Listing is the highest value future you can have, said Neil Craig of CraigsIP to a room full of highly engaged CEOs and CFOs of fast growing tech companies at a recent Morgo workshop.
A cautionary tale: a friend of mine turned around a really interesting company — got their revenue up to over $30M, profitable and growing at over 30% p a. This company had been around for a decade before he got involved. So, guess what? They had a tired shareholder base. My friend was thinking of listing some time but a couple of major shareholders were dissatisfied. Did they want to sell the company now? Don’t know. But they did make the CEO’s position untenable and he left. If they’d listed, the unhappy shareholders could have left and the CEO could have kept building the business.
So, why list?
Listing is like growing up and leaving home: it gives you independence in your future direction. When you articulate where you’re going, the shareholders who want to be part of that journey will join you, and others who don’t can leave.
I have a mantra: aligned shareholders lets you have a good board which lets you build a good management team.
Most companies as they grow collect a number of shareholders — if they’re angel funded, this could be a large number. And as time goes by more and more of these shareholders would like liquidity so that they can sell some or all of their shares. Being listed gives current shareholders the ability to sell when they want to, as well as letting other interested parties become shareholders.
Some companies who remain private for a long time have a seriously fractured shareholding base — people who are very unhappy about being trapped in this investment. And with discord among the shareholders, there can easily be flow over into problems in appointing a good board or in getting consent for things the company needs to do to grow.
Democratisation of shareholding
Listing lets other people share in your success! Be great to be able to invest in more of the fantastic high growth tech companies being built from New Zealand and Australia. There are now 28 tech unicorns on the ASX and the new tech index tracker fund, ASX:ATEC, is up 66% in the last 12 mths. New Zealand is lagging with only a couple of listed unicorns but there are another 12 with valuations above $100M. In the workshop in December we asked for a show of hands: about 40% said their company is already worth more than $50M and most of the rest said $20–50M. Many of us would like to invest please!
Acquisitions become easy
At the MORGO retreat 2020 we ran a panel discussion on making acquisitions. It was really clear that being listed is a massive advantage for acquisitions:
- You can raise money FAST
- You can use scrip as part payment for the acquisition
- You have credibility with the company you want to acquire
- You give the acquired company the advantages of being listed, such as being able to incentivise staff with meaningful options
Credibility with customers, suppliers, staff
Being listed gives you immediate credibility for customers, suppliers and potential employees. It tells them that you are a credible size, that you have a real management team, that you have good board processes in place, that you have access to funding, and that you’re likely to be around for some time.
It’s easy to be so focused on the product market that you forget to be visible in the market for employees. A listed company is immediately visible — media coverage is far more likely. So potential employees learn about you.
Give meaning to staff equity options
Equity options are a great way to include the staff of a high growth company in the upside that will come from their efforts. The issues are that if they don’t see liquidity within 5 years, they will not value the options as much. And if they expected liquidity and it doesn’t come they may come to resent the options rather than value them.
Yes, there’s an initial hurdle of cost and time, but if you’re ready with your board and management team and story the benefits will far outweigh the costs. Let’s go!