Tag Archive for 'ipo'

This time around: More sensible IPOs

Published by Ben Kepes on August 12, 2008 in Business, IT and Strategy. 0 Comments

As well all know, the dot-com burst was all about crazy valuations and IPOs of web businesses with no business models behind them. Ma and Pa investors got burnt and a decade on the viability of IPOs in general are still being affected.

So it was cool to see that Rackspace, the Texan (where even Data-centres are bigger than Texas) data centre business is embarking on an IPO – selling 15 million shares at $12.50 each. Rackspace is a good solid profitable business from all accounts, and this IPO is apparently designed to bring in some capital to fund some investment in hardware – designed to make Rackspace more competitive in the cloud-computing environment.

Update – yes I know the Rackspace shares have drpped since listing – but give them time…..

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IPO – Why would you?

Published by Ben Kepes on July 2, 2008 in Business, Governance, IT, New business and Strategy. 0 Comments

Over on RWW, Bernard posted about the recent VC round for LinkedIn that gave it a $1bill valuation and some serious cash to play with. In his post, Bernard commented on the dearth of IPOs happening currently and asked what the issue was. Bernard asks;

    1. Why has the public market for tech stocks disappeared?
    2. Where has it disappeared to?
    3. Will it ever return? 

Well Bernard – it’s kind of simple. Messers Sarbanes and Oxley nicely kneecapped the public market. Life as a publicly listed company is sufficiently difficult and full of compliance requirements that it’s not surprising that tech start-ups, who need to be nimble, agile and able to turn on a dime are looking for alternative methods of financing. The dot com bubble burst also scared significant numbers of potential investors away from the sharemarket (and especially tech stocks).

The LinkedIn deal shows that PE and VC has replaced a good part of the IPO funding train. As to the long term prognosis for IPOs, at some stage they’ll have to return as PE companies attempt to make a return – they won’t be back in force however until such time as the businesses start to prove financial viability on their own – outside of hype and bubble.

Let’s turn it around and look at why a business lists. Given the current apparent ease of obtaining funding through other means, the primary benefit of public listing is the credibility it brings – unless the business has a particular need for credibility (it wants to trade with businesses that demand it, trust is an issue etc etc) what’s the point?

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Gut feel investing 101…

Published by Ben Kepes on July 1, 2008 in Business, Efficiency, New business, Society and Strategy. 6 Comments

Last year three IPOs happened in a short space of time in New Zealand. They were all small(ish) businesses but from varied sectors. In short space Xero, Burger Fuel and Diligent Board Services listed. Despite the pre listing analysis of all three businesses, I relied on a simpler method – gut feel.

Xero was a business that had a logical story – take accounting for SMEs, traditionally delivered via a desktop application, and deliver it via SaaS. Xero, from day one, struck me as a well thought out concept. The founders were serial entrepreneurs who had no real reason to do another start-up other than passion. It was also obvious that their intentions were to build a sustainable business and quick build and flick wasn’t the goal.

Xero has broadly delivered what it promised, hasn’t delivered any surprises (either positive or negative) and feels (from the outside at least) like a “slow and steady” sort of an operation. While I had concerns as to whether Xero would get the sort of uptake they promised, there was never any real doubt that the business would scale to a reasonable size.

My advice, then and now, was that Xero was a risky investment, but a calculated one. Suitable for a long term purchase and hold as part of a diversified portfolio.

Burger Fuel listed almost concurrently with Xero. Their listing was interesting – rather than relying on the more austere (and proven) processes, they decided to create a listing document that targeted their customers – young, hip, and generally non-investors. They plastered the offering doc all around the restaurants and not surprisingly the IPO was undersubscribed.

My advice from the start was that Burger Fuel was just another, less than highly differentiated fast food chain. As such, scaling it both domestically and internationally, in the face of massive competition and falling revenues for the traditional burger establishments was a hard ask. Then and now I advised steering clear.

And now we come to Diligent Board Services. This was a slightly different kettle of fish. Diligent has been going since 2001, it’s offering (managed board meeting papers available via SaaS) is kind of bizarre (I have met plenty of corporate board members, almost too a person they are technophobes who have their PAs check their email – the idea of these people using a web based product was just too strange) but they had some high profile customers and some New York credibility.

There offering however rung warning bells for me – it just seemed to slick and slick like a Nigerian email scam, not like a Milan suit. During the IPO things unravelled somewhat when it was discovered there was an undisclosed connection between some of the founders and some shady corporate failures from the ’80s.

So… how did they all do. Below are the NZX charts for the three stocks – bear in mind they all listed at $1. Xero is top, followed by Burger Fuel and then Diligent.

summary-chart.img

bf

dil

Yes indeed, BF and Diligent can only be described as utter failures, trading at less than half of their listing value. Xero hasn’t been a superstar but it’s hovering around listing value and seems solid.

The purpose of this post wasn’t to suggest that people follow my investment tips – rather it shows that sometimes a bit of personal research, a dose of logic and a touch of gut instinct can be a good way to do things. Now what would my advice have been about Google if I was blogging when they listed???

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