When CMO Meets IPO
As a financial event, it’s assumed the chief financial officer will play a big role in a company’s offering. Ditto the founder and/or CEO. But what about the CMO or marketing VP? How do they fit in?
When Web video firm Brightcove was preparing to go public in 2012, former CMO Jeff Whatcott recalled springing for a new projector before a presentation at the underwriter’s office because the on-site model was underpowered.
Given that video is Brightcove’s reason for being, he saw it as a necessary, if expensive, step. “We brought it with us and blasted up this beautiful, super-bright, colorful video, because you only go public once,” said Whatcott, now CMO at Onshape, a maker of cloud-based 3D design software.
It was just one of the tasks large and small he told CMO.com he took on in the months leading up to Brightcove’s initial public offering, which also included helping to draft the prospectus to troubleshooting marketing communications to establishing an investor relations capacity.
With the IPO market poised to rebound this year after a dismal 2016, more CMOs are likely to get their own education in going public.
“We’re seeing broadly across sectors that the [IPO market] is picking up from last year’s low,” said Matthew Kennedy, an analyst at Renaissance Capital, an IPO fund manager. He anticipates that tech IPOs in 2017 will double to about 40, with the overall total increasing more than 50% to 165.
As a financial event, it’s assumed the chief financial officer will play a big role in a company’s offering. Ditto the founder and/or CEO. But what about the CMO or marketing VP? How do they fit in?
Active Role
While the answer will vary by company, the marketing lead is hardly on the sidelines, according to CMOs who have been through IPOs and outside experts. “My feeling is that the CMO should play an active role, even though that’s not always the case,” said Julie Ginches, who served as CMO at ad tech firm Rubicon Project during its 2014 IPO, in an interview with CMO.com.
That’s because an IPO is more than a purely financial transaction, capped by the ringing-of-the-opening-bell ceremony on the first day of trading. Planning for that day can begin two years or more in advance, with various stages in between and a companywide effort behind it.
“I think most marketing organizations feel like the IPO is a finance-led function,” said Mike Gould, who leads PwC’s IPO advisory practice. “But when we go into companies, at readiness sessions, one of the things we do is say, ‘No, it’s all aspects of the organization that are affected here, not just what we call the back office.”
At the outset of the process, for example, the marketing head has a natural role in helping to shape what Gould called the “equity story”—the key message a company wants to deliver to investors in the offering. “The marketing head is very involved in developing that story,” he told CMO.com. “The CEO, the CFO, [investor relations] all have to be part of that.”
At Rubicon Project, for example, the aim was to distinguish the firm from others in the crowded ad technology space. “Right from the beginning, it was, `What is this category? What’s the message to the market?’” explained Ginches, now CMO of video ad startup ViralGains. The company ultimately settled on the core idea of its platform as a way to simplify the process of buying and selling digital advertising.
Prospectus And Beyond
When it comes to the actual drafting of the prospectus, or registration statement, the CFO, underwriters, and in-house and outside lawyers do much of the heavy lifting. But marketing staff often get involved in writing or reviewing the key section describing the company’s business.
Within that section, one of the areas covered is a company’s business opportunity. Whatcott said his team at Brightcove labored especially hard on that aspect of the document. “We had to come up with a quantitative method for sizing our market opportunity that was both easy to understand and 100% verifiable,” he said.
That was necessary because, at the time, there was scant data on how many sites featured video to any extent. Brightcove teamed with research firm IDT to figure that out. “It sounds simple, but it was a big project,” Whatcott told CMO.com.
Adjusting a marketing mindset to the strict parameters and cautious language of the prospectus presents a challenge in itself. “As a marketer, you’re conditioned to speak aspirationally, but in the context of an offering, in which people are going to be investing, you have to be very careful that you’re being factual,” Whatcott added.
The prospectus isn’t the only place where a marketer must contend with lawyers. Part of the IPO process entails a review of the company website and other marketing communications to ensure the company isn’t overstating its case about products or services.
“So it could be a claim you’re making that you can’t back up, or a projection that you may believe but is forward-looking, so it is difficult to back up. It’s usually one of those two things,” said Tad Freese, managing partner of Latham & Watkins’ Silicon Valley office, who has advised companies and underwriters in more than two dozen IPOs.
That’s especially true of anything on the website because it’s easily accessible by Securities and Exchange Commission staff. Brightcove even went so far as to remove some old blog posts flagged by counsel as containing claims that might be difficult to verify, Whatcott noted.
Mum’s The Word
A more familiar restriction imposed by the IPO process is the so-called quiet period. It extends from the time a company reaches an understanding with its lead underwriter to 25 days after its effective date, when shares can start trading.
But that doesn’t mean all marketing and publicity gets shut down. Companies can continue to make announcements in the regular course of business and discuss products or potential products. However, its communications shouldn’t mention the proposed public offering, opinions about the company’s value, or its business prospects.
“You’re absolutely going to continue marketing your products, your services, whatever it is you’re selling. The SEC is fine with that,” Freese told CMO.com. “What they’re not fine with is some new surge in marketing that could be viewed as marketing the stock rather than your product.”
That means the marketing lead has to balance the normal demands of the job with added IPO-related responsibilities. “It felt like having two full-time jobs at once,” Ginches said. “There were many times we were going around the clock, especially as we got closer to the IPO.”
Still, many companies may not even hire a CMO until after going public. That’s when a higher level of experience may be needed to lead a larger, more complex marketing operation. Mark Kirchner, for example, joined ad tech firm The Trade Desk as CMO just three weeks before its 2016 IPO. His hiring was focused more on the company’s post-IPO life.
“A lot of the challenge I stepped into was scaling up marketing,” said Kirchner, who had previously been CMO of eBay Enterprise and vice CMO at Japanese e-commerce company Rakuten. Since joining last August, he said marketing staff has grown 30% as it seeks to build closer ties with agencies and media buyers.
“An IPO is just the beginning of a whole other phase of the company’s life,” Ginches said. “You’re messaging to a public audience under lots of rules and regulations, and everything can affect the company in a positive or negative way.”