“Growth-stage companies need to step back at this point and think strategically about how they’re going to build out their back-office accounting, if they’re going to be entertaining these types of investors. That’s critical.”
“At many growth-stage companies, I’ve seen that the necessary investments aren’t being made in the back-office head count. It’s all about the engineers,” Schulz said. “Growth-stage companies need to step back at this point and think strategically about how they’re going to build out their back-office accounting, if they’re going to be entertaining these types of investors. That’s critical.”
Whatever comes next
Given the accelerated growth and shifting market factors of today’s tech industry, PE investors might also want to make sure that your business is ready for whatever comes next — an equity investment, debt transaction, merger, acquisition or an initial public offering (IPO).
To prepare for quick investment and growth, tech firms must be poised to answer complex questions and have a solid handle on its finances. Growth-stage companies should do three things to prepare for discussions with PE firms:
To help prepare these answers, consider the following:
- Understand cybersecurity risks.
Investors often ask about cybersecurity and other potential risks. Perkins suggested that companies should consider the following questions: What are the risks around data privacy, and what are the risks around cybersecurity? What has the company done to harden its infrastructure? Cybersecurity is particularly crucial for technology companies, Schulz said. “If you have a misstep in that arena early on, that could be very costly. That’s basically a one-way door. You can’t go back if you have a big implosion there.”
- Identify potential efficiencies.
Now is a chance to take action or make advance plans to integrate services so that you can achieve economies of scale as your company grows.
- Track tax exposures.
Even as a small company grows, it’s important to stay ahead of tax exposures. Tax analysts can also help you find research and development tax credits or other opportunities.
- Prepare for the Financial Accounting Standards Board (FASB).
FASB sets generally accepted accounting practices (GAAP) for the U.S., and the Private Company Council is the primary advisory board to the FASB on matters relating to privately owned companies. Prepare for these accounting standards to help ensure that you are ready to answer questions from both investors and regulators.
- Prepare for further changes.
Consider speaking to experts who maintain regular contact with the U.S. Securities and Exchange Commission, the Public Company Accounting Oversight Board, industry committees and related organizations to stay aware of the changing regulatory landscape. Advisors can work with your company’s owners and founders to help translate changes into your overall strategy, and goals that meet your company’s needs, while also satisfying regulators and investors.
If you call upon an advisory firm to help plan your growth, choose one that will be able to scale with your company. Advisors must understand the full lifecycle of private companies and support them through their IPO or other next phase. Ideally, the firm will also work with PE investors, and might be able to make introductions or help broker deals.
Preparing to seek investment during the growth stage can be rigorous, but investors are hungry for new opportunities and tech companies can reap big benefits if they answer tough questions. These rigorous questions and the standards they involve also serve as preparation that helps companies get ready to scale and succeed into the future.