful IPO:
- Michael DeMane: $40 million to $50 million
- Ray Huggenberger: $100 million
- Annie Lamont: $100 million
