Private exchanges a good way for startups to rehearse for IPO

Singapore

FIRMS can look to private exchanges for capital raising and as a way to prepare for an eventual listing, said panellists on Wednesday during the Global Investor Summit, which took place during the Singapore FinTech Festival.

The experts, who come from both the private and public market spheres, also largely agreed that there would be a trend of more private exchanges being subsumed into public ones.

Rebecca Smith, head of listings and capital markets, APAC ex-China at Nasdaq, said it is not essential for companies to go into the private exchange before listing publicly, but many of the large initial public offerings (IPOs) that she has seen have leveraged on both markets, Facebook being one of them.

Ms Smith likened the process to "rehearsing" before going public. "It actually helps the company to practise liquidity events and also use stock to incentivise employees, and create those controlled liquidity events," she said.

"(They can) get to know who their shareholders are, and get to want to target specific shareholders - not just, 'I'm a public company and anyone can buy my stock'. That's possible, but you can also have some influence over creating the shareholder base that works for you."

Senior vice-president of the Singapore Exchange Matthew Song said that the private to public route would probably only apply to tech startups, since traditional companies have easier access to bank funding.

"You start with your Series A to B to C, and that gives a platform in terms of valuation, given that a lot of the investors in the technology companies would look to exit. And every stage of your funding will certainly give a level of valuation, and most of them are geared towards a public exchange valuation," said Mr Song.

Asked whether private exchanges will be subsumed into public ones, both Mr Song and Ms Smith said that they already have. For instance, SGX has invested in private financing platform CapBridge, which will use blockchain technology for an upcoming Singapore-based private exchange, named 1exchange.

Funderbeam founder Kaidi Ruusalepp agreed there will be some consolidation, but said that with new technology and the rise of millennial investors, now is the time for the first private exchanges to stay independent.

Asked whether he had any concerns about large public companies being taken private in the future, Mr Song replied in the negative.

He acknowledged that there has been a wave of middle-sized firms delisting because they weren't getting the right valuations from the public. But he attributed part of it to investor relations, and said there is a strong pipeline of firms intending to list.

"Being listed gives you access to different forms of capital, from the perpetual bond to the mezzanine equity market, and to the equity market itself. And it also gives you deeper access to bank syndicate lending as well," said Mr Song.

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