Your Banker Can Make Or Break Your IPO

Race banker

Ariba’s Novel Approach Cut Through The BS,
And Landed Us The Right Banker In Record Time

This is a guest post from Ed Kinsey

In our early days at Ariba, we built a rocketship and took it for a spin. In a blazing 30 months, our team transformed an idea into 18 months of forward revenue. We were cash flow positive starting in our second quarter. And with revenue doubling every quarter, we were the fastest growing technology company ever. But with all our record-breaking performance, our leading competitor was getting close to beating us to an IPO. We had to select the absolute best banking team in the shortest time possible to get to IPO first. Being second was not an option.

Our CEO, Keith Krach, and I had already built relationships with the leading tech investment bankers. We knew each one had unique strengths. But we were concerned that every one of them could spin the market data to make themselves look like the top firm. Our challenge was to find the best firm—fast. To level the playing field and get the clearest picture of their strengths, we created a novel process that put us in control of what they presented and how they presented it. We designed it around 5 key criteria:

Speed—We set a 90-day time limit for the whole process. From our first meeting to final banker selection.

Efficiency—We didn’t want to waste time presenting over and over again. So we picked a single date to pull all the bankers together in one room. We would present to them, and they would each present to us. All together!

Effectiveness—We coordinated around the Ariba Live worldwide user conference. This gave all the bankers access to a wealth of in-depth content and to our customers. They could start their due diligence on-the-spot.

No BS—It was vital for us to see how they would add value to our own strategic thinking. And we didn’t want to wade through a lot of pre-packaged, canned “fluff.” So we created our own structured format. Each team was required to present to us:

  • A “road show” pitch with two team members playing our CEO and CFO
  • A “road show” presentation deck
  • Internal selling reports intended for their retail brokers
  • Internal marketing materials
  • Ideas for use of proceeds (companies to acquire)

To merge the strategic thinking of the banker teams with our own, we required them to give us access to all information and materials presented for our own use.

Maximum Leverage—The best-of-the-best bankers were invited to attend. That meant we automatically had the best investment analysts looped in. Even if they weren’t selected, the analysts who would have the greatest impact on our stock performance would be engaged and initiating coverage.

Like so much of what we did at Ariba, we rethought the traditional approach and came up with something better and faster. There were doubters. Conventional wisdom held that these fierce competitors would never agree to meet in the same room. They did balk at first, but only one chose not to attend. At least that made it clear who would be leading our competitor’s IPO.

Our approach immediately paid off. Having a single briefing event, coordinated with Ariba Live, enabled us to include more of the Ariba leadership team. This added greater depth and perspective to the briefing, and built a strong sense of involvement across our whole team.

On the first day of the event, the room was set up with ten tables in two rows. Watching the banker teams jockey for position as they arrived was entertaining. Of course, just as the event was starting, we discovered that the projector wasn’t working. In hindsight, I wish I had planned the failure on purpose, because the reaction of the teams was revealing.

This was a room full of THE best technology bankers and analysts. As I worked on the problem, none of the biggest brains of technology moved or offered help, except one: Morgan Stanley rock-star analyst Chuck Phillips. He quietly stood, walked over and made a slight adjustment that resolved the problem. Now, this isn’t how you choose an investment banker, but in my book, Chuck hit a grand-slam home run for the Morgan Stanley team in their first “at-bat.”

The biggest portion of the competition was the team presentations. The genius of this approach was that it kept the bankers from talking about themselves, and forced them to talk about US. This revealed a lot about each team’s personalty and style. Most important, it exposed their understanding of our business.

The Bank of America team presented their two-person road show “pitch” dressed in baseball uniforms, made up to look like CEO Krach and me. They even copied my mustache. As the two bankers took turns pitching, one presenter would toss a baseball to the other every time there was a hand-off. This was dramatic and entertaining, and gave us the impression they would be fun to work with during a grueling IPO process.

Of course, some of the teams presented in a more buttoned-down style, but the ones that took a more causal, personal approach left us with more positive impressions. Morgan Stanley’s Chuck Phillips and Mary Meeker demonstrated real grace under pressure when, as Mary opened the session, she spilled her coffee on Chuck.

Without missing a beat, the pair told a couple “on-the-fly” jokes that—almost—made the spill look planned. More than their ability to make light of the situation, this showed their ability to function well under fire. Also, the whole Morgan Stanley team, including Morgan’s current head of technology banking, Andy Kearns, didn’t show stress about the spill but added to the fun of the moment. It was a double in Morgan’s second at-bat.

As we interacted with the teams through the rest of the selection process, their DNA showed more and more clearly. Our structured, all-at-once approach gave us a better understanding of how each banking team thought and worked than I’ve ever experienced in any other IPO. This enabled us to focus our discussions on how they would execute. Also, reviewing each team’s internal marketing and prep materials showed us where we had to work to improve their understanding of our business.

At the conclusion, instead of a stack of cookie-cutter slides and materials that showed why every bank was the best, we had a collection of unique presentations and experiences that represented the best thinking and creative work of each team. Our process also required them to build a real understanding of our business and show us how they would market OUR IPO, not just AN IPO.

Did all this work? We’re convinced our process helped us choose the very best banking team, in record time. We selected Morgan Stanley to lead the IPO under the direction of Paul Chamberlin and Andy Kearns, with co-management help by B of A Securities. Our selection and preparation paid off. After an intense three-week roadshow we were 40x oversubscribed. Every institution wanted an allocation. And we managed to hold our IPO eight days ahead of our competitor, making theirs a bit of a “me-too” event.

On our first day of trading, Ariba’s stock, priced at $23 per share (up from the original proposed range of $16 – $18), opened at $67 and closed at $90.

After the IPO, all the teams that participated in our process initiated coverage of Ariba and started their analysis with a deep understanding of the company, the markets we served, and our team. This motivated other analysts to cover the company and to compete with equally high-quality content. This was a huge win for all—especially our shareholders.

Our process helped us build a strong, lasting, personal bond with the Morgan Stanley team. To get a sense of this and their unique DNA, check out the poem the team wrote to commemorate the event. Yes, they wrote a poem.

The moral of the story is that if you want to make the best decision, on your own timetable, you’ve got to control the process. What we did at Ariba might not be perfect for you. That’s ok. Just make sure you’re putting yourself in the driver’s seat. Define your own decision criteria. Determine what you need to know to make your decision.

Whatever you do, don’t get in a position where you’re just reviewing information that bankers send to you. This is an invitation to them to sleep-walk through your IPO. Instead, think about how you can push the bankers out of their comfort zone and force them to think about your business, and work to win it. This way you’ll see not only how well they think and understand you, but how they execute under pressure. This is your IPO. Be in control.

About Ed Kinsey

Ed Kinsey is a serial entrepreneur, whose past includes success as an inventor, motivator, and fundraiser. He is the founder and inventor of the technology behind Impel, Inc.. He is also a co-founder and former Executive Vice President of Ariba, Inc., a leading provider of Spend Management solutions, acquired by SAP in 2012. He is an active start-up venture capital investor in Silicon Valley through his venture capital fund, Determination Ventures LLC, and as a partner in The Kinsey Hills Group.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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