How private companies can navigate shifting capital markets: 4 key tips

1. Secure funding when available

In the journey to an IPO, companies may be reluctant to secure funding when they considered the valuation was low. This strategic hesitation has often led to companies needing more capital post-IPO, with their stocks declining further.

“We’ve seen that a lot of companies have gone public and just needed more cash, and maybe they could have gotten that cash pre-IPO but didn’t want to take it because they thought it would set a marker on valuation,” Nagler said.

The lesson is clear: Valuation of a company’s last funding round is less critical than securing the necessary capital.

2. Consider liquidation preferences and investor protections

Deal structures are evolving, with a growing emphasis on liquidation preferences and other investor protections. “There’s much more focus in the pre-IPO rounds on investor protections and on what’s going to happen down the road,” Nagler said.

This consideration has come to the forefront for companies that are seeing lower valuations during subsequent funding rounds. “We’re dealing with companies that are running out of money but can’t currently tap the IPO market,” Lambrix said. “Existing investors are struggling to allocate additional capital across their portfolio to companies in this situation given fear of a down-round in an ultimate IPO.”

This pattern has led to increasing numbers of restructurings, Nagler said, which can lead to a complicated capital stack. “In order for those companies to attract fresh capital from third-party investors, they need to restructure the cap stack.”

3. Explore alternative financing options

The private credit market has become a significant player in the financial landscape, particularly after the financial crisis. This shift accelerated after the bank failures in 2023, where regional banks stepped back from certain types of lending, leading to a surge in private credit vehicles.

With a considerable increase in assets under management, private credit offers a compelling option for companies nearing an IPO, providing non-dilutive capital to support their growth. “Private credit can be a really nice alternative, especially for companies that are getting closer to IPO,” said Lambrix, highlighting its role in bridging the late-stage equity financing gap.

4. Emphasize financial discipline and preparedness

In a market that currently values profitability over growth, Lambrix urged companies to focus on financial discipline and robust internal processes. "It’s important to have your internal financial planning and analysis, financial reporting and forecasting, and other operational processes fully developed," he said.

Nagler emphasized the need for readiness, noting that often companies wished they had started their process to go public earlier. He recommended that companies be well-funded so as not to delay the IPO process. "The window is unpredictable. Don’t delay and think that you could just flip a switch and go public because the window opens and shuts very quickly,” he warned.