Analyst Education during Your IPO Process – Part II: Financial Diligence Meeting

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Initial public offerings (IPOs) are one of the most important milestones for many companies. During the IPO process, analysts are required to conduct formal diligence of the market opportunity, the unmet need, your company’s solution and your prospects for long term growth and business viability. Companies typically initiate this by hosting an Analyst Diligence meeting, followed by an Analyst Financial Diligence Call—both with the entire group of analysts and their associates. Throughout the process, there will be additional diligence calls with industry participants as well as subsequent company hosted calls and meetings to review any outstanding items.

Last week, we wrote about the Analyst Diligence meeting and what to expect. In this week’s blog post, we are focusing on the Financial Diligence meeting, bearing in mind that these two meetings (or calls) are related to one another in the broader context of analyst relationship development and education.

Analyst Financial Diligence Meeting
The primary purpose of the Financial Diligence meeting is to review the financial model, historical performance and future projections. This discussion will provide the framework for how analysts should think about the business on a quarterly, annual and long-term basis. Almost universally, the financial diligence meeting is separate from the initial analyst diligence meeting, following it by a few weeks or more.

What You Should Expect
This is a condensed meeting that is focused on the financials and is usually scheduled for 1-2 hours. Typically, this is a call rather than a meeting, and we expect that to continue in today’s environment.

  • Companies normally present between 10-25 slides, focused exclusively on quarterly performance, KPIs and assumptions behind forward projections.
  • Most companies include current year quarterly projections and three-year forward annual projections.
  • Plan for this discussion to be much more interactive than the original diligence meeting; the analysts use this information to create their revenue builds, so they are stress testing assumptions.

What the Analysts Expect
The analysts are looking to use this time to understand how you expect your company to grow over the next few years.

  • The analysts expect you to provide enough information that they can understand the assumptions behind your projections and build their models.
  • Ideally, you can tell them what metrics you will be providing once public. This is important as they want to include items that they can update over time.
  • Key questions the analysts will want to have answered during this discussion include:
    • What is your addressable market opportunity, and how should they differentiate between theoretical and addressable markets?
    • How will you penetrate your market, and how will you expand the opportunity over time?
    • What are the current market dynamics and assumptions on ASPs, share capture and competitive dynamics?
    • What are the right metrics to demonstrate success?
    • Are the growth rate estimates achievable based on their understanding of market dynamics and your strategy?
    • What are the appropriate sales and support structure with commensurate expenditures and margin expansion as you grow?

A Few Helpful Hints

  • Be prepared to have multiple follow-up discussions with individual analysts as they conduct diligence and construct their models.
  • Following the financial diligence call, if you haven’t heard from one or more of the analysts, reach out to schedule time to answer their questions. It’s in your best interest that their model accurately represents your business.
  • Prepare a Q&A document and practice. The analysts will ask provocative questions, and you don’t want to be caught flat-footed or seemingly ill prepared. It’s OK if you answer that you will circle back with them later, but know in advance that is the plan.
  • Stress test your assumptions and be prepared for push-back. Don’t get defensive; this is part of the process.
  • Ask to review the model before it’s final—this is one of the last chances you have to provide feedback down the P&L while you are still private.
  • Plan to send electronic copies of your slides, and, if possible, the financial model information in Excel, before the call. This will give the analysts time to review the materials and come to the meeting prepared with thoughtful and productive questions.

We have extensive experience working with management teams through the IPO process, from preparing for the analyst diligence meetings to thinking through metrics and KPIs on a historical basis and for guidance. If you would like to discuss more about planning for an IPO, contact our team today.


Lynn Lewis, Founder & CEO and Kelly Gura, Analyst 


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