Stay measured and tell your story to prospective investors very carefully.
Those are just two of the helpful tips SoFi CEO and former Twitter COO Anthony Noto served up to executives at tech unicorns Uber, Slack and Pinterest in an interview with Yahoo Finance. The executives at these tech unicorns are about to hit the road soon to drum up investor interest for their hotly anticipated public offerings.
If the story is told correctly at the start, this group of tech unicorns could prove successful public companies in the mold of Facebook (FB). If not, then look no further at the stock prices of Snap Inc. (SNAP) and Blue Apron (APRN) since their debuts.
For his part, Noto is no stranger to pounding the pavement on a roadshow.
Noto worked on numerous IPOs while serving as a tech, media and telecom investment banker at Goldman Sachs. He played a key role at Goldman in the November 2013 IPO of social media platform Twitter (TWTR). Noto then joined Twitter as COO in July 2014, leaving in February 2018 to assume the top job at online lender SoFi.
Here are Noto’s top tips to tech executives yearning to cash in shortly.
Tip #1: Think long-term
“Tell the story for your company and set the expectations of investors that will span the test of time. That is an ark of years, not a couple quarters,” Noto said.
This is especially important for tech unicorns seeing as they are usually unprofitable and likely to stay that way for some time. Don’t overpromise stellar results right off the bat, in other words.
Tip #2: Choose investors wisely
“When you choose who to allocate stock to, pick those people you want as a long-term investors. Really dig into their history and their investment style,” suggested Noto,
Stay away from quick buck artists — these types of investors are only in it for short-term profits. Their propensity to sell after the IPO could pressure the stock and cause concern among longer-term investors.
Tip #3: Be realistic on what you are worth
“Be balanced on valuation. Day one valuation, day two valuation is irrelevant,” explained Noto. “Build long-term trust with investors and do it in a way that balances fiduciary duty to your shareholders but also making sure you build the constituency that could be there for additional financings.”
If only Snap Inc. took this approach.
The bottom line for budding tech gazillionaires
The alternative to Noto’s advice? Take the road of Lyft’s (LYFT) management team. The recently public ride-sharing company arguably overhyped its prospects during a mid-March roadshow. As a result, after a surge on the first day of trading the stock has fallen well below its IPO price as investors dig deeper into Lyft’s prospects and they realize how unclear it is when Lyft will achieve profits.
Lyft’s stock has fallen in eight of the last 13 trading sessions. About 75% of outstanding shares are sold short, according to data from S3 Analytics, indicating investors are betting on further declines.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi