Kathleen Smith's rise to Wall Street's go-to person on initial public offerings began at the dinner table.
Suppertime as a kid was more than just a meal for the chairman and co-founder of Renaissance Capital, an independent IPO research firm. It was also a daily debate on current events with her six siblings and mom and dad. The freewheeling discussions were moderated by her father, a newspaper editor who probed his kids' thinking just like he scrutinized his reporters' stories.
"It was important to him that we had a good conversation at dinner, and that we could argue our points," Smith recalled. "Reading, writing, persuading, and challenging were important skills I learned at home."
Dotting the I's and crossing the T's over steak and potatoes paid off.
Build Your Own Path Like Kathleen Smith
Smith parlayed those communication skills, which she refined early in her career analyzing tech IPOs at Merrill Lynch, into a thriving business of her own. Renaissance Capital, founded in 1991, lets big investors like mutual funds know the pros and cons of investing in companies getting ready to list their shares on public stock exchanges for the first time. Smith and her team extract key data and relevant information out of prospectuses. And then the firm quickly creates a concise, analytical narrative about a new stock's prospects.
"I know how to package information," Smith said. "I've been reading SEC (Securities and Exchange Commission) filings and prospectuses my whole life, trying to figure out what makes companies tick. It's all about persuasive writing and summarizing things in a way without too many frills. I found that if you know the story, you can be very good at telling a company's story."
If you want to know anything about IPOs, Smith is likely your first call. Renaissance Capital has tracked IPOs for decades. She's also a pioneer, launching the Renaissance IPO ETF, which is now the largest index ETF that owns recently listed stocks. And she's on Barron's "100 Most Influential Women in U.S. Finance" list.
Embrace Career Turning Points
Working on Wall Street wasn't initially on Smith's radar. And following in her dad's footsteps as a journalist wasn't an option. "There's no money in the newspaper business," she said.
While getting her B.A. at Penn State University in the early 1970s, she studied Chinese. It was the era when President Richard Nixon was practicing Ping-Pong diplomacy (the U.S. table tennis team was invited to play China's team in 1971 and Beijing's team toured the U.S. a year later) as a way of thawing relations between the two countries. But while working for the U.S. Department of State on China-related issues, she realized the work was too academic for her liking. But her interest in financial problem-solving took root while doing a cash-flow project.
"After that, I very much wanted a bottom-line, profit-oriented job," Smith said.
The career change taught her a big lesson about being successful. The first thing you do in the work world may not turn out to be your true calling. "Trial and error is a big part of life," Smith said. "Test out what works for you. That is the most important thing. It takes time to figure out your right fit."
Smith recalls how impressed she was with Steve Jobs after he was forced out at Apple in 1985 and saw him hustling to attract investors for NeXT, the new computer company he started. "He was amazingly persistent," said Smith. "He was not sitting on top of the world off the bat. Not everything is going to go your way." The late-Jobs, of course, returned to Apple in 1996 and unveiled the first iPhone 11 years later.
Use Early Jobs As Career Launchpad
Smith never had a job she didn't learn from. No job, she says, is a waste of time.
Her first job was flipping burgers at Burger King. "I was one of the fastest Whopper makers they had," Smith said. She also worked as a waitress at a country club. And at Penn State she earned money at the university library and as a bartender "pouring beers."
The jobs might not have been glamorous or high paying. But they built skills she still uses today running her own firm.
"You learn how to be very customer-service oriented and treat everyone with respect," she said.
Her first break came after leaving the State Department. With an MBA in finance from the Wharton School of Business in hand, she landed a job at Merrill Lynch. One of her jobs was analyzing upcoming IPOs and creating internal "cheat sheets" that highlighted a company's prospects that Merrill's investment bankers could use when pitching the shares to prospective institutional investors.
The Wall Street job led to two breakthroughs that transformed her from employee to entrepreneur. "I fell in love with tech from my investment banking days," Smith said. More important, she saw a huge opportunity in providing independent IPO research in a new way to professional investors.
There was an opening in automating and speeding up the IPO research business, she recalls. Taking the business digital was the way to go. Personal computers were starting to show up on workers' desks. Software databases were hitting the market. And the emergence of the Internet made it easier to distribute the research reports. "I thought to myself: how can we do this more efficiently," she said.
Take A Risk To Make It On Your Own
Smith decided that building a better mousetrap was the way to go. "I said, why not do it on my own?" There were no independent IPO research firms at the time. And being independent meant her firm could "write a report that tells the good and the bad." Renaissance Capital also was not hamstrung by regulatory restrictions and so-called quiet periods that IPO underwriters faced.
Sure, she knew it was a big risk to start her own business. But she also was confident enough in her own abilities that she could get another job if her startup failed. Smith wasn't a techie. But she taught herself enough tech tricks to enable her to scale the business.
In Renaissance Capital's early days, she learned FileMaker, and used the software to build a database of IPO information that could be used to quickly assemble an IPO research report with all the essential intelligence — a company's revenues, margins, executives, etc. — that prospective investors would need to make an informed decision. "Big institutional investors want another view," Smith said. "They don't just want to hear what the salesman says."
Going digital also made her and the firm look smart and cutting-edge. "I thought, we have to be on the Internet, it's a game-changer," Smith recalled. So, she figured out HTML. She began to post IPO data and research on the web. She knew she had to establish an Internet presence before her rivals.
"The lesson for entrepreneurs? Keep an eye on what can impact your business," Smith said.
Follow Key Lessons For Entrepreneurs
Entrepreneurs do best when they specialize in something they know, Smith says. "We learned from our Wall Street jobs about how to design a research product that clients wanted," Smith said.
Also, get paid upfront and drive revenue with subscriptions. Cash flow is key to survival. So, get paid for your services upfront. And create a subscription-based business that results in recurring revenue streams. A good way to diversify subscription revenue is to have different renewal dates for customers.
Avoid the temptation to name the firm after yourself. You want your company to always be able to grow without your involvement. "We are named Renaissance Capital, not Smith Capital," she said. "You don't want your client calling up and saying, 'Where's Smith?' You want the client to talk to your whole firm."
Remember to create a business you can scale. Hourly fees like lawyers' charge is not the way to maximize revenue. Creating a highly leverageable product that you can sell over and over again is a better way to get compensated.
It's important you launch a "high IQ" business. Keep in-house the high value-added part of your business that you can charge more for. And outsource the less-important stuff. It makes it harder for rivals to copy what you're doing, Smith says. "We have never outsourced our research to India," Smith said. It's important to protect your intellectual property, she says. One way we do that is to sell direct to your customers, rather than through a middle man.
Always focus on the customer. Customers will pay for simple things, such as services that save them time, make them smarter, and make things easier. For example, "we take a 700-page prospectus and turn it into a one-page report," Smith said. "And when we put out an IPO opinion, we show them the thought process involved in the decision."
And lastly, avoid get-rich-quick schemes. "If getting rich was so easy, we'd all be there," Smith said. "Have integrity in what you do and realize it will take hard work. Hard work is the initial barrier to entry."
Smith's Keys
- Co-founded Renaissance Capital, the go-to firm for IPO data and manager of the largest IPO ETF, in 1991.
- Overcame: Onerous high-tech demands to keep her firm at the cutting edge.
- Lesson: "Trial and error is a big part of life. Test out what works for you. That is the most important thing. It takes time to figure out your right fit."
