In recent years, even with the uncertainties generated by the pandemic and geopolitical events, Brazil has witnessed a large wave of IPOs (initial public offerings). This movement involved a large participation of startups, which went from the Seed phase (fundraising) to going public quickly and consistently.
According to information from B3, Brazil's official stock exchange, the first startup IPO in the country occurred in the first months of 2020. The following year, this segment accounted for 24% of all IPOs in Brazil.
At first glance, this phenomenon might give the mistaken impression that the path from seed funding to an initial public offering (IPO) is relatively easy. However, the reality is quite different.
In addition to investment, meticulous planning, extensive preparation, and many other factors are necessary.
Below, you'll find some tips directly from individuals and companies that went from seed to IPO. Check it out!
Considerations regarding the IPO
Nowadays, many startups see an IPO as one of the main ways to secure the investment necessary for the company's long-term success. After all, by selling some minority shares to public investors, it's possible to raise capital without losing control over their business.
This process also brings other benefits, such as increased business visibility, risk mitigation, and reduced cost of capital.
However, an IPO has two sides, and for an investor, it can be a risky venture where they must spend a considerable amount on a promise of future revenue.
Therefore, investors want to be sure they are not buying a "pig in a poke." For this reason, they expect founders to be able to demonstrate that they not only have a good idea, but a solid company, both in terms of processes and structure.
Furthermore, those seeking an IPO should be aware that the process of going public is neither simple nor free.
There are many legal and regulatory requirements, as well as compliance assessments to be carried out according to the procedure described by regulatory institutions, such as the Securities and Exchange Commission (CVM) in Brazil.
Regarding costs, there are several variables that can affect them, such as the value of the offer, the size and complexity of the company.
Companies should pay attention to both the cost of an IPO and the costs associated with being a publicly traded company, which include legal, accounting, and auditing fees, as well as organizational costs to meet requirements such as the disclosure of financial statements.
Tips from someone who's been there.
Conducting an IPO is not something that can be done overnight. It requires a complete restructuring of the company, which includes the implementation of systems, controls, and IT infrastructure that support the company's operation, among other things.
Organizational maturity
To succeed in an IPO process, a company needs organizational maturity, and this has little to do with its length of operation.
In fact, the company needs to demonstrate to investors that it has a well-defined structure and controls, as well as a solid plan with guidelines to continue growing and generating revenue.
In many cases, an IPO can be considered a consequence of the business maturing, and not just a goal.
That's what Danilo Velez, CEO of Nubank, affirms. In an interview with the e-investidor portal, he states: "Going public is a consequence of the growth we've been experiencing for almost eight years and a way to accelerate our impact, to bring our revolution to more and more millions of people."
In other words, to reach the IPO stage, companies need to invest in consolidating their market position. Until then, they can resort to other forms of fundraising, such as crowdfunding to bring the idea to life and seed funding rounds.
Financial and operational structuring
The road to an IPO is long, and it all starts with good structuring. The company needs to establish processes and controls, as well as create an organizational culture and hierarchy compatible with its operations and objectives.
This includes, among other things, investments in IT, systems (preferably one good ERP), people and auditors who can assess operational risks and opportunities for improvement.
All of this requires capital, which many companies still lack. Therefore, the main way to structure startups is through investment rounds.
Mobly, for example, is a company that... home & living Founded in 2011, the company had one of the most successful IPOs in recent years, conducting several private funding rounds prior to its IPO.
This was also the strategy of Méliuz, which raised R$ 30 million in ten years..
In fact, investment rounds represent the main tool used by startups to structure their operations, expand their businesses, and accelerate growth.
Private foreign investment can be divided into different categories:
Pre-seed
This is the first stage of funding a startup, also known as bootstrapping.
This is the type of funding you receive primarily to give your startup that initial boost.
Often, the sources of funding are the founders themselves, friends, and family.
Seed Initial Funding
With the company already in operation, it's time to seek out investors who are looking for promising businesses.
There are several incubators that help companies begin structuring their businesses and connect them with potential investors.
Serie A funding round
By this point, the company should have already started producing products or providing services, depending on the type of business, and strengthening its customer base.
Now, investors are not just looking for a great business idea, but also a strategy that will transform that startup into a profitable business.
Crowdfunding is also common in the Series A funding phase.
Serie B funding round
This phase is very similar to the previous one. However, here, the goal is to increase the customer base and the company's operations.
Series C Funding Round
Companies at this stage are already considered successful, having operated in the market for some time and demonstrating good results.
At this stage, investors are already convinced of the viability of the business and wish to contribute to its expansion to ensure faster growth and higher returns.
Series D Funding Round
Only a few startups will go on to the Series D funding stage, where they raise funds for special situations, such as a merger or acquisition.
Initial Public Offering (IPO)
Now, at this stage, for the first time, companies are offering corporate shares to the general public.
At this stage, it is crucial that companies have, for example, a well-defined organizational structure, governance policies that are appropriate for the market, state-of-the-art management systems that offer reliable information, etc.
Furthermore, companies must be prepared to continue innovating and exploring new markets, offering shareholders the expectation of future profits.
Conclusion
The path from seed to IPO can be long and, at the same time, fast. The speed depends on how each company stands out in its market and how well it manages to structure itself for this process.
Despite the difficulties, the journey is almost always rewarding. Israel Salmen, founder and president of Méliuz, recently stated: “The IPO changed Méliuz's history. We made six acquisitions, including a company that brings us revenue from more than 40 countries and Bankly, a gem. We wouldn't have been able to unlock so much value if it weren't for the IPO.”
Did you like this content? Then read also: ERP for Startups – How to make the right choice!
