Jason Maynard, senior vice president of global field operations at Oracle NetSuite, knows initial public offerings. He's been involved in nearly 50 IPOs during his 30 years’ experience with equity research in software, sales, marketing and finance. Currently he oversees the sales, marketing and business development teams at NetSuite.
After a tumultuous year of both profound successes and shocking failures for companies going public, it is harder than ever for company executives to test the waters and to be certain that going public is the right option.
“The IPO market is, I think, thirsting for high-quality growth companies,” Maynard told CFO Dive in an interview Thursday. “And the current climate for going public is amazing. Now the challenge is quality, not external conditions.”
In Maynard’s experience, CFOs have always had to “be the steward” of taking a company public, and have had to manage the investor relations function, whether it’s to private shareholders or public market constituents.
“Public company investments tend to be tougher graders [than private shareholders], and they’re not necessarily grading on a curve; they’re giving you a firm letter grade based on your results,” Maynard said.
“A CFO may be living in a world of soft grading, ever-expanding multiples, late-stage private-equity valuations, and loosey-goosey metrics and corporate governance. But the public markets are pretty unforgiving toward companies that don’t have everything buttoned up. Buttoned-up, high-growth companies are rewarded. It’s a tale of two cities when it comes to how these companies perform, and that all falls on the CFO.”
The best IPO model?
When it comes to highlight-reel IPOs of 2019, Beyond Meat is an example of success, and according to Maynard, WeWork is an example "of corporate governance not being where it needs to be, and not having a path to profitability.”
“When I did IPOs in 2001, 2002 and 2003, coming out of the tech crash, you had to be profitable within two to four quarters of going public,” Maynard said. “We put these companies on a shorter leash. But expectations have changed, so I wouldn’t be surprised if the pendulum swung back in the next year or two. That may give companies pause about going public.”
Maynard said he doesn’t think there’s one correct model to emulate for a startup CFO in an era when funding is often readily available.
“We’ve had generation-low interest rates for a decade,” he said. “The cost of capital for most companies, when raising or even borrowing money, has diminished. And abundance of capital doesn’t always lead to a great outcome. Part of what makes a great company is having to innovate within a budget, which forces you to make very hard decisions.”
Sometimes it’s better for companies to be cash-strapped, especially if they’re just starting out, Maynard said. “If you could fund 10 projects, you’d fund 10 projects. But maybe only three of them would make sense from an economic returns standpoint,” he said. “I think scarcity drives innovation because you have to pick your winners.”
This, too, falls to the CFO, Maynard said. “If you’re a CFO, you have to be more judicious; you can’t let weaker projects seep in just because you have so much money,” he said.
High-growth companies need their finance leadership to protect them from the downside, Maynard said. “The CFO partnership with the CEO [should focus on] making sure [the company has] enough capital and is investing wisely as it expands,” he said. “And in finance, there are trade-offs you can make all the time.”
Maynard recommends maintaining a culture of frugality and cost efficiency. “Look at every dollar as a scarce resource, even if you’re growing fantastically well, and put more fuel behind what pushes the growth.”
“The greatest threats to sustained growth for CFOs in the near future will depend on the type of business and the size of the markets,” Maynard said. “When you have a lot of capital, you think you can do many things simultaneously, and it can look good on a spreadsheet, but translating that into operating performance can be quite difficult."
Indeed, the greatest risk in a time of abundance is chasing things that ultimately bring lower returns, Maynard said. “These things can be shiny objects of distraction when you have a lot of money and feel like you can do anything," he said. "These companies do their first act really well, but to try and find the next act, and it’s very hard to find them profitably.”
The CFO must protect against the mindset of “we can do everything because we’ve got the money,” Maynard said. “You can’t burn through cash just because you have it,” he said.
Many private companies have raised venture money over the past 10 years, Maynard said. He advises them to get to cash-flow profitability — and to have a line of sight on that — because it means controlling your own destiny.
“Any time you need to raise more capital to continue expansion, you’re at the control of outsiders,” he said. “When you’re raising money from folks, you’re assuming the kindness of strangers, and I’d much rather have my hands on the wheel, knowing I’m captaining the ship.
"I wouldn’t assume the last five years are indicative of the next five, just because it’s been so good and easy and cheap.”