Zynga’s about to go public. Groupon and Angie’s List just did. And, until the middle of August, social media and tech companies were lining up for their IPOs and executing them. Of course, Facebook is waiting in the wings. In a way, it feels like 1999 all over again … the difference being that we have the lessons of 1999 this time around. And perhaps the greatest is knowing when a company really is ready to go public.
As you watch the social media companies in the IPO pipeline prepare to ring their celebratory opening bells, it helps to know just how ready they are to ascend the podium. Here are some questions you should ask:
1. Is the company’s revenue sufficiently diversified? Or, is it putting all its eggs in one basket?
2. Are we still talking about what the company could do, or are there real earnings numbers to show that it can realize its potential?
3. What investments has the new company made? Sometimes, there are a few things to clean up before going public (e.g., investing in new IT systems).
4. What’s wrong with the company? Nobody’s perfect, and it’s better to know what problems are lurking and see how the company plans to deal with them.
5. How many clients does the company have? How is it balancing expanding those relationships and developing new ones?