Funding Circle led the way for fintechs in 2018 as it became the first company in the sector to be publically listed on the London Stock Exchange. Since then, a plethora of fintechs have followed suit hoping to find success, however, questions are starting to be asked whether a traditional IPO is the best way to list one’s company or if going public is even the correct decision to begin with.
Alexander Green is the Chief Evangelist and Co-Founder at Globacap. Green leads business development with institutional partners including VC and PE funds. Green is focused on solving problems for clients and delivering innovative capital markets solutions for Globacap’s customers.
He spoke with The Fintech Times to discuss how an IPO listing may not be in a fintech’s best interests, and that remaining private and in control is a better choice, especially now more options are available to companies who want to generate capital, offload shares, or even exit, without the need to go public. Despite this, Green explains some companies would still want a public listing. For them blockchain tech could provide new routes to liquidity:
Given the number of UK fintech companies we’ve seen choosing to IPO lately, you might be forgiven for forgetting the first ever public fintech listing – Funding Circle – took place less than three years ago, in Autumn 2018.
Since then, there’s been an explosion of fintech companies looking for the liquidity (and status) that comes with a high-profile IPO. But anyone who follows the trials and tribulations of tech IPOs will know that they’re not without their risks. Funding Circle, for all the impact it had as the UK’s first fintech IPO, struggled on its first day of trading, a situation mirrored famously by Deliveroo earlier this year.
This could be why Wise, 2021’s biggest fintech public offering, didn’t choose a standard IPO, but chose a direct listing instead. Though its shares are still tradeable on the London Stock Exchange, Wise’s listing represents a move away from the traditional, something that might tempt other fintech organisations to do the same.
Recently, we conducted some research into how UK finance leaders view the prospect of IPOs, and our findings reflected an overall desire to ease off on the rush to public listing. A vast majority (87%) of CFOs and finance directors say that they intend to keep their company private for as long as possible and hold off on an IPO. However, this drops to 84% among leaders in the finance sector, and just 78% among leaders in tech.
In the shadow of a year of decidedly mixed IPOs, the time is right to be opening a conversation around alternative routes. As IPOs continue, we will ultimately see more of them fail, but this is because of the inherent faults in the traditional process, rather than that of the company.
Fintech companies represent the cutting edge of UK industry, but so many continue to choose the old, traditional route to liquidity, when they should be empowering themselves to stay private and stay in control.
Wise’s direct listing is the first small step towards breaking down the traditional routes to liquidity, but it still comes with its own risks. IPOs, direct listings and company buyouts are no longer the only options thanks to technological advancements in private capital markets. More options are now available to companies who want to generate capital, offload shares, or even exit, without the need to go public.
And what about the future? Blockchain technology will enable tokenisation of securities and be able to list on exchanges without the requirement of going public. The world outside of finance is starting to understand the benefits of physical asset tokenisation – and it’s also the direction of travel for many financial processes.
Frustratingly, the majority of innovative fintech companies looking to publicly list will actually be using blockchain tech, either as a fundamental part of their business offering, or to support the running of their organisation. Now that these platforms exist, why haven’t they made the leap to start using blockchain in their capital raises and liquidity rounds?
Fintech companies will always see an IPO as a goal, particularly for the buzz it can generate and prestige it can offer. However, what unsuccessful IPOs have taught us is that there are clear, fundamental issues with the traditional process and that companies deserve a wider range of liquidity options.
With the advent of blockchain tech, companies are now able to take back control and gain a new route to liquidity. It won’t be long before companies start to fully utilise the advances brought by blockchain technology, and at that point we’ll likely see a trend of more companies deciding to stay private and taking back control of their own liquidity.