Even If You Don't Plan to IPO, You Should Run Your Business Like a Public Company

Any startup can learn from how Spotify, Dropbox and Uber prepared to go public.
Even If You Don't Plan to IPO, You Should Run Your Business Like a Public Company
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Partner at Orrick
5 min read
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This might be the best environment for going public in years.

In 2017, 1,624 initial public offerings (IPOs) -- from Roku to Veritone -- raised $188.8 billion, up 40 percent versus capital raised during the lackluster 2016, according to EY. That made last year the strongest since 2007, when $338.4 billion was raised. Activity may top that level this year as Spotify, Dropbox and others take the plunge.

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Related: 10 Questions to Ask Before Taking Your Company Public

Of course, while IPOs draw lots of attention, only about 20 percent of tech startups go public while 80 percent are bought by other public companies, according to Ted Smith, co-founder of Union Square Advisors. Whether the founder and investors choose to go public or to exit via an acquisition, or find liquidity elsewhere to remain private, improving IPO readiness can help strengthen a firm's valuation.

Any chief executive that wants a higher valuation should start by following one simple rule: Run your firm like a public company before you need to.

This matters even if you're not on the IPO path, as following this playbook will help any private company get buttoned up and build traction. Start by focusing on five critical areas:


Making the transition from startup to established firm with significant revenues and a large number of employees requires following stringent governance and compliance procedures. This process can be helped by retaining topnotch advisors, such as investment bankers, accountants and legal counsel, who will bring knowledge in securities matters and public company financial reporting that will be invaluable to management preparing for an IPO or just making the company more attractive to an acquirer. Advisers will need to work closely with an experienced chief financial officer, controller and financial team, so hiring a seasoned CFO is a big part of this process.

Related: Go Public or Stay Private? What's The Right Move For You?


Reporting quarterly earnings like a public company takes discipline. Companies need to establish financial controls, book revenues correctly and prepare for the rigor of such things as quarterly conference calls with analysts. Practice makes perfect and can smooth the process of going public. Uber, for example, has recently chosen to release select financial information to investors and the public and is now holding quarterly earnings calls even while it remains private.

Since problems with audited financials are the most common cause of delays in the IPO process, the sooner a company gets its financials in shape, the easier the IPO process will be. Audits can highlight in advance problems that could delay an IPO, such as revenue accounting or accounting for acquisitions, that could be resolved in advance of starting the formal SEC process for an IPO.

Related: IPO vs. Getting Acquired: What You Can Learn From Snap and Instagram's Divergent Exit Strategies


Startup boards are typically comprised of founders and venture capitalists -- a good combination for building, pricing and marketing an early stage product or service. However, as a firm matures, the board needs independent directors and veterans with other areas of expertise, whether that's in governance, creating a culture of compliance or someone with regulatory knowledge. Recruiting great directors and integrating them well with the existing board and management team takes time and should not be left to the last minute. At least one board member should have significant public company audit committee experience to help guide the CFO's team before an IPO, and most companies will seek to have a majority of independent directors at the time of an IPO.


Startups often operate for a prolonged period in stealth mode, avoiding public scrutiny. That's not a viable strategy for any firm working toward an IPO, hoping to attract buyout offers or acquire additional customers. While executives should avoid talking up IPO aspirations, they will need a formal process for regular communications with the public and the investor community about the firm's achievements and to craft their own narrative for their business. The firm will need everything from a review process for press releases to a corporate policy on the use of social media and a process to ensure that nothing on the firm's website makes any unsubstantiated claims.

Related: 5 Ways to Lead Your Company to a Successful Exit


Most startups attract employees with a combination of modest pay and attractive equity options. However, as a firm matures, its compensation structure should evolve. Compensation should balance the need to retain and attract top talent without locking in early hires who may not be a perfect fit for the later stages of growth. In addition, many late stage private companies are competing for talent against public companies, whose equity compensation is generally more transparent.

Lawyers from Lowenstein Sandler LLP write in Forbes that companies like Pinterest (an Orrick client) and Quora made it easier for employees to keep stock options after departing for a new job by removing the typical 90-day option exercise period after leaving and allowing departing staff to hold vested stock options for up to seven years. Considered a somewhat unorthodox move at the time, this may actually help attract talent and hire more experienced staff, while also allowing long-term employees who thrive in a startup environment to move on to new adventures while retaining their equity in a company they helped build.

Today, late-stage startups have a number of choices for a lucrative financial exit, including an IPO, an acquisition or staying private with the help of an infusion of capital. Whatever a CEO and her board ultimately choose, every outcome is helped by boosting IPO readiness and enhancing corporate governance.

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