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EXCLUSIVE: “Riding the IPO Rollercoaster” – Mark Aubin, Aptitude Software in ‘The Fintech Magazine’

EXCLUSIVE: "Riding the IPO Rollercoaster" - Mark Aubin, Aptitude Software in 'The Fintech Magazine' | Fintech Finance

Going for growth? Then make sure the figures stack up, says Mark Aubin, Senior VP of Solutions Consulting at Aptitude Software, which is helping CFOs to meet the revenue management challenge Mark Aubin, Aptitude Software | Fintech Finnace

The road to a public listing may be paved with good intentions, but it can be decidedly rocky for some IPO hopefuls.

Take WeWork as an example. When its IPO credentials proved unrealistic in 2019, the coworking company saw its valuation slashed, thousands of employees laid off, and its CEO forced out. Propped up by initial investor Softbank and refloated in 2021 using a special purpose acquisition company (SPAC), it inspired the 2022 AppleTV series about toxic billionaires WeCrashed – not exactly the reputation it was looking for.

The lesson here is that when it comes to IPOs and corporate actions such as IPOs and mergers and acquisitions, the growth forecasts must be realistic and due diligence scrupulous. And that’s never more so than now. Thanks to the fintech boom, IPO plans are being discussed at many boardroom tables. 2021 was a standout year for the industry, which overperformed by most measures and gave birth to a record number of unicorns at 151. The Matrix Fintech Index, which tracks 25 US companies, saw the cohort consistently outgunning the S&P 500 – by up to three times.

Fintech IPOs reached a peak, evoking memories of the dot.com frenzy in 1999. Coinbase ($86billion), Robinhood ($32billion) and Wise ($11billion) were among the biggest listings in a crowded field. Amid this surge in corporate activity, financial management and regulatory compliance consultancies such Aptitude Software are helping to smooth the route from private to public sector.

As VP of solutions consulting at Aptitude Software, Mark Aubin is focussing on the needs of CFOs during big corporate transitions, and ensuring that the contribution of the CFO is centre stage.

“Our aim is to help companies make the right strategic decisions, based on what’s going on in those companies today, and where they might go tomorrow,” says Aubin. “And, because CFOs are now playing a more proactive role, presenting opportunities back to the board, the CEO, and the investors, they need real-time data insights to make the best choices.”

There are many routes to choose from when you decide to take a company public, so it’s important to pick the right IPO for your business strategy and ambitions. Fixed price, book-building, direct listing, spinoff, and SPACs are just some of the options. But, whatever your preferred route, companies must consider a wide range of things before going public, says Aubin. “Process, data, systems, management and regulatory reporting, and the scalability of the business are essential parts of the equation. Whether you’re setting up an IPO or an acquisition, all these details have to be covered and must stack up.”

Scalability and sustainable growth are the most important factors, says Aubin.

“Any company going into an IPO, or making any big strategic change, will be looking to scale and consolidate. If a company is trying to access capital, there has to be a credible growth plan and structure to justify the investment. You’ve got to be sure the backend of the organisation is up to the challenge.”

Data and scalability go hand in hand, in Aubin’s view: you need accessible and reliable data to scale successfully, because when you become a public company, you’ll be scrutinised by investors, your board, your employees, and regulatory bodies such as the US Securities and Exchange Commission (SEC) or the UK’s Financial Conduct Authority (FCA). And, of course, you’ll be under the forensic eye of analysts.

Insurance is a good example of a business that is especially dependent on scale and diversification. So when evaluating IPOs for rising stars such as insurtech Hippo, which went public on the New York Stock Exchange in 2021, scalability should weigh heavily on pricing. No surprise, then, that one of the reservations about Hippo’s long-term future was the need to acquire new customers to sustain the business. In its second quarter earnings call later that year it revealed that its loss ratio had climbed to 161 per cent – far too high to be profitable. But at least its senior execs were well-versed in the figures.

“It’s always interesting to hear investor analysts asking questions on the fly, and to see how quick and adept the CEO and CFO are at responding,” says Aubin. “If they’re well-prepared, and give assured answers, it means they have access to relevant and timely data. Data accessibility is crucial, as you need to be transparent about a company’s performance.”

Conventional wisdom tells startups to go public when revenue hits $100million. But, as Aubin notes, you need to be absolutely sure of your revenue management before you go into the public arena. It’s one of the key metrics revealed by comprehensive and high-quality data. And because compliance is fundamental to every IPO, both revenue management and revenue recognition are important.

“You have to be ASC 606 compliant or IFRS 15 compliant,” he says, referring to the global Accounting Standards Codification Section standard for revenue recognition and the International Financial Reporting Standard.

“But there have been many reports of revenue recognition issues, both with existing public companies and pre-IPOs, and some companies have had to delay a listing because the regulators weren’t happy.”

Roblox Corp is an example of a company that received negative scrutiny. The American video game developer had to postpone its plan to go public in 2021 because of SEC concerns about how the company recognised revenue from the sale of Robux, a currency used by players on its platform. So Roblox had to restate its financials. Because of the pricing issue, Roblox was forced to backtrack and do a direct listing rather than the planned IPO.

Eyes on the business model

With the threat of delisting, or negative scrutiny after going public, companies need total confidence in their revenue management and reporting. Getting it wrong may even lead to shareholder lawsuits, says Aubin. But, in fact, to attract investment from venture capital, or any kind of funding group, the finances have to be compliant and squeaky clean.

And your business model will come under close scrutiny, as investors need to know if it is sustainable. The growth of fintech and online businesses has popularised subscriptions, for example, a model favoured by the fintech community because it lends itself to innovative open banking partnerships and collaborations. Before the fintech revolution, it was difficult to collect recurring payments, but now there are plenty of options in the fast-evolving payments space and plenty of companies are pivoting. That’s a decision that could have implications for any subsequent IPO as it means new revenue management responsibilities and new compliance requirements. Because insurance and banking are so heavily regulated, it’s especially challenging for businesses in financial services to change course, so timing is important.

“If a company decides to tackle a new market, or monetise a traditional service by switching to a subscription model, you have to ask ‘how fast can it move?’,” observes Aubin. “It’s a question of being agile, of knowing if you have the right systems and processes to support a viable change. For that, you need to bring everybody to the table and involve all the stakeholders in the decision-making process.”

Aptitude focusses on the role and skills of CFOs and their finance teams, who, in the case of subscription modelling, should advise on how to price, how to bundle, and what type of discounting is appropriate, among other financial tasks. To help the CFO office, Aptitude provides a portfolio of solutions such as subscription and recurring billing and revenue recognition and management, regulatory calculation engines and core financial products, including an enterprise accounting rules engine and subledger.

“Ultimately, everything is about revenue management,” says Aubin. “Whatever your business model or route for going public, you must figure out what your obligations are to your customers and how you can best fulfil them.”

After the record IPO year in 2021, the global IPO market has experienced a significant slowdown in Q1 2022, and some of the fintech high-fliers from last year have seen their valuations slump. Coinbase, Robinhood, Marqeta and Toast  had each lost more than 60 per cent of the value from their initial prices by April.

While geopolitical tensions, inflation, and rising commodity and energy prices are dampening enthusiasm for IPOs, so is price correction due to over-valued IPO stocks. Against this backdrop, Revolut and WeTransfer are two of the IPO prospects that have ruled out going public this year.

Whatever the economic climate, it’s never a simple journey from private to public: successful IPOs depend on having the right numbers and ensuring that CFOs are armed with all the data they need.


 

This article was published in The Fintech Magazine #24, Page 35-36

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