Fintech IPOs: Four foundational keys to success
It’s a fascinating time for fintech. The virtual-first environment has accelerated the adoption of many of the industry’s innovations, while a significant amount of money is up for grabs in the capital markets. More and more fintech companies are considering pursuing a public listing via an initial public offering, a special-purpose acquisition company, or a direct listing. Of course, this entails rock-solid financial and operating processes and practices - table stakes for any company looking to go public.
A fintech’s approach to specific aspects of their business ahead of - and after - a public listing can either amplify that success or negate it. Building out proactive and innovative approaches can make a company an attractive business partner for larger organizations and enable scalable growth. It is therefore advisable to invest in these areas in advance of a public offering.
How can a fintech embrace the 'fin' in 'fintech'? Let’s explore four areas of focus to think about.
1. Governance structures that inspire trust
Turning governance into a competitive advantage requires some extra effort. As a public company, fintechs need an internal control environment that establishes appropriate lines of defence that can enforce and systematically monitor operational effectiveness, reliable and timely financial reporting, and consistency in regulatory compliance. Fintechs will need corporate governance procedures that clarify roles, responsibilities and decision-making processes and set the tone for behaviour in the organization.
Investors are trusting fintechs with their money. To foster that trust, fintechs need to demonstrate a steadfast commitment to compliant and reliable execution.
2. Capital and liquidity planning ready for any environment
Financial discipline is a must. Public company shareholders often don’t have the same tolerance for growing pains as venture capitalists. They also may not want to hear about the profits that are coming—they may prefer to see those results immediately or at least understand the clear path to get there.
Building capabilities to perform ongoing sensitivity analysis to stress capital and liquidity positions, resulting in a forward-looking financial plan, can instil confidence and enable informed decision-making. It also helps fintechs become a company that, during periods of economic uncertainty, can double down on investment and grow market share instead of hunkering down and simply trying to survive.
3. Compliance capabilities that enable organisational growth
The regulatory landscape is always changing. Meeting existing requirements and being able to adapt to new ones without slip-ups will keep shareholders and partners happy. But that should only be the start. A fintech company can stand out by developing processes that look ahead and anticipate changes from key US regulatory bodies, such as the Fed, OCC, CFPB and SEC, state regulators, and even those of other countries if a fintech has (or plans to have) international operations.
By working to strategically address regulatory changes before they go into effect with smart, innovative, and agile operations, a fintech company can pivot more quickly. Fintechs can also be a first-mover on business opportunities that may arise due to emerging regulation.
4. Risk management strategies that bolster the brand
How a fintech manages risk as a public company is a signal for how responsibly a fintech is running their company and how confident they can be in their future. That risk exposure is determined by topics like a company’s balance sheet, loan portfolio, investment portfolio, systems and data reliability/protection.
Any risk-related missteps will likely be amplified when a company is in the public eye. By investing in a vision for enterprise risk management and engaging the right talent and governance process, a fintech can flip risk from a matter of due diligence to a strategic mechanism that monitors the health of the organization, anticipates threats and opportunities, and addresses them with speed and agility.
The time is right. Are you ready?
When becoming a public fintech, regulation and compliance can overshadow the technology story if they are not thoughtfully and effectively executed. Internal controls and corporate governance become an important part of how potential shareholders and regulators will evaluate a company’s ability to grow.
Approach these aspects as opportunities for innovation and differentiation from day one as a public company, and a fintech will likely gain a competitive advantage.
This article was contributed by Sandeep Gupta and Kirby Rattenbury, Audit & Assurance Partners and national fintech co-leaders, Deloitte & Touche LLP