The IPO is a change of ownership structure – one that imposes a particular set of cadences and scrutinies on businesses that were previously free to operate largely on their own terms. Companies that treat it as the finish line tend to struggle shortly after crossing it. Companies that have been, in effect, preparing to operate as public businesses for two or three years before listing tend to perform differently. This distinction between companies that are technically IPO-eligible and those that are genuinely IPO-ready is the central question in late-stage pre-IPO assessment. It is also, in our experience, frequently underweighted by investors who focus disproportionately on the revenue growth rate and the headline multiple and underweight the operational and governance characteristics that determine whether the business sustains its trajectory once the analyst community begins forming a quarterly view.
Growth rate is the most commonly cited measure of B2B software quality, and it is the measure most easily gamed, or at least selectively presented, in the run-up to a financing event or listing. A company can sustain an impressive top-line growth rate while quietly deteriorating on every dimension that matters for long-term value creation: gross margin compression from over-provisioned infrastructure, net revenue retention declining as early cohorts churn or contract and increasing customer acquisition costs as the natural market saturates and the sales motion moves into less fertile territory.
We look at growth rate, but we look at it in the context of what is being sacrificed to produce it. A business growing at 40% with flat or improving net revenue retention, expanding gross margins and a customer acquisition payback period measured in months is a fundamentally different investment from one growing at 55% while consuming cash at the rate required to sustain it. The second number is larger. The first business is worth more.
Net revenue retention – the measure of how much revenue a company generates from its existing customer base from one period to the next, including expansions and net of contractions and churn – is the single most revealing metric in B2B software analysis. A product with net revenue retention consistently above 120% is telling you something about the nature of the relationship between the software and the customer's operations. It is telling you that customers are not just renewing but deepening their dependence. That is the quality Hollands Team describes as compounding and it is what separates a software business from a software subscription.
There is a version of the leadership assessment that amounts to checking whether the founders have impressive CVs and communicate well in investor presentations. That version is not useful. The assessment that matters is considerably more specific. Pre-IPO technology companies are, structurally, about to undergo one of the more disorienting transitions a business can experience. The operating model that worked at $30 million of ARR does not automatically work at $150 million. The cultural norms that sustained a 60-person team do not translate without deliberate effort to a 400-person organisation. The founder who was the best salesperson in the company at Series B frequently needs to stop selling and start building a sales organisation, which is a different skill entirely, and one that not all founders develop willingly.
We look for evidence that this transition is already underway. Have the founders hired leadership around themselves that is clearly more experienced than they are in specific functions – finance, sales, enterprise customer success? Is the CFO someone who has been through the public-market process before, or someone who was promoted from the controller role? Is there a genuine board of directors with independent voices, or a governance structure that exists primarily on paper?
These are not peripheral concerns. A business that arrives at its IPO roadshow with a leadership team that has not managed the transition from founder-led to professionally managed will find the public markets instructive, and not always pleasantly so.
Gross margin in software businesses is, among other things, a proxy for architectural quality. A B2B software company with gross margins consistently above 75% has, almost certainly, built a product that does not require significant human intervention to deliver. The unit economics of onboarding, implementation and ongoing support are contained. The software does all the work.
Gross margins in the 55-65% range are not disqualifying, but they invite a specific question: is the margin profile a function of the current stage of the product's development, with a credible path to expansion as the architecture matures and the services component of delivery declines? Or is it structural – a reflection of a product that requires extensive customisation for each enterprise customer, and that will, accordingly, always require people to deliver it?
The second scenario is not a bad business. It is just a different kind of business: a professional services business with a software component. The public markets price these differently, and so do we at Hollands Team.
After applying the analytical framework described above – revenue quality, retention, leadership transition, gross margin trajectory, governance – there is one further signal we have come to weight quite heavily in our late-stage assessment: the quality of the internal operating cadence.
Specifically: does the company run a genuine quarterly business review process that holds each function accountable to forward-looking metrics? Does the finance function produce reporting that would be legible to a public-company audit committee? Does the leadership team operate with a shared model of the business, or is planning a founder's exercise conducted largely without institutional input?
Companies that have developed genuine operating discipline at the private stage tend to make the transition to public markets with less friction. They have, in practice, already internalised the accountability that public ownership makes explicit. That, in our view, is what public-market readiness actually means. Not a revenue number, not a growth rate, not a multiple. A business that has learned, before anyone required it to, how to hold itself to account.