By Sandy Campart
The main objective of an IPO – Initial Public Offering – is to raise capital in order to allow a company to grow. However, during a global economic slowdown, investors are increasingly cautious. In times like these, how should you prepare to go to the market?
Reasons for an IPO
A company’s motivation for going public is often linked to the idea of “creating one’s own currency” in order to fund internal and external growth, to diversify future sources of finance and strengthen the financial structure of the company. Listing a company on the stock exchange results in tradability and liquidity, allowing previous shareholders to exit, realising a gain on their capital. It also creates a valuation for the company which will be useful for future succession plans. At a strategic level, an IPO can enable the company to clarify its strategy, refocus its activities, increase its visibility and credibility, and ultimately differentiate itself from competitors.
Nonetheless an IPO will significantly change the way a company operates. Corporate governance has to be overhauled, support functions professionalised and financial communication must be made transparent. All studies show that, when information is withheld, the negative impact on the share price is greater than if the bad news had been announced.
2019: a mixed bag
In 2019, newly listed companies have seen their share price grow by almost 13% on average. However, the figures vary greatly. Software and IT security companies have performed the best with an average of nearly 40%.
Nevertheless, the stock market performances of SmileDirect (dental aligners), Peloton (exercise bikes and fitness) and even Uber attest to the increased scepticism of investors for unrealistic or exaggerated levels of profitability. Uber’s price has been particularly disappointing since the latest results presented were well below the expectations of the investors. In the second quarter of 2019, the turnover was more than 5% lower than expected and the profit – or rather the deficit – per share was 53% greater than expected. Uber’s growth has been slower than that of rival app Lyft, and the restructuring costs associated with many departures, lay-offs and resignations do not seem to be controlled. Additionally, Uber’s CEO, Dara Khosrowski, told his employees that the teams were too large to be compatible with the pace of growth needed, while Uber’s CTO, Thuan Pham, believes it could take decades for Uber to achieve its “vision”, suggesting there could be a later than expected ability to turn a profit.
Towards a better year in 2020?
For a company wishing wanting to maximise its initial flotation price, there are two strategies to pursue: the first is to float when the company is performing exceptionally, the second is to wait until the stock market is in a more favourable position.
In the context of a global economic slowdown, investors have for several months been moving towards “safe haven” shares in order to protect their assets. This, combined with the chaotic path of some recently introduced companies and the abundance of private financing, makes it difficult to see an acceleration of operations in 2020.
Even though the flotation of Airbnb remains topical, Postmates (delivery service) and Endeavor (talent agency) have paused their entry to the stock market. It is possible they are prioritizing interest from venture capitalists and risk capitalists. Palantir (Big Data) and Stripe (internet payments) could also look for private funds instead.
The WeWork failure
WeWork is the most prominent example of our current inability to distinguish a unicorn from a chimera. Investors have to learn – or re-learn – how to resist those appealing equity fairy stories and to see beyond the innovative nature and rapid growth of a concept. Cash flow, debt level and governance remain key decision-making factors. In the WeWork prospectus, the word “technology” appears more than 120 times. The Coué method of repetition is here being used to suggest that traditional valuation models should not apply to this business. There is little doubt, however that WeWork is more of a property developer with an innovative business model than it is a technology company.
About Sandy Campart
Sandy Campart is a lecturer and researcher. He is a member of the Centre of Research for Economics and Management (CREM), part of the French National Centre for Scientific Research (CNRS). M. Campart is director of IUP Banque Finance Assurance de Caen – a finance school in Normandy – and author of “If we dared to invest in the stock market”.
A PROPTECH FOUNDER’S BEGINNING, THE START OF KLEVIO AND HOW ACCESS-TECH IMPROVES FACILITIES MANAGEMENT
An interview with Klevio’s CEO and Co-Founder, Aleš Špetič
What is Klevio?
Klevio is a smart intercom that allows individuals to enter a building using a mobile app, providing digital access and removing the need to use a key. Teams or individuals can manage access rights from our dashboard or the app, understanding the usage of their buildings better, whilst cutting costs and improving efficiencies. As well as Facilities Management (FM) professionals, Klevio’s technology has been implemented across numerous sectors including short-stay lets and longer-term property management, a recording studio that manages room bookings and a London pub which allows temporary access to delivery professionals via its solution. Klevio is also popular with private homeowners.
How did the idea come about?
The founding of the team and the products we worked on came from several influences along our journey. I was still working on CubeSensors, a company I founded that created miniature sensors for both the home and offices, feeding back data on temperatures, noise, light, humidity and the likes, something of a Fitbit for the room.
My co-founder and now Chairman, Demetrios Zoppos, was involved in the creation of Sherlock, the digital entry system that went on to be the underpinning technology for Klevio. When Demetrios exited his previous company, onefinestay, he held onto the intellectual property (IP) of Sherlock, knowing that there was a future for this technology elsewhere.
We quickly came to the conclusion that my IoT experience and history with physical products for consumers and offices, and the IP he had kept for Sherlock, meant that it would be criminal not to pool our experiences and so Klevio was founded.
How do you compete with the other access solutions on the market?
We have merged the new and the old. Keys have been around for thousands of years in some way or another, so have been ripe for a digital upgrade. With our competitors, although there is some amazing technology, most add confusion or annoyance to the process. There are smart-lock providers whose technology normally requires the changing of locks or at least the installation of an ugly and not always user-friendly pin-pad at the door.
Other options require magnetic cards and in many larger establishments receptionists are paid to ensure that someone enters their email for data capture, further adding to huge setup costs. With Klevio you do not need an extra key, token, or card. Everything is on your phone, similar to Apple Pay.Klevio is installed inside the building and is connected to the existing lock.
For office spaces, co-working and other large blocks, key cards are just one more item that can be shared and lost. With Klevio there’s no need to provide a keycard to anyone and it can be connected to an existing system. Many access systems do not have this benefit, and for offices this means you can change the access to your own unit without affecting the rest of a building.
What are the main challenges for your business?
Changing a mindset. People have used and trusted keys their whole lives. Getting them to accept a simpler alternative isn’t an easy thing to do.
The other difficulty is hardware, especially when it comes to security and people’s offices and homes. With software, if you make a mistake or something doesn’t quite work, you can patch it and update things. If a hardware product has a fault, a product recall is going to be a huge undertaking, and no startup will have the budget to ride the storm like a Samsung or a VW Group. We invested a huge amount of time to make sure that Klevio performs well.
Customers need to build confidence and trust in your offering, rushing to deliver and make a splash can backfire in a huge way.
What trends in tech do you see shaping the future of offices and homes in the next five years?
In the IoT space things are moving fast with the world’s largest companies like Amazon, Apple, Google and Facebook all vying to be the centre of the interconnected home and office. There are hundreds of startups carving out their own little corners too, so the next big shift will be consolidation. The industry leaders are already making moves to buy or partner with interesting startups to get ahead on IP and reach.
On a consumer level, people want smart solutions but are increasingly aware of their rights and privacy. Products that offer that on-demand feel, making lives easier and smoother, without taking too much data, will provide that personal touch consumers want and slowly start to manage the offices and homes of the future.
What is the one piece of advice you would give an organisation when looking to digitise its processes?
Do your research – don’t rush to find a solution. There are companies out there that will be able to make your place of work run more smoothly. You just need to find the one that suits your systems, colleagues and budget.
OPPORTUNITIES IN FINTECH: LEVERAGING CROSS-BORDER PAYMENT SYSTEMS
An interview with Aron Schwarzkopf, CEO and Co-founder of Kushki, a payment platform tailor-made for Latin America.
What are some of the biggest challenges in the fintech sector, specifically related to POS payments?
There is a lack of standardization in the way that payments are handled in different countries, and this presents the most significant challenge because it complicates the process of connecting them all across borders. We’re working to address that by adding some standardized connecting processes and using artificial intelligence to help mitigate these complications and make smooth cross-border payments a given.
Why are cross-border payments becoming more of a necessity?
As the world becomes increasingly global, the necessity for cross-border payments grows. People and businesses are expanding their scope and reach and therefore need to be able to operate in different countries. Part of being functional is the ability to make those cross-border payments, and so the demand for better options for those payments will continue to grow.
What are the key opportunities for cross-border payments?
There are four main opportunities that I see for cross-border payments. The first is facilitating fast and direct payments, cutting down on the extra steps required, but still maintaining the security of the transactions. From this, follows the need (and opportunity) to centralize recurring payments. Smart links are also an area of opportunity, letting people make mobile payments through different platforms using personal payment links. Lastly, expanding the opportunity to store payment information, like card numbers, and using tokenization to facilitate recurring payments.
With several fintech startups launching recently, how can you tell which are valid?
One common mistake is to assume that just because a startup has built something innovative that it is going to be useful. Instead, the most important thing to evaluate is whether the company is offering a solution to a significant pain point or just offering a minor improvement. I recommend comparing the startup to the most established version of its product. Which is less expensive? Which is easier? Which is resolving a larger challenge? If the startup is doing well on both counts, they’re probably on to something.
What are the security concerns surrounding POS payments?
The authentication process for credit card transactions is different in different regions due to different technological infrastructure. This inconsistency can generate confusion and concern about the security of various transactions and makes it hard to verify and understand the different fraud management and security processes in place.
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