Written by Part 1 of 5: Telling Your Company’s Story the Right Way
InstaCart, Birkenstock, ARM, Klaviyo, the market seems to be unimpressed with these recent IPOs. And if anything this rate environment is likely to persist as the Fed awaits more inflation data. Yet if f you get many things right and are reasonable with valuation, we think the outcome can be better.
Filing the S-1 and paying bankers is not hard. Getting stock to keep moving higher, that’s a different story. In this series, we start the IPO path and grow the stock price for the long term. Topics include:
- Telling Your Company’s Story the Right Way
- Get Your Financial House In Order
- Prepare For Rigorous Financial Reporting (Don’t You Dare Miss Your First Quarter)
- Establish Good Corporate Governance
- Navigating Investor Relations
Higher for Longer
Jerome Powell, what a buzz kill. It’s September and the Treasury Yield is at 4.527% with another potential rate increase in store. Life goes on, and if you’re past your Series F, and there is no major enticing M&A offer, it’s time to go out to the public markets. It starts with the right narrative which builds the investment thesis.
The Right Story
Effectively articulating everything from the vision, and the product roadmap to brand identity and growth objectives keeps all stakeholders informed and confident that your company is on the right path to scale and drive shareholder returns.
Once the narrative and investment thesis are locked in, it’s critical that the company’s leadership can both tell it sharply and back it up. That means having a team that’s as adept at proactively conveying the company message and responding quickly to changing dynamics, both good and bad. Company storytellers need to be armed with the financial performance and KPI information and need to tell their IPO narrative in a way that bolsters the confidence to potential investors. Remember, investors have seen thousands of pitches and are quite jaded so have a finely toned message prepared.
Crafting a Strong Investment Thesis and Narrative for Skeptical Investors
The ability to weave a compelling investment thesis and narrative is an art form, capable of winning over even the most sceptical of investors. It’s more than just spinning a good story and using a lot of marketing jargon and adding A.I. buzzwords, it’s about laying down a solid foundation of plans, data-backed insights, and a sharp vision for the future.
Here’s a deep dive into how companies have masterfully crafted their investment thesis and narrative, making your company a must-own stock, and instilling confidence in stakeholders:
Precision Communications and a Must-Own Stock
A company vision is articulated with precision, capturing both short-term goals and long-term aspirations. Think of how Snowflake, the cloud-based data warehousing company, executed its IPO. Its narrative wasn’t just about technology; it was about revolutionizing data storage and analysis in a world increasingly driven by data. The “data as a service: company more importantly had the numbers to back it up.
Your company’s vision should be clear. It’s woven into a strategy that ties with industry trends (or ahead of) and current and future market needs. Zoom Video, whose IPO story pitched that remote work would be the norm. The company effectively presented its video conferencing platform as the solution for seamless virtual collaboration. And it’s differentiation was ease of use, there were so many other video conferencing companies (Bluejeans anyone?) before yet Zoom gained rapid market share showing it was placed in a market that was rapidly growing and gaining share (helping it to earn a premium valuation)
An Example of Not So Clear
VinFast the Vietnamese automaker is making its debut in the American and European markets during a period of intensified competition in EV pricing. This is primarily influenced by prominent players like Tesla, a frontrunner in the market, along with various Chinese enterprises. By merging with a special purpose acquisition company (SPAC), VinFast secured a listing in a market where its founder, Pham Nhat Vuong, envisions challenging the industry giant, Tesla.
VinFfast’s vision is backed by a $4 billion factory currently being constructed and a novel sales strategy aimed at attracting dealers. It’s not easy cracking into a new market (it took Toyota and Hyundai over 20 years to reach success). What investors also want proof of will be the battery leasing model and how this servicing will scale which at the moment seems to be on again/off again.
A Movement to Show a Huge Market
Imagine a story where the protagonist isn’t just a brand but rather a movement. Airbnb’s mission is to “help create a world where you can belong anywhere and where people can live in a place, instead of just travelling to it.’ Investors saw the financial model and can tie it to a large global market potential.
Btw, what was unusual about Airbnb was the non-technical founding of its CEO. Where did Brian Chesky go to college? Rhode Island School of Design (RISD) and he was not an engineer. During his time at RISD, Chesky was influenced by the works of Charles Eames and Walt Disney.
Yet along the way, he learned how to be a great CEO and scale an organization. His background showcased not only the business of lodging but also the art of experiences. It emphasized how the brand was redefining hospitality, tapping into the market’s desire for unique and local travel adventures.
A Journey: Unity and Roblox
Investment narratives also need a roadmap. Unity Software, for instance, showcased not just a product, but a multi-faceted journey. Its IPO narrative spoke of democratizing game development, transcending gaming, and embracing other industries, all while aligning with rapid technological innovation.
Roblox and the team built a platform that enables maximum freedom and play. Roblox’s mission is to build a human co-experience platform that enables billions of users to come together to play, learn, communicate, explore and expand their friendships. The big pitch is the life journey of its customers and the global community of its developers that use the Roblox Studio.
Putting their developers first is smart and is a win-win for everyone. The entire engine is built on the dual role that users and developers play. By bypassing the traditional “middleman” of a platform, Roblox has created a platform that is more efficient and more profitable.
Compare this to Hollywood, where movies are made by creators who think they have it figured out what the audience wants. They make a movie, and then they market it to the audience. If the audience doesn’t like it, they lose money. With Roblox, the audience is the creator. They make what they want, and if the audience likes it, they make money directly
Back to Tying in the Data
Things come together when the narrative is intertwined with data-driven insights. You need to have the numbers to back up your story. Not just in terms of absolute numbers but in a way that makes the numbers match the story in an improving sequential manner. Directionally to the long-term financial model targets.
Palantir Technologies, with its data analytics, used its IPO stage to showcase its solutions for governments and businesses.
When pushed, the company confidently unveiled its financial metrics, grounding its narrative in tangible numbers demonstrating its credibility and tying in the improving metrics. Palantir’s strong government customers (little churn and stable), are combined with anchor customers such as Amex, Coca-Cola, Home Depot and others. And it’s a very sticky product which drives high Net Dollar Retention.
Here’s a chart that correlates stock multiples with Net Dollar Retention Rates (NDRR)
Keep Going Through the Ups and Downs
The true mark of a compelling narrative is its ability to resonate even after the IPO bells have rung (or button pushed). This is where a company’s unique strengths, often referred to as a “moat,” come into play. Snowflake’s proprietary technology and separation of storage and computing created a barrier that fortified its position in the cloud data warehousing realm. Snowflake
Inevitably, a quarter will not be smooth and companies will miss a quarter. What you want to do is to stick to the strategy and show how operations will improve. Don’t shock investors with a major thesis breaker. The other thing we’ll discuss in the upcoming chapter is managing proper expectations. Everyone wants the stock to pop after an earning’s surprise and there are right and wrong ways to go about it.
The Narrative: It’s Just the Start
It’s an art to align the investment thesis that ties in the vision, strategy, data, leadership, and technology. Your investment thesis has to be strengthened with KPI proof points and metrics.
Ideally, it’s a sequential improvement in metrics every single quarter that shows strengthening Net Dollar Retention metrics. It won’t always be smooth so when there are quarterly hiccups, help investors revert back to the thesis and metrics so that they have confidence that directionally you will revert to your growth targets. In Part 2, we dive into “Getting Your Financial House In Order.”