Tom Hughes


Raising money is a huge part of being a CEO, but nothing can fully prepare you for the experience of taking your company public.   Together with our team at Zafgen, I recently had the experience of taking our company public through the IPO route (here and here), and it went well by most accounts.  Despite choppy market conditions, we raised more than we had anticipated.  This will allow us to consider new ways of strengthening our programs.

Since the IPO, I’ve gotten lots of questions from people who are considering the public option.  Taking your company public is a relentless activity that provides a very intense, high-class, and rich learning experience.  I thought I’d consolidate the key messages from our IPO for people to read and make comments if they’d like.  I won’t review the actual process of going public – you can find that in many places (for example, see here).  Like many of life’s most meaningful challenges, you’ll never really understand what it is like until you go through it yourself.  If you are contemplating an IPO this might help you to prepare for your own personal journey.

Make sure your company’s stock is a good investment in the first place

It’s a simple matter, really.  You’re making a case that by accessing the public market you’ll be in a better position to raise capital, and that you have a reasonable plan to increase the value of your shares by generating results that matter.  Ask yourself, your board, and prospective investors to challenge your thinking.  In recent years, we have been fortunate to have had many discussions in the board room, with analysts, and with potential investors regarding value creation.  These certainly impacted our company’s trajectory and made the IPO possible.

Date some bankers

It is important to have bankers who understand and genuinely like your company, management team, and who believe that your IPO will be great.  Get introduced to people at a large number of banks and get to know them before you need to.  Once you’re going out you’ll be spending lots of time with these people – more than you might have imagined – and it’s always best to spend time with people who appreciate your story.  We went out with a really great group of banks – Leerink Partners, Cowen and Company, Cannacord Genuity, and JMP Securities.  These banks are great to work with, are deeply connected in the biotech investment community, and also have great relationships with key investors as well as generalist investors.  No regrets.

Get to know your analysts

Analysts matter.  Possibly the most critical piece is to be sure that the bank’s analysts cover your space, understand your company, and are willing to support the decision at the bank to go public with you.  Get to know the analysts BEFORE you start choosing banks.

A bad fit with analysts will create obstacles – the bankers will have more turbulence to fight in their own shop than is desirable, leading potentially to delays, false starts, or a lack of alignment.  The other benefit of getting to know the analysts early is that they ask fantastic questions.  If you listen to them carefully, you might find real opportunities to improve your company, strategy, and story.

Test the waters

The “Testing the Waters” opportunity that was made possible by the JOBS Act is critically important.  These are investor meetings that are held in the time between your confidential S-1 submission and your non-confidential filing, allowing you to try out your investment pitch on willing investors.  This gives you the opportunity to deepen your relationship with public or crossover investors, with whom you’ve hopefully already been meeting, and to get feedback on your presentation.  Some of the feedback will be nit-picking, while some will help you better shape the pitch or more logically tell your story.  Listen to them with an open mind – it’s some of the best advice you’ll get.

Craft your road show presentation

Figure out what investors need to know about your company and put that right up front.  Technology, team, pipeline, plans, value proposition, cash flow.   Your bankers will be invaluable in crafting your roadshow presentation and will help you stay in the within the boundaries of your S-1.  They know what you’re going through and are one of your greatest assets at this stage.  Beyond your bankers and board, find someone who has done this – RECENTLY – and ask them for feedback.  Ask everyone in your circle, including your lawyers. You won’t really need to ask the lawyers, because they will look at everything anyway.  They will have a lot of good advice to add, too.  We were really lucky to have a fabulous team of lawyers on the task – both our own team of lawyers at Goodwin Procter and the underwriter’s lawyers at Ropes & Gray were phenomenal and a pleasure to work with.

Timing matters a lot – but that is a largely useless notion

Well-intentioned people (including your board) will tell you over and over that timing is everything, but in truth it is really – really – hard to know when the time will be right for your company.  The market rises and falls, the interest in IPO investing waxes and wanes, and your given area of interest comes and goes in the minds of investors.  The only leverage you can gain over timing is readiness.  Get on file confidentially, and get cleared with the SEC so you’re never more than a month or so from the road when conditions improve.  It’s like surfing.  If you aren’t in the water you’ll never catch that monster wave.

To give yourself needed slack to wait for that monster wave, keep your cash on hand at a healthy level.  If you are six months or more away from an IPO, raising a crossover round makes a lot of sense – this allows you to develop relationships with public investors (who also are open to making private investments under the right conditions) while you strengthen your cash position. These crossover investors can be a great source of advice for the program and pitch, as well as a potential source of early orders in your IPO.  Raising a crossover round with high-quality investors also increases the confidence level for IPO investors, in part due to the extensive diligence that is a key part of the crossover round process.  We closed a crossover round in November 2013, roughly seven months before we went public.  This round brought us great investors like Fidelity, RA Capital, Brookside, and Venrock, who have fantastic credibility in the community.  Having them on board helped a lot.

You can use down time to further develop your path forward so your company’s story is ready for public investors.  Completing key gating activities – like finishing a trial, getting regulatory input, or working the bugs out of a manufacturing process – will help, and also will make the risk factors section of the S-1 less imposing.

So you’re heading out on the road – Brace yourself

Get ready for a relentless, mind-numbing, insane rush of meetings with many of the world’s top investors.  The road show will take you to different cities every day – often 10 or more meetings per day, for the entire show.  When you aren’t physically meeting with investors, plan for meetings on the phone – with investors, your banks, or your board – while you are speeding between locations in a large black SUV or waiting at the airport.

Brief yourself immediately before every single meeting.  Who are these people?  What investments have they made before?  Have you met them before?  Whenever possible, weave some added context into the meeting that says “you’re different and we want someone with your perspective and experience in our investment family.”  Have someone on your team keep notes – you’ll want to remember who you’ve met, since you’ll need to discuss allocations of the orders at the end.  Depending on your bankers, you may have a chance to direct the book toward those who you feel will make great investors for you.

One size does NOT fit all

Every meeting is different.  Some investors will read the S-1 and may watch “the NetRoadShow”, a web-accessible video version of your live presentation.  The video gets taped by your banks shortly before you head out on the road.  Other investors won’t be briefed, which means you’ll need to figure out a game plan to maximize the impact of each 45-60 minute meeting.  To be sure you get your message across, be prepared for anything and go with the flow.  Know your key points and nail them.  Every. Single. Time.  We gave our key messages at least three times in every meeting.

Show some skin

Lots of investors focus on the team.  They are, after all, investing in you.  Tell them about yourselves and how you’ll be good stewards of their money.  Just be careful not to spend too much time on yourselves to the point where you run out of time for other key points.  We introduced ourselves one by one at every meeting.  Zafgen team photo - in BaltimoreWe also told them about our team, especially our founding CSO, Jim Vath, who kept the shop running while we were out.  Jim was our version of Michael Collins, who you’ll remember as the Apollo 11 command module pilot who circled the moon while Neil Armstrong and Buzz Aldrin landed on the lunar surface.  You gain credibility by telling them about key people who may not be on the road – so don’t forget to share information about the team back home.

Ask investors for their investment, and mind your manners

Investors are, after all, people who are considering taking a risk on you and your company.  They may have taken a lot of time and effort to educate themselves on your company, and may be looking for that human connection.  Look them in the eye and ask for their participation.  It seems so simple, but it is very easy to forget when you are under strain.  Don’t forget to thank them after, either – once your quiet period is over.

As one of the most demanding experiences in your life, the road show will change you

I’m reminded of a quote from Haruki Murakami, who wrote “When you come out of the storm, you won’t be the same person who walked in.  That’s what this storm’s all about.”  The IPO is grueling physically, emotionally, and mentally.  It will sleep deprive you, test the limits of endurance to tell your story over and over and over, and it will wear out your throat.  You’ll get headaches, and your eyes may twitch.  Be ready for that, and rest when you can.

Recognize that your board and investors may be just as petrified as you are

Their anxiety may explain the edginess you’ll sense during the time you’re preparing for the IPO and getting started on the road.  Remember, they have been with you for a long time, they’ve lived the story, and are essentially powerless to help to any appreciable degree during the IPO.  Your investors will be measured by their own investors on the returns that the IPO generates for them.  Remember that they care deeply about your success on the road, which is a direct reflection on them, and cut them slack.  They’re on your side.  Also – send regular updates to the team back home – like your board, they will appreciate any news you can send.

Enjoy the ride

Have fun.  Nobody wants to be around a grumpy CEO – stay positive.  Stay caffeinated, if that’s what works for you. Tell dumb jokes between meetings.  Involve your team in the presentation – keep them on their toes by giving them surprise tasks during the presentations.  Importantly, let them know how they can help you.  I was really lucky to have an experienced team – our CFO Patty Allen and our CMO Dennis Kim were seasoned road show veterans, and our CCO Alicia Secor just knew how to be ‘on’ for the show.

Fuel yourselves with good snacks, because you will NOT have time to eat.  Don’t forget to take time to smell the roses when possible – or make a quick stop at In-N-Out Burger.  Take some gratuitous selfies with the team to share back home.  Make the most of airport delays.  High-five each other when you have a particularly good session or get word of an order.  After all, it’s why you’re doing it.

Every meeting counts

The first investor meeting matters.  The meetings in the middle matter.  The last investor meeting matters just as much as any of them.  In competitive sports, it is often a commitment to sustained effort that makes the difference between teams that win and teams that ‘also ran’.  We were delighted to get orders from our very last meetings, even though we were running on fumes.  Curbside affirmations after getting out of the limo, and team huddles in the elevator on the way up, helped us to stir up enthusiasm when we needed it.

When it’s over, reflect

There are lots of lessons we learned through our road show experience, and it would be a waste to not share them.  You’ll see the strengths and weaknesses in your team, your strategy, your programs, and yourselves.  After the road show, a look in the mirror is definitely in order, because now you’re running a public company.  You will need to see your company as your investors see you.

These are things I wished I had known before.  I wrote this piece to share some of my experience with those who are on the path to an IPO.  For others – hopefully you found this interesting as a source of insight.

Thanks for reading – back to running the company now.  Drugs don’t develop themselves.

This entry was posted in Atlas Venture, Biotech financing, Biotech startup advice, From The Trenches, Portfolio news and tagged , . Bookmark the permalink.
  • Seth Lewis

    I’ve been doing IR and banking for a decade, and you are among the minority of CEO’s who (at least on paper) seems to get it. your advice is simple, but like most thingsvery difficult to master. Well stated.

  • MikeG

    This is a great insider’s view of the IPO process – both the nuts-n-bolts of it and the lived experience. Thanks

  • haiping choo

    Great post! Really tells the insider story on the biotech IPO process. Hopefully there’s a follow-up soon!

  • http://www.pfenex.com Patrick Lucy

    Having just completed our IPO this could not have been better written, this is a great piece, well done.