Yet another insightful Techcelerate event this evening in Manchester chewed over whether ‘initial public offerings’ (IPOs) or ‘stock market listings’ are the right capital raising vehicle for growing technology businesses and the process required should they choose to go down this route.
Marcus Stuttard (AIM CEO) delivered a concise analysis of the advantages of listing on the markets including scenarios where this might not be so appropriate and then Anish Kapoor (Telecity LSE listing) and Simon Elms (Warthog AIM listing) delivered warts and all accounts of the IPO process as entrepreneurs who had been through it and managed to live to tell the tale.
Here are my notes:
- Choose the right broker or nominated advisor (NOMAD). They hold the key to your long term success in the market.
- Your management team will also be key to the success or otherwise of the IPO and beyond. Start making connections with potential non-exec directors etc who can help (sooner rather than later) with strategy and helping build your team in areas like finance and perhaps getting the wheels in motion to appoint a highly regarded chairman.
- Have your business model nailed down before you start the IPO process. Markets don’t like unexpected strategic changes.
- Be prepared for a long and arduous due diligence process in the run up to listing as lawyers and accountants crawl over your results and forecasts. Your business will be in better shape afterwards!
- Costs of listing are significant – both in professional fees and management time. You then have the ongoing regulatory and reporting requirements to comply with. Think through why you are seeking a listing as there could be better alternatives if you are seeking a one-off injection of cash.
- The flip-side of point 5 is that once you have been admitted to the markets, raising future cash is easier than seeking private / VC funding.
- Institutional investors like to see a track record of management having successful executed IPOs and exits. They are prepared to invest in the management team – even for pre-revenue businesses.
- Listings in the US are even trickier than the UK – tighter regulations etc. Proceed with caution.
- VCs are increasingly looking to AIM markets to invest capital. Espec VCTs. Another advantage for listing.
- Think about the impact on your staff and how the fluctuation of the share price might unnecessarily unsettle them. On the flip side, think of the opportunities to incentivise them with a ready market for the shares.
- An IPO can be great for your PR in your sector – speaking of which, consider getting a decent PR agent as part of the IPO process.
- For AIM you’re probably looking at a minimum capital investment of £2m+ with the majority currently in the £30m-ish bracket.
- As a founder, think about when you can get your cash out post IPO – you will probably find you are severely restricted in cashing out shares due to potential negative sentiment and insider info plus lock-ins. Work this out upfront.
- Don’t try to time the markets. You need to take the best deal you can get when presented if you are to continue to build your business and stay one step ahead of the competition.
Any further comments to add?