'IPOs are not the goal, but milestones on road to profitability'

Singapore

THE worst possible thing a startup entrepreneur can do is to see an initial public offering (IPO) as an endpoint, said Mohamed Nasser Ismail, global head of equity capital markets at the Singapore Exchange (SGX).

At a panel discussion organised by venture capital firm Insignia Ventures Partners, Mr Nasser stressed the importance of delivering returns while maintaining risk management and internal controls.

An IPO is typically seen as the most significant kind of exit in a startup's journey, where capital, private equity investors, as well as founders, are able to realise their returns.

"Oftentimes when I speak to the entrepreneur who is not well-versed in the capital markets, they see the IPO as a goal. It's not a goal. It's a milestone for something else," said Mr Nasser. "And that's the most important thing - that you have a plan to use the platform to take you to become a bigger and better enterprise."

Life in the public market is the next stage of growth for companies, who will face strict listing standards that help them build sustainable enterprises that can last, Mr Nasser said.

But startups should beef up their corporate governance way before they even think of going public.

"Before I joined the Exchange, I was actually a prosecutor with the Commercial Affairs Department. What I've seen in my time there is this: that bad things happen to companies that are fundamentally good because the internal control processes and the risk management frameworks within those companies are not robust enough.'

"And it takes one guy in your finance department or in a key department to take advantage of those gaps and it can really bring the company down to its knees, and I have seen that happen many, many times."

In the public market, there are clear demands that a business has to demonstrate growth and deliver returns. If a company is not open to talking about its strategy, retail investors would not know how to value it, he said.

Mr Nasser emphasised the need to show a path to profitability, as has been the constant refrain of market watchers ever since cash-burning tech firms such as Uber and Snap went public in the US without profits in sight. "Public market investors are not patient. It's not patient capital."

He believes the days of just going for scale, and not profit, are coming to an end. "Because the idea of a business model that relies solely on scale without profits means that somebody is subsidising something, right?"