Is going public like “living in hell?” There must be a better way…
The capital markets industry is increasingly data-driven. Each day brings with it a fresh round of company news, regulatory updates, market trends – the list is endless. So, it takes a lot for something to break through the noise, and even more for it to make a lasting impact.
That’s what happened to me earlier this fall, when I read comments by James Freeman, founder of Blue Bottle Coffee, shortly after he sold his private company to Nestlé. Describing his views on the idea of going public in a stock offering, Freeman said: “It seems like a way of living in hell without dying.”
That stopped me in my tracks because it highlighted just how far exchanges have strayed from their original mandate. My mission, that of NEO, and the very purpose of stock exchanges in general is to connect investor capital with companies that want to grow. Yet here was the CEO of a growth-oriented company describing the idea of listing on an exchange in one word: hell.
Dramatic language aside, it’s hard to argue with Freeman, and statistics bear this out. The number of companies listing is decreasing across Canada and the United States. Meanwhile, the venture capital industry is booming, offering companies access to funding without the bureaucracy, overwrought process and complexity that comes with listing on most stock exchanges today.
This is bad news for investors. As public listings shrink, so too do the opportunities to build wealth by supporting growing companies.
One big problem is that companies considering going public are getting input from exchanges that [often] put their own interests first. Most stock market operators are stuck in antiquated processes ill-suited to the needs of today’s companies and investors, bogging them down in paperwork and red tape, hurting their productivity and almost always handing them a very large bill at the end.
It doesn’t help that many of the world’s largest stock markets are themselves public companies, which has pushed them to prioritize the bottom line and short-term financial results over providing the best services they can to their listed companies.
Enough is enough.
Some of the earliest stock exchanges saw trading take place in coffee shops. People met, formed a relationship, aligned on mutually beneficial goals, and capital connected with companies. The exchange was a facilitator and a connector – investors and companies were the stars of the show. Although we can’t and shouldn’t go back to coffee shops (as much as I sometimes would love to!), we can capture that spirit. We’re going to continue our commitment to putting listing companies at the heart of every decision we make. Business may be vastly more complex than it was in those early days, but the fundamental ingredients for success – forming a relationship that puts the needs of companies and investors first – have not changed.
So, we’re reemphasizing our commitment, and calling on the industry, to adhere to three important pillars.
Do what’s right
- Of course, we – like any exchange – would love to grow our listings business. But every listing we get is only worthwhile if going public truly benefits the company. And too many companies today are being pressured from all sides to make the leap well before it makes sense to do so.
- We routinely tell companies to wait. In fact, my best piece of advice to startups is to not cave to listing pressure. In a lot of cases, staying private longer makes sense. Meeting the minimum requirements for an IPO is not a valid reason to pursue one. At the same time, not everyone can or should be a billion-dollar Unicorn to go public. Slow down. Consider the options.
Provide partnerships, not transactions
- Startups routinely talk about shared values and cultural fit. These are core to who they hire, how they market themselves, and how they interact with customers. That doesn’t have to be abandoned when it comes time to work with an exchange.
- Companies should seek a cultural fit with their market, and should not assume that going public is a time for walking down well-worn paths. NEO was founded on this philosophy.
- We don’t stick to traditional frameworks. We work alongside those who list with us – navigating issues, engaging regulators, solving unforeseen problems, managing costs, and providing access to a network of skilled professionals vested in their success. We also understand that just because something works today does not mean it will necessarily work tomorrow. We’re constantly learning, evolving, and coming up with new and better way of serving our listing companies – just like they are.
Build trust – the earlier, the better
- The exchange business is all about trust, and trust is always built on more than just money. It’s about making sure the people bringing a company public share the same vision and goals as the company itself, and that they’re ready to go above and beyond what has often become an assembly-line like process.
- While we encourage young companies to wait until they’re ready to go public, we also urge them not to wait to have the conversation. I always encourage companies who may one day want to list in the future to come talk to us now. It’s important to know what’s waiting for you out there when the day finally comes – even if you decide to stay private in the end – especially when you consider that your capital structure (whether public or private) has a profound impact on your business model.
Stock exchanges have much to do to put listing companies and investors in the driver’s seat once again. It will take a committed desire and fundamental changes to fix that. That’s our goal at NEO. We’re proud of what we’ve achieved to date, and look forward to leading the charge to bring a new energy and vitality to a system in desperate need of it.
We invite you to join us.