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Why Mergers and IPOs Aren’t Exits and Other Advice from CFOs Who Have Gone the Distance


    VCs often refer to the IPO or acquisition of a portfolio company as an “exit”. From our perspective, those transactions tend to mark the passing of the torch from a company’s venture investors to its new owners.

    But for the company, its leadership, and its employees, IPOs and mergers are anything but an end point. They mark the beginning of an entirely new phase in a company’s growth and development. I was reminded of this distinction recently by a group of veteran CFOs, many of whom have led one or more successful IPO or M&A transactions.

    The occasion was a private event that Scale hosted for the CFOs of our portfolio companies and members of our extended network. A really stellar panel of CFOs kicked off the discussion:

    • Matt Langdon, the former CFO of MuleSoft, who led that company through both its $2.5B IPO in 2017 and the $6.5B Salesforce acquisition in 2018
    • Chris Malone, the CFO of Applause, which was acquired by Vista Equity Partners in 2017
    • Mike Sheridan, the CFO of DocuSign, who led the company through its highly successful $4.4B IPO in 2018

    The evening’s conversation covered terrain as varied as IPO and M&A preparedness, finance department operations, communications with employees and stakeholders, and the impact of a public offering on culture and morale.

    Below we’ve captured the many pieces of actionable advice–sorted into IPO, M&A, and general buckets–shared by our panelists and the 40 veteran financial executives in attendance, representing SaaS companies at all stages of growth.

    Managing the road to IPO

    Don’t fixate on the “IPO window.” Run the company so the “IPO window” doesn’t matter. Ensure your balance sheet is strong because you won’t be raising any more money any time soon. Align key stakeholders around an investment thesis and vision for the company’s future. History is filled with companies that rushed to IPO only to struggle or fail in the public markets.

    Measure your readiness. Your objective shouldn’t be to go public when you can go public, but to go public when you’re ready to go public. Waiting gives you the opportunity to ensure key roles are filled by people with the skills to perform in the public markets. Time and patience will pay off.

    Financials are not talking points, but proof points. Get your numbers right because a good story is not enough to thrive as a public company. One way to test is to evaluate your performance while private against the expectations of the public markets. Look at things like your forecasting accuracy and whether you’re always making adjustments to prior reporting periods. Readiness means demonstrating that you can predict your key top-line measures several quarters out. The public markets do not forgive downside surprises.

    Test your capabilities beforehand. Get your systems, processes, and documentation in place and running smoothly long before – 12 to 24 months before – an anticipated IPO. Issues in these areas cannot be resolved quickly so green light the investments you’ve been holding off like that ERP upgrade. Accelerate reporting periods from quarterly to weekly and even daily in some cases. It means reporting requirements increase tenfold, but it forces you to hire for any missing skills and train the team to be fast and accurate.

    Manage relationships with early investors. Open communication between your company and its early investors can help manage share performance post-IPO and post-lockup. Even then, CFOs should expect their lives to be consumed for some time with discussions about share performance, stakeholders selling, and internal strife as post-IPO shares fluctuate.

    Get your strategy right and the rest is tactical. Resolve strategic issues long before the IPO work begins. When every last issue has been addressed, when your forecasting is solid, when stakeholders are in alignment, the IPO process itself ends up being a tactical exercise of back-planning from your target date.

    Preparing for an acquirer’s due diligence

    You can’t force a merger, but you can prepare for the call. The timing of a potential merger is outside of your direct control. But you can manage timing with a strong corporate development program that keep meetings going and relationships active. Take those meeting with the investment bankers and a curated list of potential acquirers when they come calling.

    Private equity buyers are off-the-charts sophisticated. Know going in that private equity buyers are extremely sophisticated. After you’ve opened up the data room, they’re going to know your company better than you do. Be prepared for that, because their priorities and preferences can be different and force some dramatic changes in how you operate your business. Cash governance, as one example, becomes critical under PE ownership because you aren’t going to raises additional capital post-acquisition.

    Be ready before an acquirer comes knocking. Acquisitions often happen fast. You’re not going to have a chance to clean things up. So long before you’re in active talks, ensure your audited financials are completed and your reporting processes, systems, and governance are running smoothly.

    Advice to growth-stage CFOs

    Align your sales teams around ARR early. As early as possible, ensure your sales team is fully aligned around and compensated for ARR growth. If it’s not subscription revenue, they don’t get paid. That’s a fast and easy way to accelerate growth. Then do a basic win-loss analysis whose purpose is to ensure your marketing and sales efforts are laser focused on targeting the ideal customer profiles and only selling into those prospects. Keep disciplined and double down on what works.

    Ensure employees understand options. Educate your employees about how options work. They need to understand at a personal level what the impact of an IPO or sale of the company will be. Communicating about this early to head off problems later.

    Resolve the elephant in the room: compensation. In any transaction where compensation in disclosed in filings, the “compensation conversation” is inevitable. Expect practically everyone in the organization to look and talk and complain: who made what and are they worth it? It can be ugly and no one is going to be happy. But knowing that it’s coming gives you a chance to plan for how to manage communications on the topic.

    Avoid the distraction tax. Inside the company, you can control the productivity drain that will happen after news of an acquisition or IPO filing. This “distraction tax” can be countered with a clear and consistent message to employees: expect a bumpy road for a while, don’t forget the opportunity before us—and get back to work.

    I’d like to again thank the talented group of CFOs who shared their insights and experience at the event. If you are interested in learning about future CFO community events, connect with us via

    Related: Scale conducted an analysis of more than 300 SaaS companies to determine the growth rates required to stay on track for IPO. We call it the Mendoza Line for SaaS growth.

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