Anatomy of an IPO


Anatomy of an IPO

On Jan. 31, 2014, the 16 year-old dot-com darling Coupons.com filed for an IPO. To put this event in perspective, PayPal was founded in the same year. While PayPal filed for their $70 million IPO in 2002 and received an acquisition offer of $1.5 billion from eBay later that year, Coupons.com made the decision to remain private. In general, the average company takes six to seven years to reach IPO readiness. Sixteen years is rare.

Strike When the Iron is Hot:

When four-year-old PayPal filed for an IPO, their trailing 12 months revenue was $138 million, while 16-year-old Coupons.com had a trailing 12 months revenue of approximately $153 million at filing. One could argue that Coupons.com did not have a strong enough revenue growth to warrant an IPO in 2002. I would tend to agree with this. If Coupons.com’s revenue growth of 50 percent, as evidenced in their S-1 filing, has been consistent, it’s fair to reason that they may have had less than $5 million in revenue in 2001.

The Long and Winding Road:

Remaining private caused Coupons.com to seek outside capital of close to $300 million over the past 16 years, with the latest round of $200 million being secured in 2011. How did this amount of outside capital affect dilution of founder Steve Boal? Miraculously he was able to hold onto 10.81 percent of the company, which is roughly the same amount of equity Evan Williams of Twitter was able to hold through the IPO that took Twitter approximately seven years.

Lessons Learned:

If you plan to take your company public, make sure you understand the magnitude of revenue desired. If you are building a slow-growth company, prepare for a long road and be careful to guard your equity. The reason entrepreneurs like Steve Boal are able to hold onto a substantial amount of equity is due to their ability to negotiate a healthy valuation. I developed a free cap(italization) table to help entrepreneurs prepare their financial roadmap.

This post originally appeared on Atelier Advisors. Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator of Lean Finance for Startups and Finance Boot Camp for Entrepreneurs. All AlleyWatch readers are automatically eligible for a 50% discount on either of the courses using the preceding links.

Image credit: CC by Azureon2

About the author: Lili Balfour

Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator and host of Finance for Entrepreneurs, author of Master the Finance Game, and host of the Finance for Entrepreneurs broadcast on Spreecast.

After spending fifteen years in investment management and investment banking, she decided to develop a firm to cater to the specific needs of early-stage companies. At Atelier Advisors, Lili advises leading brands across industries: from tech to consumer goods. In the past, she has advised over 100 brands, including:

Bag, Borrow, or Steal, Visual IQ, Alpha Theory, Derivix, Practice Fusion, Peeled Snacks, Sustainable Minds, Firescope, Chix 6, Duchess Marden, Erin Fetherston, Eckart Tolle, and Stuart Skorman (founder of Reel.com, Elephant Pharmacy, Hungry Minds, and Clerk Dogs (sold to Netflix)).

While advising companies at Atelier Advisors, she observed a common theme – -brilliant founders avoided finance. She began writing about entrepreneurial finance to solve this problem.

As a native of Silicon Valley and a first generation Mexican American, Lili understands the importance of imparting wisdom learned in Silicon Valley to the rest of the world. Her goal is to teach the entire planet about entrepreneurial finance.

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