The Role Of FP&A In Being IPO Ready With Jeff Bernstein
In this episode of FP&A Unlocked, hosts Paul Barnhurst and Glenn Snyder sit down with Jeffrey Bernstein to explore how finance leaders can better communicate financial insights and influence decision-making across an organization. The conversation focuses on the gap between technical financial knowledge and the ability to clearly explain what the numbers actually mean to non-finance stakeholders.
Jeffrey is a Senior Managing Director and Head of Capital Markets Advisory at Riveron, a leading advisor to the Office of the CFO and Private Equity. Early in his career, Jeff was a Managing Director at Goldman Sachs, where he helped execute IPOs in the technology sector for over a decade. Afterward, he spent more than 15 years as a portfolio manager investing in disruptive public and private companies. For the last eight years, Jeff has served as a trusted strategic advisor to pre-IPO companies, guiding them toward successful public exits.
Expect to Learn:
Why finance professionals play a crucial role in the IPO process
How to prepare a company financially for a successful public listing
The importance of building financial trust with public investors
How to evaluate the readiness of your financial systems and team for the IPO process
Here are a few relevant quotes from the episode:
“The biggest change from private to public is transitioning from over-promising to under-promising and over-delivering.”- Jeff Bernstein
“Financial integrity isn’t just about the numbers; it’s about being transparent, avoiding gimmicks, and sticking to metrics that have real meaning.”- Jeff Bernstein
Jeff shares valuable insights on the complexities of going public, managing quarterly earnings, and maintaining investor trust. He also discusses how FP&A teams can help steer the company through financial reporting, forecasting, and strategic decision-making post-IPO.
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Follow Jeffrey:
LinkedIn - https://www.linkedin.com/in/jeff-bernstein-498a23158/
Company - https://www.linkedin.com/company/riveron/
Website - https://riveron.com/
Follow Glenn:
LinkedIn - https://www.linkedin.com/in/glenntsnyder/
Earn Your CPE Credit
For CPE credit please go to earmarkcpe.com, listen to the episode, download the app, and answer a few questions and earn your CPE certification. To earn education credits for FPAC Certificate, take the quiz on earmark and contact Paul Barnhurst for further details.
In Today’s Episode
[01:42] – Meet Jeff Bernstein
[04:58] – Transitioning to Public Company
[08:36] – The Role of FP&A in IPO
[12:44] – Investor Trust and Forecasting
[17:10] – Financial Integrity
[21:58] – Preparing for the IPO Process
[26:35] – Stress-Testing Forecasts
[30:42] – Earning Investor Trust
[34:18] – Organizational Behaviour Shift
[37:33] – Key to Success in IPOs and SPACs
Full Show Transcript
Host: Paul Barnhurst (00:37):
Welcome to another episode of FP&A Unlocked. Are you one of those finance people who's tired of being seen as just a spreadsheet person? Well, others get a seat at the table. Well, then FP&A unlocked is for you, where finance meets strategy. I'm your host, Paul Barnhurst, the FP&A guy, and this week I'm joined by my co-host, Glenn Snyder. Glenn, how are you doing?
Co-Host: Glenn Snyder (00:59):
Doing great, Paul. Thanks for having me back.
Host: Paul Barnhurst (01:01):
Yeah, really excited to have you here again. So each week we bring in different experts, thought leaders, practitioners who are influencing finance and FP&A, and we're thrilled this week as we have a special guest with us, Jeff Bernstein. Jeff, welcome to the show.
Guest: Jeffrey Bernstein (01:19):
Thank you for having me, Paul and Glenn, I'm excited to be here.
Host: Paul Barnhurst (01:23):
Really excited to have you. And just as a quick reminder before we jump into the episode, FP&A Unlocked is sponsored by Campfire. Campfire is the native ERP that's helping modern finance teams close, fast and scale faster. Alrighty, I'm going to go ahead and turn it over to Glenn, who's going to help introduce our guest for us this week and give us an opportunity to learn a little bit more about Jeff.
Co-Host: Glenn Snyder (01:47):
Yeah, so I'm excited because Jeff and I worked together at riveron. But Jeff, I'm going to turn it over to you to do a quick introduction of your background.
Guest: Jeffrey Bernstein (01:56):
Thanks for allowing me to wax on for a bit about that. But yeah, no, I've spent my whole career on Wall Street. So unlike a lot of folks, I come at this with a real Wall Street lens for pre-public and post-public companies. So I started my career as an analyst at a bank in their investment management group for four years. This is back in the mid-eighties. I wasn't a very good analyst. And so I had a guy at Goldman Sachs who said, you're not a very good analyst, but you sure understand stocks and companies really well from a high-level perspective. So why don't you come to Goldman? So I went to Goldman in 1989. I spent 10 years at Goldman really helping to take that big wave of networking, early storage companies, and of course the big software wave of the early nineties, and then in the late nineties.com and internet.
(02:55):
So I got an incredible education across a wide range of technology-focused companies that were very disruptive. But as we got later into certainly the dotcom process, a very mixed crew of readiness, I would say from a financial standpoint and really, really started to understand what it took to become a great public company. I left Goldman in 1999 as I kind of understood that the quality of companies was going public, was perhaps deteriorating a bit. And I had a client of mine who ran a really large hedge fund, and he said, why don't you come here?
(03:40):
You can invest long and short based on your knowledge of all of these companies and their ability to hit numbers, et cetera, et cetera. So I spent the next 15 years as a hedge fund manager, 13 years as a hedge fund manager investing in public companies primarily. We did have a private sleeve, but then switched to that other side where I had to evaluate obviously companies, whether on a short-term basis like owning a stock or being short of stock for a quarter or having very long-term investments. And so that required a different level of analysis than when you're a banker. So spent 15 years doing that. Started a multifamily office with a bunch of guys that we still have for six or seven years. And then I started a small advisory firm to help advise companies on a go public process what it took to become a great public company, to get ready for it all.
(04:37):
What were the real key work streams you had to accomplish, what were some of the best in class tactics and strategies, et cetera, and was able to turn that into a small successful company that we sold to another company. And then that got sold four years later at the peak of the last IPO cycle. And I was lucky enough to be recruited into riveron where I've spent the last few years doing the same thing, working with companies on their go public process from kind of investment banking advisory strategy standpoint and what it really takes to be a great public company and came to Riveron primarily because the long pole in the tends to be accounting and FP&A excellence. And so Riveron had that. I never had that. Bolting the two together I think allows a me to be a better advisor, but also to make sure that the company is taking the right steps with experts that we have at riveron to accomplish the things not only to go public, but to be public.
Co-Host: Glenn Snyder (05:42):
Absolutely. And so before we dive into the process, I know Paul, you have your question that you always like to ask everyone to kick off, so I'll turn it back over to you.
Host: Paul Barnhurst (05:50):
Thank you, Glenn. And this will be a little different. I know Jeff, you've obviously dealt a lot with FP&A, but never had to work directly in fp a, never had a different fp a role. So I'd love to get your perspective. Having worked obviously a lot with FP&A in different parts of the business for IPO readiness, what does great fp a look like from your perspective? When you think of great FP&A, what comes to mind?
Guest: Jeffrey Bernstein (06:14):
Well, it starts foundationally with budgeting. I would say you need to truly, a great organisation really has to well in advance of going public, really understand who they are from a financial perspective. And that really starts with the budgeting process. A and then B, being intellectually honest with your sales pipeline back, testing all of that to make sure that you can exceed Wall Street estimates. Again, you're converting to something where you have to report publicly where you're building trust with investors. And so if the cost side is not in tune with the pipeline side, this is where companies go off. So I think just an overall, I would say intellectual and operational honesty with what the business really is and using that honesty and openness internally with the CFO and everybody to really make sure that we know who we are, where we're going on a quarterly basis and having long-term goals, but earning the trust of investors over a period of time by doing what we say we have to give guidance and we've got to do it. And especially in those first four to eight quarters as a public company, if you miss a quarter, your multiple gets cut, you lose the shareholders you brought on initially. It's a long road back and history is littered with names of those.
Host: Paul Barnhurst (07:48):
Yeah, we've all seen what happens if you miss in one of those first quarters, especially if you miss big rarely does it work out well for you?
Guest: Jeffrey Bernstein (07:56):
No, rarely does. Very hard to come back from,
Host: Paul Barnhurst (08:00):
I really like how you use the term kind of being intellectually honest, right? FP&A has that ability to see the whole business and there are things that they should be bringing up that are sometimes those difficult conversations or that reality moment of yes, 20% growth would be great. Now let's look at our pipeline and see what it really looks like.
Guest: Jeffrey Bernstein (08:22):
The biggest delta of all, in my view, the biggest delta is when you're transitioning from a private company to a public company is that whether you are venture backed, especially if you are venture backed, you tend to be over promising and over China overachieve so much that the basic skill sets needed to be a public company are not in place. And it takes a change in organisational behaviour to go from that to kind of under-promising and over-delivery. Having the data that backs that up over 12 previous quarters that says, this is what we started with estimating and this is how we finished. And ultimately just making sure that we use that data appropriately when forecasting.
Host: Paul Barnhurst (09:20):
One more thing I'll say here, and then I'll turn it back to Glenn. If you know who Jeff Epstein is, the former CFO of Oracle, not the other Epstein. And
Guest: Jeffrey Bernstein (09:29):
A friend of mine, by the way. Yeah,
Host: Paul Barnhurst (09:31):
Great guy. He wrote an article that he called the Goldilocks, the Just Right budget about the budgeting process. And he gave three different examples. He's like, if you're a public company, here's how you need to be thinking about it. If you are doing your sales commissions and that sell, here's kind of that quote in how you need to think about it. He goes, there's also, there's the optimist, there's the realist, and kind of broke it all down. And it was a great article to think about all those different ways you have to think about the numbers and budgets because there's different purposes and different goals and what you say publicly can be very different than the conversation you're going to have with your sales team.
Guest: Jeffrey Bernstein (10:06):
For sure, for sure. And you have to have all those conversations. Jeff, just as an aside, I helped take his first company, DoubleClick public, and so I first got to know him in the late nineties and DoubleClick obviously became what in my mind, became foundationally important for the entire ad business, Google and others. He's done such great things over the last 10 years through his seminars and everything else in helping CFOs really understand that it's not just the numbers.
Host: Paul Barnhurst (10:45):
I fully agree. I had the opportunity to have him on the podcast. Great interview. Fabulous person, great guy.
Co-Host: Glenn Snyder (10:51):
So I want to bring up, first of all, I want to chime in a little bit because Jeff, I loved your definition. And Paul, I have to say it's probably one of the more unique definitions of best FP&A that I've heard since you were on the podcast. But it made me think of one thing, and Jeff, it was FP&A has to have a strong voice, right? When you're a public or a private company, a lot of times fp a gets bullied by the CFO, by the PE firm, by the CEO about, Hey, you what? I just want the numbers to be this. Go make the numbers this. When you're a public company, fp a needs to stand up and say, no, no, no, no, no, we're grounded in this. This is, we're going to get ourselves in trouble. And you've got to have that stronger voice, and it's something that you reminded me of, but I want to connect this. So we have probably a lot of listeners right now who've never been through an IPO process and let's get everybody grounded. Jeff, can you walk us through one, what just a general IPO process is like, and two, everybody's been hearing about SPACs over the last, I dunno, 10 years, and there's a difference between taking a company public through SPAC versus going through the full processing. Could you kind of describe the differences there?
Guest: Jeffrey Bernstein (12:02):
An IPO process really begins well before you have an S one that you're starting to draught. I mean well before an IPO process in my mind, generally, if you're a company that is evolved from a finance or perspective preparation for an IPO starts to take place probably two years before the actual IPO. And it's where you are starting to really dive deeper into are we ready for A-P-C-A-O-B audit, which also includes internal controls that we probably haven't built yet. It starts with early conversations with Wall Street analysts and public investors as to what they feel we would need as a company in terms of KPIs and other non GAAP measures that they will need from us to understand how they can model out the company. And so by starting early with that and then tacking to what are honest KPIs and creating effective non-gap measures and deciding how often are we going to talk about those KPIs, whether it's once in the S one or quarterly or annually, or making a lot of decisions ahead of time informed by analysts on Wall Street bankers and public investors by going out to some conferences.
(13:34):
And so you're allowed to do all of that to ask honest questions before you've selected banks. Once you start an actual process, that's when you are very limited in your ability to have open and honest conversations with these folks. That's when the S one kicks in. Anything you say has to be in the S one, et cetera, et cetera. So we always advise that companies from a preparedness standpoint start early so that they can then take the finance organisation and say, this is how we're going to go for an FP&A organisation. It's partly saying, look, we're growing 40% and we're not profitable yet, or we're growing 15% and we have 10% EBITDA margins right now. This is what our peer group that is public, this is what they typically do and this is how much in the last year, each quarter they've exceeded the revenue target or missed the revenue target by, are we comfortable with this here about what the public investors are going to expect from us?
(14:45):
So it's early on peer benchmarking and then obviously running a process of forecasting that ends up being what I call, we involve in mock earnings calls. So we always run for our clients, we suggest three quarters in advance of the IPO running a mock earnings process from close of the quarter all the way to the press release and the eight K and 10 Q filing, running that process so that they are well versed in what to expect, what happened that didn't meet needs, et cetera, et cetera. So again, process begins well before, and this is while I'll get into the SPAC thing after that, once you've decided on a lot of those kind of foundational financial metrics, then you've got to really dive into with obviously your accounting team, your internal controls team, you're going to bring on some new people obviously for SEC reporting, for SOCs and internal control stuff, you have to start really beefing up that finance org.
(15:54):
Obviously the FP&A organisation, people have different levels of depth there, but you have to really do an honest assessment of what you're going to have to spend in order to be really public ready and more importantly to continue on as a public company. So once you've decided on the what, then it's the who. And then it's about selecting the right advisors, not just us, but obviously creating a bank syndicate meeting with all the research analysts are going to be part of the syndicate because ultimately you're going to get them a forward looking model about six weeks or eight weeks before the IPO that they are then going to use as a basis for publishing research most likely afterwards. But it also forms the basis of what the filing range and valuation is going to be. That's what the banks use to say, all right, the peer group's trading at 10 times ebitda, we're going to give you an IPO discount of 10, 15%, et cetera, et cetera.
(16:53):
So the modelling, so the FP&A group, the CFO working with the analysts, it's the one time you're going to get to work with all of these research analysts in helping them develop their own models. That's a critical point. And that's kind of the go no go once you've given them your forecast model that lives on forever. So you have to be really sure that that forecast model has been stress tested and really hardened. So I'm not going to go into the whole banking related part of the process. I'm happy to if you would like to, but stepping up to that P-C-A-O-B audit, making sure those forecasts are great. Obviously you've got board considerations that you're going to flesh out, et cetera, but that's what I say are the critical aspects of the process. And I can also talk about how to get the right shareholders if you want.
(17:46):
I mean there's a lot there, but the difference between SPACs and this is obviously when you're a private company and you're not planning on going public and a SPAC comes to you and says, we'd like to merge, it's very exciting. However, it is probably at a point where you had no IPO readiness, no financial planning readiness. You weren't ready to get into an S four with audited statements. And so the timeline is highly, highly compressed and frankly is why we have seen over the last several years. It's not that the SPAC structure itself is flawed, it's that the companies were not ready to be public companies in the last SPAC cycle. Companies were putting out projections for five years in advance. You would never do, obviously as a company going public through a regular IPO, you're not giving the public a forward model. Those are going to come from the analysts and they know how to construct public models.
(18:52):
When you are going out as a spac, you have to file an eight K, which typically has projections to validate your valuation or the valuation that the SPACs going to pay for you. And if you put out numbers, those live on forever, SEC filed, et cetera, and the odds of you hitting those are low because of your financial readiness. And so when we get involved in a D SPAC transaction, the first thing we do is assess their ability to forecast. We spend an inordinate amount of time with the management team, and by the way, the finance orgs of those teams are typically underdeveloped. And so we urge them to as soon as they have the money, beef that out. But we serve as that our accounting advisors, our controls advisors, we kind of serve as their internal finance team often building that out.
Co-Host: Glenn Snyder (19:51):
Yeah, I think great overview. Jeff and I have my own personal experience where I went through the IPO process at Visa. I mean, I wasn't directly on the IPO team. I was part of their, what we call the global merger team, bringing all the regions of Visa together to form Visa Inc. But I got to see what they did. And you were absolutely right. It was two years in advance. It was looking at how do we manage as a public company at least two quarters prior to the IPO and really looking at it and saying, look, there is different stages that you go through. There's how you manage as a pre IPO company. There's how you manage going through the process to get to the IPO, and then there's how you manage Post IPO,
Guest: Jeffrey Bernstein (20:34):
Post IPO, correct.
Co-Host: Glenn Snyder (20:35):
And Visa was obvious. I, it's such a big company and it was done absolutely perfectly. I thought the way that they approached it, the changes that were made, the timing that they did, I've also worked for a company that was a private family owned company. They were going through the IPO process and the market shifted That was, they didn't give themselves as much time. It was a little bit more of a grimble, but they were doing the full IPO and I've worked at a company that went through a SPAC prior to me joining. You've done it all. And it was very clear that the company was struggling at the public company. The one went through with the SPAC because they were not prepared. They didn't have the financial discipline, they didn't have the systems in place, they didn't have the teams in place as you talked about, to really manage the scrutiny of a public company. There is
Guest: Jeffrey Bernstein (21:25):
Nothing more damaging to a business than to go public and to not meet expectations. I don't care if it's IPO or spac you, it is the brand is impacted because it's public. The ability to raise new capital is significantly. You might as well stay private and raise money in a, so you better be ready and you better adhere to those disciplines of and long-term milestones.
Co-Host: Glenn Snyder (22:02):
Absolutely. And Paul, I know you've had some interest. You've worked for both public and private firms. Your thoughts as Jeff and I were just talking about steps?
Host: Paul Barnhurst (22:12):
Yeah, definitely. It's been interesting. One of the companies I worked for, we got a brand new CFO and it was Claire. He was brought in because they wanted to go public in a couple of years and still remember one of the first things is you see in the closing of the books, like, okay, we have to accelerate. This isn't acceptable. We have to change this. We need to establish all our metrics for the reporting, and then we will clean up the historic data based on that, but let's get everything fixed first versus clean it up. So it just keeps getting messy and you could see the focus. You knew exactly what he was trying to do. He is like, I'm working to get ready for us to go public. And then I also had, I worked for American Express, so huge public company that was very different, but I can remember
Guest: Jeffrey Bernstein (22:53):
And American Express, I mean you guys, you have a lot of great,
Host: Paul Barnhurst (22:58):
I know we got American Express and V, so we could do a
Guest: Jeffrey Bernstein (23:01):
Call,
Host: Paul Barnhurst (23:01):
Carter card transactions there, Glenn. But when I was there, I got to see them spin off, which was really interesting. Not IPO, but they spun off American Express business travel.
Guest: Jeffrey Bernstein (23:13):
I remember
Host: Paul Barnhurst (23:14):
50, 50% jv. So that was interesting to watch and see how they did that. And then the more interesting one is I was at Sora, which anyone who's followed the company know they've had a public history. They went private, went public in what, 2012? 2013. Went private in 2016, tried to go public in 22, 23, 24 a few times and market shifts. But I was there when they're getting ready to do a SPAC with Apollo and it was going to be combining three different companies in about a 12 billion spac. So very large. And the pipe fell through when the market shifted.
Guest: Jeffrey Bernstein (23:54):
Yeah, pipes are pretty market dependent,
Host: Paul Barnhurst (23:58):
And so it never happened. They ended up doing the merger of the three companies and then they filed an S one, what, 18 months ago, but I'd left at that point. So it was really interesting to just watch and seeing the challenges that you talk about, how ready you need to be, how the market has to be there, the investing and the finances. You have to have it really clean. I can see what some of the companies is that I was like, okay, this company here, some businesses like data is great. Others are like, can that pass the audit to go public?
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Guest: Jeffrey Bernstein (25:30):
You brought up Paul a very, I think important point is that companies will often bring in A CFO to take them public. Okay, someone with public experience et cetera, which is a big change for a company and a big change for that CFO. That CFO. You may have had a CFO that is a former accountant, but this is A CFO that is not an accountant and has Wall Street credibility. That dramatically changes the culture as to everyone reporting to them understand that this is not your father's Oldsmobile anymore. This is new and things are going to have to change. People are going to have to step up the CAO, whoever it is, the CAO if they're not an accountant, puts a new burden on the CAO obviously because there's no one above them for checks and balances. So there's a lot of, you have to appreciate that cultural change and what the CFO is really there to do and what they are good at and need help with.
(26:48):
So that is certainly one thing that companies have to recognise right away. And the C FFO has to appreciate and honour that this is not their skillset. Perhaps the second thing that you mentioned about putting companies together and so on, and really understanding the full matrix of what the company looks like. I was thinking slightly differently about the auditors may only allow you to report certain segments, and sometimes companies only want to report one segment. They're saying, no, you got to do two or three segments, et cetera. Equity investors, however, may be much more interested in other things if you're not reporting geographic segments from an audit perspective. How do you talk about those KPIs where your growth outside of your core markets is perhaps growing much faster, but these are not really reportable things from a gap measure. So I think there's a lot of, you have to make a lot of decisions that supplement what your auditors are going to allow from an audit perspective and that the bankers are going to use to draught the S one.
Co-Host: Glenn Snyder (28:06):
No, Jeff, I want to bring it back to your first point though about that different type of CFO because this is something that I've experienced. To bring it back to FP&A as well, it completely changes the dynamics of how FP&A works. If you're as a private company and you have a CFO who has a strong accounting background, most of what you're doing is you're getting out your monthly budget variance reports, you're doing your budgets, you're doing forecast. Now you have someone comes in who has a stronger street background who's not going to be in the weeds on certain accruals that are being made. That's all left up to the account group. Now all of a sudden, FP&A is almost elevated because the FP&A team is going to speak more of the language that the CFO is going to want. The CFO is going to be relying on FP&A to connect the dots between the business metrics, the industry and the financials, and to be able to go a little bit beyond just the core function of FP&A that you would have at a private company.
Guest: Jeffrey Bernstein (29:06):
Wow. Yeah. I didn't really consider that, but it's absolutely true. Really elevates the importance of and accountability of and advice from the FP&A organisation,
Co-Host: Glenn Snyder (29:19):
I guess because I had that experience and I'd seen what it's like to work for an accounting focused CFO in a market focused CFO. And part of it is sometimes that CFO skillset is more about how do communicate to the street and drive confidence with investors or
Guest: Jeffrey Bernstein (29:36):
It's m and a internal financials. But once you're public, all of that's great. Have we guided correctly and we exceed? Yeah,
Host: Paul Barnhurst (29:52):
There's a great article out there about this real quick of snowflake. Before they went public, they got a new CFO and he said, we have to be within 2% on our revenue forecast every quarter. He's like, I'm not even going to consider us going public till you guys figure that out in our forecasting. And he told the journey of how they completely redid it. They brought in a data scientist a year where they worked building a bunch of models, all kinds of different things to go from 10, 12% is where they were a quarter on revenue to being within one 2%. He's like, alright, now I feel like we're ready. I can get confidence. I know what I need to do that we can deliver to the street. And I thought it's a really good article. It's by one, I think they're ahead of FP&A who kind of tells the journey.
Guest: Jeffrey Bernstein (30:38):
And it comes back to close optimization. One of the good things about being a public company is you can close your quarter on December 31st, but not have to report and guide until February or even late with year end, even later closing early. And also having the data that shows that by February 14th, 15th where you have good visibility and you're almost halfway through that first quarter, if you've got good data that's going to improve your ability to guide the old enterprise software days where all the business closed in the last five days of the quarter. It was very difficult. But that's kind of changed. A lot has changed since then. So your ability to close your quarter early and to have insights into whether it's a weekly basis, especially if it's a fast moving business on a weekly basis, et cetera, gives you the opportunity to assess that when you report your earnings and give guidance halfway through the next quarter. If you can harness that, that's incredible.
Co-Host: Glenn Snyder (31:49):
Yeah. In fact, actually it reminds me back of a couple episodes, Paul, that we did go with James Meyer. It's about talking about the importance of financial systems and the forecasting systems and having that right infrastructure and not just going out and getting a system for what you need today, but looking at what you need in the next five years and that how quickly you can move and forecast. Can you create weekly cash forecast if you're at that point, or can you do your monthly forecasting being process in a couple of days to be able to pivot in such a way that you could then provide that guidance for the CFO so they know whether or not to go out and say, yeah, you know what, we're going to hit our targets or no, we're going to miss where we're going to exceed
Guest: Jeffrey Bernstein (32:33):
And just remain conservative enough so that most companies, most companies will give guidance one quarter out and then update the annual guidance. That's generally how it rolls. And so your ability to be tight on that next quarter out is really important. That gives you the power, of course, for the annual guidance to say, look, I know we're going to based on now how far through we are, I know we can probably take up our revenue number by two 3% signal to the street that we have high confidence in our annual number or contrary to that stick to things or cyclicality, whatever it is. But the companies that earn public investors can sell their stock any day. There are long-term holders, they want to be long-term holders, but they have liquidity they can sell. You have to maintain the trust of the markets. And when you look at, I always looked at Microsoft and Greg Nefe when he was A CFO, he was one of the greatest CFOs of all time because he truly understood that that was the goal, that he had a great business and he was going to grow a certain amount, et cetera.
(33:54):
But his multiple was dependent on the trust of investors. You get a higher PE or P to whatever by earning trust over time, by earning that trust, you can have in year three or four a stumble, but regain those shareholders or maintain those shareholders. That is got to be the goal. Otherwise you might as well have stayed private, is to get as high valuation as you can for the business that you have and it's earned over time.
Co-Host: Glenn Snyder (34:29):
So Jeff, let's talk about that a little bit because you mentioned one of the big roles of FP&A in the IPO process is building out what I like to refer to as the beat raise model. So it's an eight quarter model that you have to go over and identify. You have to have it strong enough, strong enough growth that will be attractive to the street, but you want to be conservative so that you can beat your forecast and then be able to raise each of the next eight quarters so that you could go over and say, Hey, look, we're improving. And that's really what the street is looking at. So in your experience, give us a couple examples or maybe a story or two on when you've been working with an FP&A team of what worked really well and maybe where something went sideways because its beat raise model is just not where it needed to be. I mean,
Guest: Jeffrey Bernstein (35:21):
There's plenty. The world is, when I was running my hedge fund, we would always say, look, in any sector where any growth sector, disruptive technologies, whatever it is, there will be few winners and lots of losers. And the losers are typically lose for a variety of reasons, one of which is not having that financial integrity. So it reminds me of, and I mentioned this before, when companies try to invent different metrics of adjusted ebitda, and I always refer to WeWork's, what they call community adjusted.
Host: Paul Barnhurst (36:06):
I was just thinking the same thing.
Guest: Jeffrey Bernstein (36:09):
Inventing things that have no basis in reality, I think is the biggest thing that companies should avoid because you're going to go sideways. It's a great concept for marketing, et cetera, but in reality, any public investor is going to go, if they have to invent something like that, there's something missing here. There's something hidden, et cetera. So one of the tenets of being a winner is showing transparency and showing kind of that organisational integrity to say, look, we're not going to be the best at everything we do. We're not going to invent new metrics for you. We're not going to strip out these seven things out of normal ebitda. So that to me, separates winners and losers. I also think things that go awry sometimes is when, and this is in the IPO process when you've already hired bankers, et cetera, and something goes awry with the business in general, if you're in a cyclical business and something just happened where don't just plough forward with an IPO, if you know that something went wrong in your business that is going to significantly impact your ability to forecast that.
(37:33):
And I've been through that a bunch of times where a company just said, look, we're going and nine times out of 10 it doesn't work out well where they should have one. Just go raise a little bridge money if you need the cash or you need to get your current employees and investors some money, figure that out and get the process reconfigured for that event or that actuality. So that's a second thing that I think I would, what I see things go awry. It's when people say, damn the torpedoes, and we're just going to go when things go. So I think those are two of the things. And look, I don't want to name names other than I was willing to name WeWork, but history is littered with hubris, I would say.
Host: Paul Barnhurst (38:22):
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It is for sure. So I love that. It feels like so much of the great IPO is really around doing the fundamentals really well, knowing who you are and being confident in your processes, at least for FP&A versus the, oh, even if we don't have great processes, our data quite isn't there. We're going no matter what.
Guest: Jeffrey Bernstein (40:08):
Our growth is so good, right? Yeah. Companies will often say, look, the market's going to love us. We're growing 40%. That happened in the last cycle, and I'm sorry to interrupt the last cycle. All of these companies that were still not EBITDA positive and didn't truly understand their unit economics, that would have told them that this current business model will never allow us to be profitable. At some point, public investors is going to say, where's the money? Who is the steward of as you're the steward of my capital, you have to create returns for me. So you're hitting it on the head is don't substitute your growth rate for the fact that you ultimately are a company that has enterprise value that ultimately has to be returned to shareholders in some way, shape or form. I like cashflow. I don't know about you guys. I'm a big cashflow guy.
Host: Paul Barnhurst (41:10):
Being a business of one, I'm really big on the cashflows. I look, okay, I have these payments coming, but how much is my bank account and what's the impact to next month? So yes, I am definitely a cashflow person. What I was going to say is I think you gave a great example of the last cycle. At the end of the day, it's about the value. And the value ultimately over the long run comes back to fundamentals. It's why Warren Buffet has done so well is when he sees things out of line with fundamentals. He's like, I'm going to hold cash. And when I see things the opposite way, I'm going to plough in and do really, really well and hold it for a long time. And I'd love to get one thought, and I'll turn it back to Glenn. Right now we're going through this AI age and there's going to be a wave of, I think companies going public at some point, but we see these crazy valuations. I think trillion dollars is open ai. Who knows what anthropic is? It's hundreds of billions. What's your thoughts of that kind wave? I mean, those are numbers we've never seen before. Any thoughts of just kind of the whole AI and where it's going?
Guest: Jeffrey Bernstein (42:13):
Glenn, why don't you start? What is your give of
Co-Host: Glenn Snyder (42:16):
Yeah, so the funny thing is, Paul, when you were speaking, I was reminiscing back to when I was at Franklin Templeton in the early, late nineties, early two thousands, and one of Franklin's biggest portfolio manager, a guy named Mark Mobius, many people have heard of, he created emerging markets investing. And he was being interviewed on, I don't know what was the CNBC or something. And the interviewer kept on saying, so what do you think of the US tech market? What's going on? And Mark was, he knew, he was like, Hey, I'm an emerging markets guy. So he was like, I can't really comment on the us. I focus on emerging markets. He kept on saying the guy kept on asking four or five times. Finally, mark went over, he kind of broke down. He said, I just don't understand how companies that have no earnings can have that kind of value.
(43:02):
And on that comment, the stock market dropped 200 points in the company. Like pr, people in the company are sending out, here's how to respond. If you get a call from the press, please refer them over to here. And it was kind of a how do we now have to react to that? But he was 100% correct. And there is a wave that you get from just momentum and excitement for what can be. But at the end of the day, Paul, what you were just talking about, and Jeff, the fundamentals, it comes back to that. You might get this, I'm going to use the word bubble, but not, it is in a way kind of a bubble where you get this massive increase, but it has to go back and be backed up by the data. And if it's not, that bubble is going to burst or it's going to come back down. And right now, I'm just not sure. I mean the stuff that AI is putting out there, everybody knows this is going to be the future, but is the future today. Because I know a lot of people in FP&A, they're going to say, look, AI is great, but I can't rely on it for doing forecasting. It's too inaccurate. So we're not a hundred percent there. And it feels like the hype is a little bit in front of where the fundamentals are. But that's just my, and
Guest: Jeffrey Bernstein (44:16):
It's no different. It's no different than the worldwide web or mobile phones. There is no doubt in my mind that AI will be as big a revolution technologically and on the impact on society, on business, et cetera, as the mobile phone and the internet worldwide web was however, it took a while for mobile phones to become the iPhone where it just wasn't for a phone call. So obviously people pour money in way ahead of utility for all of this stuff. And so to me, it's not going to be materially different. It is going to be one of the great revolutions. And by the way, when we combine AI with robotics, we don't want to get into that, but that opens up something completely different in terms of not only human utility and productivity. Well, I don't want to get into it, but when we come back to it, there is going to be a point in the next couple of years where the narrative is ai, it's just chips. It's chips and some software. Right now, the chip prices are monopoly, let's say Nvidia, whatever it is, there's going to be competition forces, the price of chips down, deflates pricing, et cetera, et cetera. And the year over year. So there will be cycles here where a lot of, and as I always say, I said it before, a few winners, lots of losers, there's tonnes of capital pouring in. Do we know whether open AI is going to be the winner? We don't know. They've got an amazing headstart. Who else had a great headstart? Yahoo.
Host: Paul Barnhurst (46:15):
I was just thinking, rarely great started
Guest: Jeffrey Bernstein (46:18):
Phones
Co-Host: Glenn Snyder (46:19):
Moola. Don't forget about A OL too that in the internet. So I'm not
Guest: Jeffrey Bernstein (46:25):
Pulling out open AI at all.
Co-Host: Glenn Snyder (46:27):
We
Guest: Jeffrey Bernstein (46:28):
Just dunno. And so in my mind, it's certainly when we talk about the financial metrics of ai, whether it be from bare metal or data centres or AI training or inference models and age agentic models, all of these are early and evolving and are going to change dramatically. I think public investors are going to be very receptive and willing to take that risk early on just because of ultimate returns that could be produced. But it's going to be cyclical.
Host: Paul Barnhurst (47:04):
The opportunity is astronomical when you think of the value that can be created by ai, especially when you add in robotics. So people will take risk for sure.
Guest: Jeffrey Bernstein (47:13):
And this type of industry, because it's all about data. The bigger you are, the better you are to protect your power. I guess I would say it's going to be hard in a few years for people to reinvent and cannibalise some of these massive companies.
Host: Paul Barnhurst (47:37):
That's a whole separate discussion of the two big to fail and how big companies are becoming, we won't go there, but I know exactly what you're talking about. Scale matters. And this is an area where there's a lot of benefit for data and scale.
Co-Host: Glenn Snyder (47:47):
We're kind of approaching towards the end and I want to make sure that we have enough time for everyone to give their final thoughts. So Jeff, we'll have you tee this up. What would you like to, when you think about the IPO process, the impact of FP&A, what do you want to leave? Our listeners would say, look, if this is the two or three things you're going to get out of this, here's what you really need to know.
Guest: Jeffrey Bernstein (48:10):
Well, first of all, one, if you are an FPA practitioner at a company that's getting, you guys said it best. If you're an FPA practitioner at a company that could go public, you are going to be the most important group in an organisation as that IPO date if you're going to be a great company as it approaches and as you season as a public company. So that's awesome. I would say secondly, and you guys again pointed that out, foundationally, understanding the budgeting process, understanding the data, stress, testing your sales pipeline, all of that stuff is mission, is table stakes to being a great public company because you're going to be judged quarterly. And I would say third is appreciate the organisation senior to you, what are their skills, et cetera. And don't be afraid to lean in where they're going to need help.
Co-Host: Glenn Snyder (49:13):
I think those are great tips. I would add to that. There's a reason why the full IPO process is there. And this is something that if you want to be a successful public company, it takes time. It is not something you snapped your fingers and all of a sudden migrate over. So there is process that has to go through, and whenever you try to shortcut something, most likely you're shortcutting it because you want to get to the end, but you miss the value of the process of getting there. And you might not be at that really great spot you want to be as a public company.
Guest: Jeffrey Bernstein (49:49):
And Paul, before you finish us up, I can't tell you how many times I've talked to a company that's thinking of going public and for right or wrong, just where their brain is. Especially if it's a CFO that's never done this before where they're concerned more about should we go on the New York Stock Exchange or nasdaq? What should our ticker symbol be? Don't we have to be Sox Comply? Keep hearing from someone, I got to be SOX compliant. Have the right folks advising you to get to the must haves, nice to haves, and do it in a cadence that is truly like IPO is a process as you pointed out. So you're not going to be, this is a special stress on a company. You're not going to be able to do everything you want. The goal is to continue to do your day job as much as possible. Hire the right, bring in the right people to advise you, to tell you how to spend that extra time.
Co-Host: Glenn Snyder (50:46):
Yes, a hundred percent agree. And not only that, when you bring in the right people who have gone through it multiple times, they can act as the guide to say, Hey, here's what's coming next. Here's what you need to prepare for so that you're not scrambling because you get one shot at this. You screw it up. If you actually go through the IPO and you go public and now everything is going to be, you want to make sure that you show the world, Hey, we know what we're doing. We know how to manage this company and we're going to a great investment. And so you want to make sure I agree with you got to have the right guides. You got to have the right banks, you got to have the right conversations, and you got to have the right preparation.
Host: Paul Barnhurst (51:26):
Yeah. I listened to both of you. One thing that came to mind is you got to project confidence to the street to your investors. They want to feel confident that the money they're giving you is going to give a proper return, whatever that may be, depending on the business and the IPO and everything about it. And so I think from an FP&A perspective, it's more important than ever to be a great business partner. And what I mean by that is not get along. It's having the open frank conversations and not being afraid to say, look, here's the real concerns. It's different now that we're going public. If we miss, it means a lot more. And here's why I'm concerned. So having that true analytical where you could take emotion out of it, I once sort of said, great, CFO is hardheaded fact-based analysis. And I liked that way of, it wasn't like, Hey, just defend something until you die. It was move the emotion and really present the areas of concern because if you don't, and then you go public and you miss, well, I always knew we were going to miss. It's like, well, why didn't you say that a year ago?
Guest: Jeffrey Bernstein (52:32):
Yeah, no corporate culture, that's critical. And I had a client when I was at Goldman who was a notorious short, and I'm like, how do you get your ideas? He goes, Jeff, the fish stinks from the head down. He always looked at management, particularly the CFO, and said, people who are not honest with themselves cannot be honest organizationally, they can't build a culture of bottoms up feeding data analysis and confidence upwards and accepting that and making them feel like they can do it. I just think that's critical for anything. It's critical with my kids. I just think you have to live by that creed. And if you're the head of FP&A, you've got to allow your junior folks to have that voice.
Co-Host: Glenn Snyder (53:24):
And in fact, you also have to remember that if you are thinking about doing an IPO, the company culture, the finance culture has to change. It is a whole different level. It can't just be, this is the way we've always done it, that's just not going to be acceptable anymore. You got to really up your game. It's an exciting thing to go through. It can be very lucrative for everybody at the company if it's done well. But it's a lot of work, and especially as you're getting closer to that actual IPO date, there's a lot of stress that comes on. And you got to be willing to make sure you are not only prepared for it, but you're structured in the right way. To him it very
Guest: Jeffrey Bernstein (54:04):
Much true. Yeah.
Host: Paul Barnhurst (54:06):
Alrighty. Well, thank you so much for joining us, Jeff. We've had a great conversation. I know we've taken pretty much the full hour here and I've really enjoyed learning from you and having Glen here again with me. So thank you so much for joining us,
Guest: Jeffrey Bernstein (54:20):
You for allowing me to do this, and I hope we get to continue to talk and really value. I see how popular you are, so I'd love to continue the conversations and the relationship, and I appreciate it.
Host: Paul Barnhurst (54:34):
Yeah, I would love to as well. And I'll let Glenn say any final thoughts there, and we'll close this episode.
Co-Host: Glenn Snyder (54:41):
Yeah, no, I think this was great, Jeff. Great conversation. I mean, every time I get the privilege of getting to work with Jeff, so we had multiple conversations about things and always enlightening, always fun and sports teams, right? Yeah. Paul and I are already talking about doing a sports finance, connecting sports into fp a.
Host: Paul Barnhurst (55:03):
So if we have somebody we should have on the show, feel free to let us know.
Co-Host: Glenn Snyder (55:06):
Moneyball. Moneyball, yeah,
Host: Paul Barnhurst (55:09):
That would be great. If we could get him on, that'd be a fun conversation. Well, thank you again for joining us, another episode of FP&A Unlocked and we hope to see future episodes. If you had any thoughts or anything you'd love to share with us from this episode, please reach out. We'd love to hear from you, and thanks again, Jeff. Thanks, everyone. That's it for today's episode of FP&A Unlocked. If you enjoy FP&A unlocked, please take a moment to leave a five-star rating and review. It's the best way to support the FP&A guy and help more FP&A professionals discover the show. Remember, you can earn CPE credit for this episode by visiting earmarkcpe.com. Downloading the app and completing the quiz. If you need continuing education credits for the FPAC certification, complete the quiz and reach out to me directly. Thanks for listening. I'm Paul Barnhurst, the FP&A guy, and I'll see you next time.