20 Jul 2016

CU LAB: IPO basics: a fundamental step - simply expressing your business model

Your business model is the central plank in the messaging in your investor presentations, investor meetings, your prospectus and other PR material so, as Stuart Byrne shows, it pays to get it right.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.


A fundamental step in any IPO process is clearly, concisely and effectively expressing your business model.

The expression of your business model becomes a central plank in many of the marketing materials you'll use for the IPO, including your institutional presentations, your non-deal roadshow, your prospectus and your other PR material.

It's amazing how difficult expressing the business model succinctly can be. Many businesses haven't had to do it before. Many think their business is so complex that a simple explanation simply defies the ability to do it, and others have a business model but when you boil it down it just doesn't make sense and needs to be recast.

As far as our regulator, ASIC, is concerned, a business model is how you propose to general income, capital growth and make money, so it's a bit like your revenue model as classically understood but with a broader context, including an expression of your key dependencies and key expenses.

And the important thing about expressing the business model is not to express it in a way that a sophisticated institutional investor would understand, but being able to do so in a way that the retail investor will also understand and, or put more accurately, ASIC's view of what the retail investor would understand.

And so it's very important, when crystallising your expression of your business model, to articulate it simply. I always ask, pick on someone's mum or dad or 16 year old kid and say "so what, would they understand that question?". And it's amazing how often, when you analyse it through the lens of someone other than an institutional investor, the message needs to be simplified and rephrased.

After all is said and done, your business model needs to be expressed in a clear, concise and effective way. Our strategy here is to let the company with its investment bankers develop the business model through a number of turns of the prospectus without over-lawyering it initially. We find that this allows the commercial expression to come about and then we add the legal overlay on the top to ensure that the document is precise and presented in a tight, ASIC‑friendly way.

The key message here is, there's no substitute for experience when it comes to articulating the core plank of your selling messages. You need the best investment banks who can really understand your commercial drivers, and really good experienced lawyers who are able to synthesise that into a tight expression in the documentation.