 Thank you very much guys hanging in there Enjoying the sequence of guys with glasses talk about fundraising so far Sorry, I can't I can't stop that but I hope you find the next presentation interesting. My name is James Clark I'm the head of tech and life sciences at London stock exchange As the guys mentioned I have a long history working with startups and working with venture I don't have so much of a history working with investment banks So I sort of bring a bit of a perspective of startups to what is a pretty unusual sort of thing for for stock exchanges and for public markets One of the things that you find working with startups is that there's a huge Sort of preference for having data different decisions You know data is the thing that make helps us to grow our companies if data is a thing that helps us to inform maker It decisions decisions we make However, when it comes to IPOs Data isn't something that most people make use of it's a bit strange We tend to sort of focus on what other people say what what what the market talks about Not really, you know looking at the underlaying data. So I put this presentation presentation together to try and address that I am I start with a quote This one here is a pretty famous quote about truth and lies The really interesting thing is no one really knows who said it. It's been attributed to Mark Twain It's also been attributed to Winston Churchill It's a pretty good example of how truth and lies are actually something we like to ourselves about and a lot of the Myths that I'm going to talk about in this particular presentation Lies that we tell ourselves or things that we don't really know any better because nobody bothered to question them in my case It's about IPOs Hopefully you get something useful out of it. I've given you I'm trying to give you case studies of companies that have actually disproven these myths And hopefully that sort of leads you to question some of those things and please give me lots of questions at the end because I Like to answer questions where I can So myth number one, I'm not a unicorn. So why IPO this one's pretty common It's probably the most common one that I have when I talk to startups There's this prevalence that you need to be a unicorn and I guess part of that is the coverage around tech is mostly about You know what unicorns of IPO and how they perform But these guys weren't a unicorn they are you know 60 70 million dollar valuation at IPO As you can see from that growth rate, they're not that value anymore They're somewhere closer to about seven or eight hundred million Right and that's since March last year. There's a public company Growing at a Bitcoin like growth rate, but with all the data you could possibly want to understand how to read a public company So consider that next time you worry that you're not going to get alpha in a public market We do also have some unicorns. So alpha financial was a unicorn at IPO. It was about a billion dollar valuation But in this case 90% of the equity was owned by the chairman and 10% was owned by the CEO Absolutely no outside funding IPO to a billion dollar valuation jump 30% on an opening day And they're now a little bit higher than they were when they IPO back in June Myth number two I need to have a hundred million of ARR to IPO Now this one is really common when it comes to SaaS based businesses We tell ourselves that this is a really important number because if we don't have this revenue run rate We're not going to be able to IPO now the thing to bear in mind about this number Is it's dictated by the fact that you what would want to list on something like the Nasdaq? But if you're listing on Nasdaq first north of London stock exchange or you're listing in another market almost anywhere in the world You don't need this kind of a number So cerillian the market cap at IPO is only 32 million Their run rate was about five to ten million and they've obviously as you can see had a pretty sex and successful experience It's IPO I should note by the way most of the companies that I'm featuring here have IPOed in the last two years So they're very recent businesses. This isn't you know a historical thing. This is actually what the market is doing right now Eve sleep You know it competes with companies like Casper It's one of the sort of online mattress selling companies these guys have grown They've they're at about sort of 10 million 15 million of annual revenues at the point they IPOed with a fantastic valuation as you can see Haven't had the best of it since they've come to market But at the same time they had a really successful IPO and their annual revenues run nothing like a hundred million The market is quite happy to accept companies that are growing and can actually project a forecast of growth into the future This one should should be quite interesting anywhere outside the US. I need to IP in the US to get the best valuation This is where data is really important I'm very lucky to work with a team of data people who some of them are sitting over here at the moment They're the ones who did all the hard work with the Atomico research. I just go to lunch with people. They do the hard work But look, you don't need to IPO in the in the US to get the best valuation This is something that has become a received wisdom if you look at the data It's not the location of listing that matters. It's the quality of the company So if I look at a company like loop up San Francisco London offices, they IPOed in August last year again Reasonably small cap, but they've almost doubled their value in, you know, they're just over a year since their IPO And they've had a really good valuation as a product as a consequence If you want something a little bit bigger, then you have world pay now world pay IPOed within a day of their most direct competitor first data from the US World pay has been consistently valued higher than first data has since they IPOed in 2015 now they're bought off the market earlier this year But they're going to come back to the market as well pay very very strongly valued again The quality of the company what may is what matters not the location of the listing. I Can't access US investors from London. Well, you can access US investors from pretty much anywhere in London's case About 30% of all investment into the market comes from North America You can perfectly well access US investment from London. Boca is another example. They IPOed two weeks ago San Francisco company they took investment from Anderson Horowitz NEA coastal ventures index they IPOed a couple of weeks ago Market cap was a little bit more than this actually I was about 150 or so They raised about 60 million and they've grown really nicely even a 40% since I've been a couple of weeks ago Another example purple bricks these guys actually started off on our growth market They've moved to our main market because they've grown so successfully You can see the market cap at IPO. They're over a billion dollars now So this is something that was actually highlighted in atomico's research of you know homegrown or European grown Unicorns they did this on a public market No one has heard of me. So who'd invest a lot of people think you need to be a snap or you need to be you know A really big household name to IPO But that's not the case investors will seek you out if your data is interesting if your performance is good Investors will look you up and they will invest Internity networks Interestingly enough for a bit of a household name in Israel where they're from they came to London to listed where they're not a household name because they could access Investors who understood what they were doing and would actually be able to would sort of invest in their business and do well out of it Free agent is another one not a household name But actually the process of IPO has given them a much bigger awareness of their customer base And that they use that being a public company aspect to help them grow their business I can't IPO because I need to raise more in the future. This is a weird one. I don't know why this has become prevalent part of it is is because there's an attitude in the US of Public companies coming back to the market to raise more money. There must be something wrong with the business It doesn't really work like that in Europe. Certainly doesn't work like that in the UK Just eat we all know who just eater Their IPO or since I feel they've all know what they've more than double their price They've come back to the market seven times since they IPO every time at an increasing valuation They've made use of the market the market cap of their most recent follow-on with seven billion dollars I'll have to do quarterly reporting the bane of every tech company Everyone who every every tech company have ever heard of everyone who you know Eric Reese is trying to create an entirely new stock exchange to avoid doing quarterly reporting All I say is my friend come to Europe The year regulations mean none of us have to do quarterly reporting UK like most the rest of Europe is half yearly reporting Half yearly report to investors in six months and then in order to report at the end of the year So Sophos really interesting company cyber security company IPO in 2015 Mark a cap of 1.5 billion deliberately chose to list in London because they would be having much sort of greater a higher position On the list of companies than they would in the US they brought all their investors over They road showed out of the US and brought those investors over to it helped to push up their valuation They've also done they also made that decision because they don't have to do quarterly reporting. There's no Sarbanes Oxley Director's insurance is the third the price because you know Europe is less litigious There's all these reasons why companies use regulatory structure to help them with their IPO Another example of an Israeli company. I bought in Israeli companies is actually because it's important There's 30 or so Israeli companies listed in London Increasingly I go to Israel because lots of Israeli companies are looking for a quality capital market to grow on and historically They've always just gone to Nasdaq because that's what everyone always is everyone always does So what we wanted to do is to try and challenge that perception and Working with their investors. We help them understand what the data story said You know data story says, you know, all the things we've just talked about Excel media came to the market They've IPO very successfully they've grown very well since it since they come and it's just another example of how Companies who break the mold who do something a little bit different who challenged the myths of what? IPOs are all about can be very successful in a public market. They can grow very well, you know life doesn't stop when you exit It's not even an exit in fact for most founders It's actually the start of the next phase of their business But you can do this very successfully in London and we like to work with companies who do that and companies who can do well Hopefully come and join us and they come and do this This is me, but I won't leave it on that I tend to tweet a lot if you've wanted to find out with me you can catch up would be there But now I'd like to take your questions. Please have lots of them. Thanks very much Thank You James We have a question over to the questions. You will see them in front of you And if there are no questions anymore on the slide though, we will still be able to raise your hand just in school and ask Your questions, okay How does the valuation get calculated IPO? How long is a piece of string? valuation is calculated on many metrics a Lot of the businesses we see They tend to be very revenue-generative So as we talked about having revenues is important But more and more than anything having consistency of revenues is important the consistency of revenues is what allows public market? Investors to track forward to see what your business is going to do in the future So you're probably better off growing at a consistent 30 40 50 percent a year rather than doing it a very peaky 20 30 40 percent one month and then dropping the next so valuations calculated a lot of things I'm going to kind of skip that question and suggest that you speak to your advisors because they're the ones are going to help Understand your value better How many expensive advisors and reports do I need to IPO how do I get value from this process? So I have to say Raising private capital is going to be cheaper than raising public capital. It just is that way the process of going IPO is Necessarily a stringent one because you're going from having a group of investors who hedge their risk by being experts in your sector or experts in finance rather having other expertise to having You know investors who might not necessarily understand what you do I mean you want to be able to put out enough information so that you know any of our parents can pick up our reports and Be able to make an informed investment decision the advisory process depends on the market It tends to be an awful lot cheaper to do it in Europe But you know it depends on the sort of company But if it's a aim-listed company in London anywhere between say two hundred thousand and five hundred thousand pounds to IPO But once you're on the market it becomes the cheapest way to raise capital thereafter Our brexit affect the IPOs in London stock exchange we get this one a lot All I can say is brexit was what June last year We've had our best year ever We hit our had a record month in July. I'm not really sure what the story is behind that But all we can say is that If you have US dollar denominated revenues coming into a pound listed company, that's not necessarily a bad thing right now London tends to be Fairly tends to be really is the most international capital market We have in terms of absolute numbers and in terms of percentage of companies listed on our market We are the most international in terms of sources of investors. We are the most international So actually being an international market in this case a lot of companies haven't necessarily been that affected by brexit In fact many companies are investing because they see an opportunity in the future So from our perspective it hasn't really had that much of an effect I'm there are some aspects of our industry that will be affected But from the from the public market section. It hasn't really had that much of an effect When should I start think about IPO strategies at funding stage already look I speak to companies from about seed stage onwards I'd speak to them before but frankly, there's one of me in thousands of you But what I find is the earlier you start thinking about this the earlier you actually have an option now I don't tell people to list I give them information. I encourage them to research for themselves I want them to make an informed decision about some of the most important aspects of their business because one of the challenges and one of the tragedies is where Management teams and entrepreneurs are being dictated to by board members who might be no less informed than them But they're just acting on what they think they should do and for investors I would encourage you to look at the data and to understand whether the opportunity is for your businesses Because you need to be informed as well. So for founders The sooner the better Be informed have an understanding of what the process is that you need to apply when you need to apply it So that when the time comes and you do have to make a decision It's not a rushed one. You're not doing it in panic. You have the time to make the right sort of decision What do I need word to consider when it comes to share division? I'm assuming this is something to do with market caps and or cap table. Sorry The point of understanding an IPO is that at IPO you effectively become a new company all the existing shareholders Positions are collapsed and they and they issued shares in the new company Proportionate to what their previous shareholding was, you know accounting for delusion for going into the market So the share division at at IPO is going to be more or less similar depending on how how much of how much of fund raise You're trying to do at IPO When I go when you consider investing in a company, what are the key things that you look at? I I can't invest in companies one of the challenges of being on a stock exchanges It makes investing into public companies a bit of a challenge. So I don't But at the same time, it's like any other sort of thing You look at if I was to put myself in the position of a public investor You want consistency the thing to bear in mind about working with private investors, especially VCs is they're gonna only think about the upside They'll invest in you thinking if things if things go great, that's gonna be fantastic for me I'll take as much upside as possible the difference with a public market investor is a public market investor wants consistency of return within a portfolio of Stocks that they've invested in they're expecting Different levels of return based on what you've told them you can deliver if you massively over deliver on what you're expecting to do It actually creates an imbalance and they might need to sell out of some of your shares to be able to keep the balance within their portfolio So just bear that in mind consistency of delivery is important So, you know the most important thing you can do is to deliver on the promises or deliver on your expectations of return Because that's actually what the public market investors are gonna look at the most Um Can you tell us an example of when an IPO went really wrong and what could we learn about it? IPOs don't tend to go really wrong They can go wrong, but what you see more often than not is You'll see IPOs being pulled before they go to market in those sorts of situations The advisory team has realized the market isn't there the way they hoped it would be They'll probably pull the IPO so that they can come back to the market later or assess what their options are If I was to look at a case of an IPO, we're not really wrong. I'd look at somebody like I don't know blue apron You know, this is a company that really just tripped over the line to get to IPO But one of the challenges of the model that they had applied was it's very hard to get the unimetrics to work and to scale it That's at the rate that they had and then to do that with public investors because public investors expect the returns to be Delivered and if you don't deliver on those returns you get punished and one of the challenges being a listed company Especially in the US is you have quarterly reporting you know, you have to deliver on what you said you were going to do every quarter and Typically that's sort of the the rule of thumb is a company has about two reporting seasons or two reporting sessions To start hitting their numbers and blue, sorry Blue apron have not really hit theirs any way through and they've obviously seen that the valuation has dropped about 70% since they've gone to IPO so There are examples of IPOs that go wrong, but more often than not if your advisors are pretty good They'll advise you to pull the IPO before it happens What do I need to formalize before listing do I need grown-up auditors? Yes, you do need grown-up auditors There are different listing rules depending on which markets you go to London's main market applies the same EU guidelines as the rest of European markets You know, you need to have ordered financial reports usually going back about three years The marketing aim is slightly different You do want to seek audited reports, but you can get dispensations. We had a company last year They IPO'd after being only in existence for ten months But they had a very strong board. They had a very strong team They had investment back as before they came to market So they're able to get a dispensation from us as the exchange to be able to IPO But generally speaking yes, get auditors now start look start think about those things now What are the direct versus Direct listing versus IPO so direct listing I'm assuming in the UK. We call this introduction It's the thing that people to talk about that Spotify is looking to do What you really want to be well, what a direct listing is is when you go to when you List the company, but you don't raise funds You just put the company on the market and hope that it starts trading and you have a certain amount of shares that are available to Trade now one of the benefits of an IPO is frankly It's a fantastic piece of free free publicity So the reason why there's a lot of question about what Spotify is trying to do is Because they're forgoing a huge amount of free publicity although you could argue the fact that so many people are talking about their unusual Method of going public. They're getting all the free publicity. They would have wanted but generally speaking you IPO because you want to raise funds a Direct listing is when you go to market without raising funds It's it sort of swings around about companies do it. We've had a number of companies do it in London It's actually pretty common. It's just not very common in tech And I have about five seconds left and I have no more questions. So, thank you very much. All right, brilliant timing Thanks so much James