When to IPO?
You need more than just “right timing” for a successful IPO.
The run-up to an IPO, to put it mildly, can be demanding. Besides starting early, what else can SaaS companies do?
From IPO readiness to the iconic bell-ringing ceremony and beyond, we discuss how SaaS companies can set themselves up for the long haul.
CFO Ray Ratan joined us for this webinar to share the critical elements that SaaS companies need to have in place when preparing for an IPO.
Ray shared three non-negotiable IPO fundamentals for a SaaS company; he pointed out that:
“Every SaaS founder that's starting off a company, whether it's initial inception to being mid-stage, really is marching toward three fundamental things: quality financial performance, good levels of liquidity, and corporate governance.”
In addition to giving a breakdown of the rigorous steps involved in IPO preparation, Ray also talks about:
- The need to showcase strong financial growth with metrics like ARR, revenue growth, and gross margins
- The significance of ‘market timing’
- Meeting investor expectations
We also cover what you can expect once you go public and how to stay in step with ongoing regulatory compliance.
Speakers
Ray Ratan, Investor/Advisor to multiple companies
- A seasoned CFO with over two decades of experience
- Previously worked with Hour Loop, Inc., and Commerce Global Holdings
Hosted by:
Saurabh Agrawal, Cofounder and CPTO at Zenskar
Webinar Summary
1. What are the three foundational pillars every Software as a Service company must meet before considering an Initial Public Offering?
At every company I’ve supported toward an Initial Public Offering, the path started with three pillars: financial performance, liquidity, and corporate governance. You cannot just claim growth; you need to show increasing Annual Recurring Revenue, solid gross margins, and audit-ready financials under United States Generally Accepted Accounting Principles. Liquidity must be strategic—either from retained earnings or raising public capital. Governance isn’t optional. I have seen companies lose investor trust because internal controls weren’t in place to back up their claims.
2. How do you determine the right time to go public?
When I was leading the Hour Loop Initial Public Offering, timing was everything. I looked at valuation multiples from public comparables over a 5-year window. If the company was operating at top quartile metrics (for example, 50% Year-over-Year growth at $100 million in Annual Recurring Revenue), and the market was rewarding similar businesses with 8 to 10 times revenue multiples, we would push forward. But if the company was ready and the market wasn’t, we would wait or do a small Initial Public Offering and follow up with a secondary offering. You never want to hit public markets during a downcycle—it locks in suboptimal valuations.
3. What operational hygiene is required before engaging auditors and regulators?
At one company backed by over $1 billion in capital, they failed an audit because they couldn’t trace their Accounts Receivables system. Their revenue systems weren’t tied to contract billing, and no one could reconcile invoice data to collections. They missed the Initial Public Offering window and eventually went bankrupt. I now insist that every startup I advise invests early in audit-ready systems—revenue recognition system per ASC 606, contract billing compliance, and clean reconciliation between General Ledger and subledgers.
4. How do you ensure financial systems are scalable from Series A to Initial Public Offering?
At Connectbase, we started with QuickBooks, but as Annual Recurring Revenue crossed $10 million, we moved to NetSuite and integrated with systems like Bill.com and Brex. The key was layering automation—not just for accounting, but for subscription billing system, revenue recognition, and cash planning. By Series C, we had a single version of truth across finance. It cut our month-end close from over 20 days to 5 and helped us avoid a late audit issue that tanked another company I advised.
5. What metrics should Software as a Service companies benchmark before approaching public markets?
At Commerce Global, we rolled up three Software as a Service companies and benchmarked against Rule of 40, Gross Margin greater than 70%, Customer Acquisition Cost payback period less than 12 months, and Net Dollar Retention greater than 120%. Without these, forget public market interest. The valuation arbitrage comes from operating like the top decile. Investors don’t just buy growth—they want efficiency and predictability. I once delayed a planned Initial Public Offering by 9 months until Net Dollar Retention improved via stronger customer onboarding.
6. How does the post-Initial Public Offering phase challenge founder-led teams?
Going public is not a finish line—it’s level two. At Hour Loop, the real challenge came after ringing the NASDAQ bell: we had to close books in 12 days, file 10-Ks and 10-Qs on time, and prep for earnings calls every quarter. Forecasting accuracy suddenly became a legal obligation. I have seen founders crumble because they couldn’t hit investor expectations or failed to manage earnings guidance. At one company, a missed forecast by 5% wiped out $200 million in market cap in 48 hours.
7. What legal and compliance standards shift when a company goes public?
Unlike private audits where Venture Capitalists drive diligence, public audits follow Public Company Accounting Oversight Board standards. For Hour Loop, I worked with Deloitte to ensure our audit trail covered every financial control—from contract approvals to expense policies. We also implemented whistleblower protocols, insider trading policies, and board governance enhancements six months before filing our S-1. Any delay in these can derail Initial Public Offering timelines and trigger regulatory scrutiny.
8. What role does tooling play in audit readiness and scaling finance teams?
At one startup, a bloated finance team of 20+ still couldn’t close books reliably. Why? No billing automation, poor Accounts Receivable visibility, and manual spreadsheets. I cut the team to 5, implemented Software as a Service billing tools integrated with the Enterprise Resource Planning billing system, and added automated dashboards for Annual Recurring Revenue, churn, and forecasts. My rule of thumb: finance should not exceed 3 to 4% of the company headcount. Leaner teams with the right systems deliver better audits, cleaner data, and faster insights.
9. How do you avoid version-control chaos across finance data?
At Global Capacity, I made it a hard rule: no multiple versions of the truth. All revenue, cost, and cash data had to reconcile from Customer Relationship Management to billing to the General Ledger. We created a financial data warehouse tied to real-time dashboards that fed investor decks, earnings scripts, and board reporting. This eliminated late-stage surprises—like a $2 million misclassified expense we caught one week before an investor roadshow.
10. What cash management strategies do you recommend for post-Initial Public Offering liquidity?
Post-listing at Hour Loop, we started deploying idle cash into short-term Treasury bills via platforms like Brex and Meow. The 4 to 5% returns outpaced traditional checking accounts and gave us flexibility without locking up funds. For startups, I often advise splitting working capital between operating accounts, short-term yield instruments, and strategic reserves for Mergers and Acquisitions or downturn coverage. Treasury isn’t just about safety—it’s an overlooked lever for return on capital.
11. How do you advise finance teams to manage investor expectations post-Initial Public Offering?
At Connectbase, we practiced quarterly forecast drills starting 6 months before going public. We’d mock up earnings calls, prep backup slides for every key metric, and validate every driver from Annual Recurring Revenue to churn. Once you’re public, the street expects you to forecast with discipline. I have seen companies punished not for missing targets, but for over-promising. We always guided conservatively, beat forecasts, and built credibility over time. That approach kept our stock stable even when competitors tanked.
12. How do you prepare teams culturally for the Initial Public Offering transition?
During the Hour Loop Initial Public Offering, I personally led internal training on SEC protocols, blackout periods, and whistleblower rules. Engineers, product managers, and even junior analysts needed to understand what material non-public information means. This cultural shift—being a public company—requires everyone to operate at a higher standard. We created internal wikis, FAQs, and live town halls to smooth the transition. Without this, even a careless Slack message can trigger regulatory issues.
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