When start-ups go public

As a private company, meeting with and updating major investors meant dealing with one man, Oracle chief executive and major NetSuite investor Larry Ellison. Post-floatation, the group of major investors has swelled as institutional investors and fund managers signalled their confidence in the business by buying into the heavily over-subscribed share offer. Now those meetings are more frequent and far bigger, with a much wider set of interests, issues and priorities that must be addressed by Nelson and the other investor relations staff at NetSuite.

"Everyone in the organisation has had to step up and take on more responsibility since the IPO".

Business objectives

"Staff as shareholders creates some interesting challenges. For one, it is all too easy for some people to begin to confuse business goals with missions," said Nelson.

"There are three things that a business needs to stay on top of as it grows - the company vision, the finances and the people. In order to ground the company you need a broad vision for the business, clear leadership and direction, as well as a clear idea on what to do next. The IPO forced us to solidify the plans for the business".

Of course, going public is not all about the negative or restrictive aspects of investor scrutiny. While public status brings with it tighter and more precise operating requirements, making the step up to a IPO, especially when listing on a main exchange such as the New York Stock Exchange (NYSE) or London, can help focus the business and its staff on the bigger picture.

"The most positive effect of going public has been that it has focused everyone working at the company on achieving the core business objectives."

With floatation comes a host of new investors, all with their own priorities, mostly based on making money from their investments. However, any company in this position faces the task of managing investor expectations about business objectives, while still executing the board's plan for the business.

"All businesses have the objective to make money, in the short term and the long term. With more investors and interest in the business, there is a pressing need to manage expectations, particularly among those investors looking for profitability in the short term. These will be the people asking why a business can't make a profit, or why it can't move to profitability faster by hiring more sales staff," Nelson said, going on to explain that hiring an additional army of sales staff overnight may well deliver a short-term boost in sales and potentially profits, but would undermine the longer term prospects for the company, as well as damaging the company's growth and budget forecasts.

"The IPO has given the business some more freedom in terms of capital expenditure, but Wall Street will not let you blow your numbers. We can't just go out and spend $160 million (£80 million) in one quarter".

The original plan was to raise around $99 million from selling 10.4 per cent of the company, giving the company a valuation of around $950 million (£475 million). The higher opening price will give the company a windfall of around $80 million (£40 million) over and above what the company had planned to raise.

"Our investment plan is funded by growth in the actual business," Nelson added.

Investing in the business

The money raised by the IPO will not sit in the bank, Nelson and the board have plans to invest to grow the business, albeit in a steady and sustainable fashion.

"We have kicked off the selection process on the East Coast of the US for an additional data centre."

"We also have got a lot of people to hire. We have opened new office locations in the US and are looking at Dublin to expand our presence in Europe."

Those staff will come from a variety of backgrounds, and while there is a need for experience to help the business develop, Nelson argues that internal development still has its place, even in a young business such as NetSuite.

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