# Required Revenue for a Company to Go Public: Insights by @ttunguz
Going public is a significant milestone for any company, marking its transition from a private entity to one that is publicly traded on a stock exchange. This process, known as an Initial Public Offering (IPO), involves a myriad of financial, regulatory, and strategic considerations. One of the most critical factors that potential public companies must evaluate is their revenue. In this article, we delve into the insights provided by Tomasz Tunguz (@ttunguz), a well-respected venture capitalist and thought leader in the tech and startup ecosystem, to understand the required revenue for a company to go public.
## Understanding the IPO Landscape
Before diving into the specifics of revenue requirements, it’s essential to grasp the broader IPO landscape. Companies typically pursue an IPO to raise capital, provide liquidity for shareholders, enhance their public profile, and use publicly traded stock as currency for acquisitions. However, going public also subjects companies to increased scrutiny, regulatory compliance, and market pressures.
## Revenue Benchmarks: What Do Investors Look For?
According to Tomasz Tunguz, there isn’t a one-size-fits-all revenue threshold for companies aiming to go public. However, historical data and market trends provide some benchmarks:
1. **Annual Recurring Revenue (ARR)**: For SaaS (Software as a Service) companies, ARR is a crucial metric. Tunguz notes that successful SaaS IPOs often have an ARR of at least $100 million. This figure demonstrates a company’s ability to generate consistent and predictable revenue streams.
2. **Revenue Growth Rate**: Investors are not just interested in current revenue but also in growth potential. A high growth rate can compensate for lower absolute revenue figures. Tunguz highlights that companies with annual growth rates exceeding 30-40% are more attractive candidates for an IPO.
3. **Profitability and Margins**: While many tech companies prioritize growth over profitability in their early stages, approaching an IPO often necessitates a closer look at margins. Gross margins above 70% are common among successful tech IPOs, indicating efficient operations and scalability.
4. **Market Position and Competitive Advantage**: Revenue alone isn’t enough; companies must demonstrate a strong market position and competitive advantage. Tunguz emphasizes the importance of a compelling narrative around market leadership and differentiation.
## Case Studies: Learning from Successful IPOs
Examining recent successful IPOs can provide valuable insights into revenue benchmarks:
1. **Zoom Video Communications**: Zoom went public in April 2019 with an ARR of approximately $330 million and a year-over-year growth rate of 118%. Its strong financials and market position made it an attractive investment.
2. **Snowflake Inc.**: Snowflake’s IPO in September 2020 was one of the largest software IPOs in history. The company had an ARR of around $500 million and a growth rate exceeding 100%, showcasing its rapid expansion and market potential.
3. **DoorDash**: DoorDash’s December 2020 IPO highlighted the importance of market leadership. With revenue of $1.9 billion in the first nine months of 2020 and a growth rate of 226%, DoorDash demonstrated its dominance in the food delivery sector.
## Preparing for an IPO: Strategic Considerations
Tunguz advises companies to consider several strategic factors when preparing for an IPO:
1. **Financial Health**: Ensure robust financial health with clean audits, strong internal controls, and transparent reporting practices.
2. **Scalability**: Demonstrate the ability to scale operations efficiently while maintaining or improving margins.
3. **Market Timing**: Assess market conditions and investor sentiment to time the IPO for maximum impact.
4. **Regulatory Compliance**: Prepare for rigorous regulatory requirements, including SEC filings and ongoing disclosure obligations.
5. **Investor Relations**: Develop a strong investor relations strategy to communicate the company’s vision, performance, and growth prospects effectively.
## Conclusion
The journey to going public is complex and multifaceted, with revenue playing a pivotal role in attracting investor interest and achieving a successful IPO. Insights from experts like Tomasz Tunguz underscore the importance of not only meeting revenue benchmarks but also demonstrating sustainable growth, profitability, and market leadership. By carefully preparing and strategically positioning themselves, companies can navigate the IPO process and unlock new opportunities for growth and expansion.
For more insights from Tomasz Tunguz on startups, venture capital, and technology trends, follow him on Twitter @ttunguz.