Thread by @mario_cibelli

The IPO was priced at $15 not long ago & now the shares are at $4. There's a promising business or brand and the balance sheet is in good shape. The company has a low burn or maybe even makes some money but no one seems to care in this market. #SMidOrphans (1/x)

There's an increasingly large class of broken IPO SMID orphans. The speed at which companies have joined this club recently could give any CEO or board whiplash but they would do well to learn a few things as quickly as possible...for everyone's sake.

These thoughts are very incomplete as there's too much to cover, so I'll highlight just a few key issues that the senior teams of orphaned IPOs should try and get in tune with.

Of course it goes without saying that running the core business intelligently and executing well remains the top priority for any team including all the newly created orphans in the marketplace.

It's highly likely that the orphan's original shareholder base has completely turned over. A new class of shareholders has showed up and they likely have very different views than the ones that bought into the IPO at double or triple the current price.

It’s a good bet that the new owners will be asking lots of questions. Improved disclosure and sharing more relevant data on the business can go a long way toward establishing credibility with the new base of shareholders.

Sticking to the past disclosures and/or resisting valid questions - ‘we haven’t disclosed that historically’ - may suggest that something needs to be hidden from the owners and in this environment the share price will reflect investors’ worst fears on items left unanswered.

Bankers may have advised pursuing an aggressive growth story to help attain the original IPO valuation and first day pop. The new base of shareholders may be seeking the exact opposite of a fairy tale narrative.

In fact they may view the unwinding of that narrative as a positive catalyst for their investment.

This is a really key point. The vision that was sold on the road show may now be viewed as an impediment to driving shareholder returns from the current depressed levels.

Turning off overly aggressive investment spend outside of core competencies and driving higher current income is being rewarded in this market and CEOs should expect to be pressed on this topic.

Orphan owners won't object to all investment spend but they will want to make sure it's based in current economic reality and offers realistic opportunities of growing shareholder value.

The last thing they want is the management team sticking to a banker designed growth story that is out of sync with the current environment and no longer economically viable.

Unfortunately, I believe it's very tough for most organizations to give up on the lofty expectations of the past & pivot to a more realistic set of goals despite the benefits. It's a tough call to make for many orphans but delaying it will not serve anyone's best interests.

It might be good to gut check the original vision of the business versus what the advisors suggested would make for a better story to market.

If the road show story increased the marketable TAM but deviated too far from the original vision, it's probably time to restore a more realistic set of goals.

Orphan owners might start asking about share buybacks - after all the stock price has been wrecked. If there's a good balance sheet & the EV has fallen a lot harder than the market cap then it may be a very reasonable ask depending on the current P&L and forward trajectory.

Advisors and insiders may question the 'signal' that a buyback 'sends to the marketplace' about future growth prospects but CEOs need to consider who is worth signaling at this point.

The original investors are likely long gone given the 'broken' growth story so the reality is that there's really no reason to message them anymore. It makes far more sense to engage with the current shareholders and understand their viewpoints.

Teams that demonstrate their belief in the equity via buybacks and/or insider buys send a much stronger message than those that seemingly ignore depressed prices and remain anchored to outdated IPO roadshow visions.

SBC...it always was a real expense, even when shareholders weren't asking about it. Orphans can't ignore it in the current environment. Growing businesses get some leeway as they scale but start treating SBC like the real expense that it is.

Side note: Two classes of shares may offer insulation from the pressures of the marketplace concerning change but it also can keep leadership 'safe' from making the hard but right calls for the business.

A good piece of advice for insiders is to make decisions and act as if there wasn't a dual class structure in place.

In my experience many teams will initially resist working toward a new and more realistic set of goals. Sadly many orphans will eventually conclude that a pivot is the right thing to do but only after wasting a lot of time and precious resources pursuing prior narratives.

Teams making the tough calls quickly in the current environment are worth their weight in gold. Those clinging to past regimes and ignoring value enhancing opportunities will be discounted which will only further exacerbate the pressures on the organization.

Good outcomes are available in orphans as the marketplace eventually sorts out where ownership of all these businesses belong. Two of my favorite orphans from the early 2000s were John Nuveen & 1-800 JR Cigar. Both went private relatively quickly after the bubble popped.

Better outcomes are certainly on the table too - $EXPE $FB & $NFLX were broken IPOs once. There are always a few real gems to be found in the wreckage.

So these were just a few thoughts derived from over two decades of orphan investing. By no means is it a full set of recommendations/considerations given the all the complexities/differences from one company to the next. (end)