With the hype of Initial Coin Offerings (ICOs) becoming public interest in 2017, one might assume that fintechs would no longer be interested in raising finance through public listings. Nevertheless, we recently witnessed Dutch payment processor and PayPal rival, Adyen, raise $1bn on Euronext and this is expected to have caught the attention of other disrupters in the market.
The European Initial Public Offering (IPO) market had a strong start to the year with €21.8bn raised in H1, up 5 percent on H1 2017. The UK was a key driver of this growth, with 25 IPOs in Q2 2018, up 25 percent on the same quarter in the prior year, with the technology sector accounting for 40 percent of those listings. The UK has attracted more investment in fintech that any other country worldwide in H1 2018, which is undoubtedly linked to the Fintech Sector Strategy released by the government in March 2018.
The Strategy focused on how the government intends to “preserve and extend the UK’s international edge in fintech” by ensuring the UK is the best place in the world to start and grow a fintech business. Open Banking, an initiative driven by the government, is undergoing a managed rollout which will no doubt present new and exciting opportunities for the sector. The Strategy also discusses how the government will invest additional resources into helping fintech firms expand into markets linked to the UK via fintech bridge agreements. The costs of complying with regulation is said to be one of the biggest challenges faced by UK fintech companies, and the government addresses how it plans to combat this within the Strategy.
Despite uncertainty over Brexit, IPO activity remains high, with two of the world’s largest unicorns, Spotify and Dropbox, setting the trend by listing earlier in the year. We also witnessed Boku raise £45m at the end of 2017, shortly before Trufin raised an impressive £70m, both on AIM.
In recent years, investors have been looking for opportunities to invest in fintech companies, although to date this has often been through private offerings. Investors are aware that even pre-revenue fintech companies can be incredibly valuable if they hold the solution to a problem which could change the world of banking, insurance or wealth management, to name a few.
We’ve seen substantial recent investment, particularly within AI, robo-advisors and Regtech.
This is encouraging if you’re a fintech business owner or manager with an AIM listing in your sights, but how do you know when it’s a good time to make that leap?
When considering going public, timing is crucial if your venture is to be a success.
Early planning is critical to success, and it is worth considering three points before deciding whether to embark upon this new journey:
- the external and political environment;
- internal factors; and
- life after an IPO.
Economic and political environment
The economic and political environment is vital when considering whether to float your business.
In 2016, the dreaded ‘B’ word lead to IPO activity dropping to its lowest level since 2009.
When experiencing periods of global uncertainty, it’s important to evaluate the longer-term effects of such seismic events, the consequences of which are likely to be felt long after the initial occurrence.
Ensuring there is a thorough understanding of the level of investor appetite for your business throughout these periods is also essential. With the likes of Adyen listing at a valuation in excess of $8bn earlier in the year, this could be the trigger that many were waiting for to show that investor appetite is currently bullish in the fintech sector.
When considering whether the time to float is right, it’s important to first ask yourself a few simple questions. Why now? Is the business revenue generating yet? Although we’re seeing pre-revenue businesses attracting significant valuations, might a proven track record of sales take the businesses’ valuation to the next level?
What strategic reasons are driving the move, and what are your long-term objectives? If there is a solid business case for listing, rather than a just a desire to be a public company, then now is a good time to consider the move.
A listing uses up a huge amount of time and resource, which inevitably falls on a few senior individuals and diverts their attention away from ‘business as usual’ – expect growth and innovation to slow during a public listing.
Pass a critical eye over your management team early in the planning process. Do you have the right team in place to deliver an IPO? Do they tick all the boxes required to deliver the initial listing? Work closely with your key advisers and remain focused throughout the process.
The management team will be under intense scrutiny from potential investors, who will look for clarification that you have the right team to deliver a successful IPO.
When you have the right team in place, start planning early for a listing. Think about what layers of protection you have in place to ensure continuity of your business throughout the IPO journey. It’s vital that the timing of an IPO is right for the management team of your business.
There are no set milestones in place to help guide a business on timing. Some established businesses have strong revenues or profits, whereas some businesses are pre-revenue or loss making, but predict strong future profits. Many businesses are disrupting processes which have been unchanged for years, and other businesses can offer potential investors a business constructed on a vast network or community which they have built without yet making a sale.
In all cases, the timing can be tested through pre-marketing roadshows. This allows your business to assess investor appetite before you decide to list.
It’s common for businesses to focus on the time before and during an IPO and forget that life afterwards becomes a whole new ball game.
The administrative, legal and governance requirements of a listed business are far greater than before, and a public company is under much greater scrutiny.
The management team will continue to devote time to their new stakeholders and advisers after the IPO is complete, and so it’s crucial that the time input required post an IPO is also considered in the planning process. Arguably, there is never a ‘right time’ to float, but knowing the current market, having a solid strategy and a strong management team to steer the business through the process will ensure agility and flexibility once the appetite from investors is right.
For more information about IPOs and ICOs, or if you or your company would like any advice, please contact [email protected].