An Uncertain Road: The Potential Risks and Rewards of Working for a Pre-IPO Company

Working for a Pre-IPO

Are you thinking about signing on with a startup or other pre-IPO company? Many senior-level financial professionals prefer the security of working for a more established organization. But to others, joining a startup and building a company from the ground up is an exciting prospect.

Before you take the leap, however, it’s important to weigh the potential risks and rewards of making such a move. Here are a few to consider.

Risk: Cash flow issues

Many startups are laser-focused on building their product or service. As a result, they often fail to raise enough capital for marketing their vision to investors and launching their brand. Consequently, they run out of money and stall out not long after launch.

Pre-IPOs are also much more likely to have cash flow issues than more established companies — which obviously creates headaches for financial executives.

Reward: A potentially significant financial return

If you join a startup in its earliest phases, and the company takes off, you could benefit financially. Professionals who work for successful startups often enjoy accelerated professional growth, an attractive salary, generous bonuses, profit sharing and other compelling incentives.

The potential rewards are even greater if you own stock in the company. If the business has a successful IPO — or is acquired by another company — the financial upside you experience could be sizable, depending on your stake in the business.

Risk: High failure rate

According to Harvard Business School research, three in four startups fail. So you may want to keep your resume handy and the contacts in your professional network on speed dial just in case things don’t turn out the way you hope.

Reward: Priceless experience

As a chief financial officer or other senior-level financial professional at a startup, you’ll gain a wealth of wide-ranging, hands-on experience. So even if the startup doesn’t take off, the experience you gain will make you highly marketable and attractive to other companies — benefiting your long-term career.

If the startup does take off, you may end up helping the business prepare for an IPO, a huge resume-builder for a financial executive.

Risk: Long hours for little pay

You might be able to choose the hours you work for a pre-IPO, but those hours will almost inevitably be long.

Also, many startups cannot afford to offer a competitive salary in their early years, because they’re sinking all their revenue into product development or marketing. You may have to settle for being paid in stock or a combination of salary and stock. And if the pre-IPO does offer a salary, you may not receive paychecks on time — if at all.

Reward: Flexibility

Startup environments are fluid, which means you might have the opportunity (and big responsibility) of determining your own job title and description.

Working conditions can also be more relaxed, and you may be more likely to be able to set your own schedule and have the option to work from home.

Ready to fasten your seat belt?

While there are certainly risks involved in working for a startup, helping to build a business from the ground up and getting it ready for a public offering is an extraordinary career-building adventure for any financial executive.

If you’re not yet prepared to commit to a journey filled with uncertain outcomes, consider working for a pre-IPO company as a consultant. Startups are often in great need of skilled financial talent — including interim CFOs and other senior executives — to help guide them through the process of preparing for an IPO.

Have you worked for a pre-IPO company? Share your experience in the comments.

Related post