From Idea to IPO: All the Milestones Between You and the Public Market
It’s a long road from idea to IPO.
Founders face an average of 5.7 years of arduous effort before they exit, according to data from Statista. Though, if we narrow it down to just the highly successful ones—that is, startups that exit for more than $100 million—it takes nearly double that time: 11 years. To put that in perspective, if your company had a highly successful exit this year, you would have had to incorporate your business right as Apple released its first iPad.
As of this year, Bloomberg reports that the median age of founders of successful startups (which they define as companies that exited at more than $1 billion) was 34 years old. Another study found that the average age of founders who are currently running the fastest growing startups is 45 years old. All to say, successful exits take time and if you’re just starting now, you may have many more milestones to go.
To help you through each milestone on your way to IPO, we’ve gathered a collection of wisdom from OpenView’s decade deep archive of advice.
Phase 1: Idea
Average seed round in 2021: $5.6M
What is your superpower? And why should investors bet on you? These are two of the most important questions we’d encourage founders to answer at this early stage. Ideas are important, but the reality is that most founders have had to pivot from their original idea. Shopify’s founders started out selling snowboards. Expensify began as a solution for donating money to San Francisco’s un-housed.
What investors want to see from founders early on is someone with a solid hypothesis and who’s capable of recognizing opportunity. And generally it’s easier if you don’t go it alone, but be careful about selecting your co-founder. Teams comprised of friends or family are the least stable, according to research by Noam Wasserman, Founding Director of Founder Central Initiative.
Are you a technical founder? Find your business partner early. Not surrounded by startup types? Consider moving your centre of business to a bustling tech hub (check out these perspectives on the startup scenes in New York City and Estonia).
Milestone: Building a prototype
Prototypes don’t always exist to solve the issue. The best ones often validate a need. It’s a good idea to have an idea of what “success” looks like, but you shouldn’t allow perfect to become the enemy of good. Perfect effort is often wasted when all your MVP reveals is that you need to pivot and start over.
Understanding how to measure the KPIs that matter is fundamental to understanding the relative success of a prototype. Prototypes might also help you gain clarity around your offering: is it packaged and priced competitively? Does your product-led growth strategy deliver on its promise to customers and prospects?
The exciting thing about prototypes is that large-scale experiments can be built through open-source projects, which companies like Netflix and Linkedin will do as a strategic way of recruiting top talent.
Milestone: Selecting a price
What should you charge? Begin by matching comparables—or let us do some of the heavy lifting for you with these pricing insights from 2,200 SaaS companies.
If none exist, pick a price where the scaling mechanism is clearly tied to the buyer’s perception of value. Which is to say, only charge for additional seats if additional seats means your buyer is succeeding at what they’re doing.
Do not, unless you must, give the product away. Someone accepting your free software is nice, but a champion willing to spend social capital to secure a Purchase Order (P.O.) is an unmistakable signal. You could consider starting with a freemium model.
Still unsure? Run a pricing project.
Additional resources on product pricing:
Milestone: Attracting your first investors and handling first rejections
Build your mission and value proposition into a tight, ten-slide deck that explains your vision. “Explain” is the operative word here. Many decks are heavy on high-minded clichés and light on logic.
An investor needs to clearly understand how your premise leads to your conclusion, with some sort of customer or industry validation to lend credibility to your pitch.
You don’t want to send venture capitalists running with junked-up cap tables, unclear IPs, and exorbitant spending. Make sure to cut your pitch deck as short as you can, then have an unsympathetic friend cut another thirty percent.
Unceremoniously rejected? Hold onto those relationships regardless. The journey is long and someone who said no to leading at $500,000 may follow on at $5 million. (This is also why investors can very rarely afford to tell you why they passed.)
Additional resources on attracting investors:
- What VCs love even more than growth
- 22 reasons your investor might have passed (according to 4 leading firms)
- How not to get funded
- Why startup founders should treat fundraising like a sales funnel
Milestone: Building the “A” team
Beware of flashy hires from big corporations. They may work well under established processes, but only when those processes are provided—these folks might never have had to build them themselves. There are always exceptions, but when brought in early on, these kinds of hires tend to flounder.
You’re going to want to recruit talent with experience building things from scratch. Get your COO on board and hire for operations roles earlier than you think. Hire for brand even earlier.
If you want to really scale, start thinking about how you’re going to hire diverse talent outside of your own professional network.
Additional resources on hiring talent and building teams:
Milestone: First real media event
Congratulations, you’ve been written up in a major publication! It’s important to stand out from the pack and this kind of coverage seals the deal. Celebrate with your team, share the news widely, add a link to the press page on your website, and then…get back to work. This is just the beginning. You are far from done.
Milestone: First traction and product-market fit
The pivots aren’t necessarily behind you. They may still be up ahead. At this point you’ll want to seriously interrogate whether your current set of users are going to be the ones to take you public, and whether your total addressable market (TAM) can justify your growth targets and further investment. The same with your team. Is it anyone’s turn to step off the bus?
Additional resources on thriving past product-market fit:
- The SaaS company that accidentally grew to 800,000 users
- 3 famous freemium SaaS acquisition strategies (and why they’re so good)
- A SaaS content marketing strategy that drives inbound revenue
Average Series A: $13M
Milestone: First big pivot
Your first true pivot will be a moment that tests your commitment to the mission, but calm logic should rule the day, and outside advice can help you see that. Prototyping and validating will still be critical to your process. User research will be paramount, too.
You’ll more than likely need to run a survey and ask prospective users a bunch of questions about how they buy software (and whether they’d consider investing in yours). The use cases and buyers that matter are the ones that are seeing traction in your product. Period.
Milestone: Building your board, your “B” team, and a sustainable revenue organization
When it comes to bringing on your board, don’t pull them too far into the details. Give them enough information to be helpful. Perhaps, like yourself, the most active board-level advocates will be those who still have something to prove—not necessarily those with the biggest, most recognizable names.
Then there’s building out the rest of the team, after you’ve found your co-founder and C-suite cohorts. “B” doesn’t mean inferior—it simply means second. Remember that no matter what stage or phase you’re in, your team is everything. It’s best not to leave leadership to change.
Encountering this new phase, you may have to reckon with the fact that the people who thrived building teams and products with bail wire and duct tape are not necessarily those who’ll thrive now that you need to scale hiring quickly.
Some will transition well, others won’t. You may have to confront hard decisions about management roles and hiring in people who are more senior than your existing set of senior team members. If you are just now hiring operations roles, it’s very late.
Additional resources on building out your team and executive bench:
Milestone: Hire an accomplished head of sales or revenue
A top sales leader with a proven track record for fostering a winning sales culture is just about the kind of person you need running your sales operation right now. Great leaders will attract other experts and enterprise sales talent who have the book of business to help you move upmarket.
Additional resources on hiring your sales team:
- How to hire the right VP of sales for your startup
- Why are salespeople so afraid of change?
- So you made a terrible hiring decision. Here’s how to fix it
- Good growth leaders are like unicorns: Here’s how to find them
Average series B: $10M; Average series C: $30-100M
Milestone: Reckoning with original sins, like founder title inflation
The early days now seem an idyllic time, “back when” the entire team could gather at one local bar and C-level titles were handed out like party favors. Almost everything was agreed upon with a handshake, because you had no idea what the business would become. You couldn’t have anticipated the challenges or effects of regulation. Inevitably, at this stage, you have to reconcile with those early commitments.
Some founding employees and even co-founders will become trusted advisors, so that more experienced professionals can see the job through. According to Noam Wasserman’s research, 73% of founder succession events at this stage are unfortunately involuntary.
Milestone: Reigniting lagging growth
Achieving thirty-percent growth may have been easy in your earliest days. Now it’s a challenge that demands every ounce of the executive team’s ingenuity, and that growth may come from counterintuitive places.
It’s going to demand you to flex new muscles and hire people to try things you never envisioned the business doing—and trusting, verifying, and cycling through experiments with a goal of diversifying your acquisition channels. For example, you may seize on an opportunity to revitalize your partner programs, which could pave the way for a small group to drive one-third of your company’s revenue.
Additional resources on reigniting growth:
- How to bottle community lightning like Datadog
- What happens when “Love your customers” becomes more than lip service
- How Guru layers human touch points onto a strong self-service model
- Use gross margin to score your product’s maturity
Milestone: New pricing causes a regrettable sales exodus
Salespeople are creatures of habit. When you change the pricing, packaging, or product too much, you may lose your most seasoned reps—so weigh that when optimizing pricing.
It’s important to build a bridge between sales, marketing, and product teams so that everyone’s on the same page about the product.
Additional resources on product marketing:
- Playbook: scale to $100M ARR with usage-based model
- Hubspot’s CCO on go-to-market success
- Why marketing needs to speak product—advice from Mailchimp’s former director of growth
- Pricing transformations in 2021
Milestone: A major rebrand and consumer-level brand campaign
The rocket ship is now leaving the atmosphere. It’s time for a big agency to summarize all that your company has become into a few quirky adjectives and a word mark that is, to your horror, immediately reviled. (If you’re a consumer company. If you’re like most B2B companies, it is immediately ignored. Unless you’re Slack.)
It will be years until the imitation sets in. Only then will it be clear you made an apt choice.
At this stage, you’ll find your team running national advertisements during football games and prime time television and you will finally, finally, be able to explain to your family what you do.
Additional resources on brand and brand marketing:
- How tough questions led to SurveyMonkey’s rebrand
- What product-led storytelling is and how it drives user acquisition
Milestone: International expansion
Going international is inevitable. You’ve taken a big bite out of your region and now it’s time to go global. You open your first offices in Tokyo and Sydney, and continue the search for a European general manager. You’ll want to hire local talent with a deep understanding for their region, and send them a handful of the people who founded your company so that there’s a transfer of company culture.
The road to IPO
Milestone: Legal approval on everything
Before you become a public company, you’ll begin acting like one, and that means lawyers and much overuse of the word “compliance.” At this stage, you’ll begin to hear, “When did we become a big company?” as early hires grate at supplier evaluation forms and using a VPN. But grate they must, for personally identifiable information (PII) must be better-secured and SOX addressed.
Milestone: The great operations reckoning
The revenue and product “machines” you’ve built will eventually reach a breaking point. Perhaps the database structure upon which your entire software offering is constructed is now painfully old in “software years,” and due for an overhaul if you’re to fend off upstarts.
And almost assuredly, the revenue operations, cobbled together with CRM, ERP, and a marketing system will be so reliant on unscalable one-off rules and tribal knowledge that it too is due for an overhaul. The only exception is if you hired experienced operations professionals early. The cumulative easing effect of their early insight will shave years off this transition.
Milestone: Selecting your route
It’s worth asking here, why IPO? Is this the liquidity event everyone wants? According to the startup data firm Pitchbook, IPOs are less common than buyouts or acquisitions, but responsible for the vast majority of exit value creation.
Whatever your choice, if you have not already, hire a CFO to manage the process.
You’re also going to want to get your board on board. You’ll be nearing the dance of convincing board members and interested parties that an IPO is desirable, and that it can actually happen now.
Additional resources on IPOs, mergers and acquisitions:
- Unpacking 2021’s unprecedented SaaS funding
- Lessons from Yahoo’s acquisition of Tumblr
- Market Exit Positioning: Google’s acquisition of Motorola
- Are you ready to be acquired?
Milestone: Decide the mechanism and set the wheels in motion
Normal or SPAC? NYSE or Nasdaq? Demand level? Price? Date? There’s more than one way to IPO. Bringing on an investment banker or two to help you navigate the IPO process is probably a good idea.
Milestone: Road tour
Even up until that last night before the official IPO, you may still be traveling trying to convince recalcitrant investors to buy and hold day of. You may still be mulling the opening price right up until the last minute. It is, after all, a guess.
Investors may say nothing until the last day, so you don’t get ahead of yourself and raise the price. Which are playing the game and want to flip it? Which are long-holds? Pick the price that feels right and accept that much in the world is uncertain.
Successful IPOs join a cadre of roughly 7,000 companies listed on the public U.S. markets, and many thousands more listed internationally. This puts you in an incredible position to serve your customer. Remember that it takes an average of 11 years to get to your IPO. What comes next? Maybe a well-earned sabbatical?