When raising funds, an IPO is rarely the first thing that comes to mind for smaller startups. Entrepreneurs often think of listing on the stock market as an end goal, an exit only attainable after years of blood, sweat, and tears. And while that might be more or less true for the prominent American exchanges, several smaller international exchanges are much more startup friendly.
Case in point: the Tokyo Stock Exchange (TSE). It’s the biggest stock exchange in Asia by market capitalization and the third-biggest in the world. 67 percent of all tech IPOs so far this year took place on the TSE. And for startups, be they from Japan or elsewhere, it offers a unique opportunity.
Mothers is an index specifically for emerging companies with high growth potential. Nearly half of the IPOs in Japan this year took place on Mothers.
“You can do an IPO and raise funds at an earlier stage in Japan,” explains Hidetoshi Nagata, head of global listings at the Tokyo Stock Exchange. “Even though a company is small, it can attract investors in Japan.”
Nagata was on site at Tech in Asia’s Hong Kong meetup yesterday to pitch the TSE to startups there. He was joined on stage by Aucfan founder Shuichi Takenaga and Kenichi Tsukamoto from Nomura International, a global investment bank.
The TSE has seen 72 IPOs so far this year, already surpassing last year’s 64. The biggest was Recruit, which raised US$2 billion. The market’s strongest sectors are IT, biotech, and gaming.
Nagata went on to say that listing on the TSE through Mothers is far cheaper than competing exchanges, and its companies perform better on average. 22 percent of companies that list on Mothers eventually get bumped up with the more established companies, a group called TSE First Section.
Is your startup cut out for it?
Takenaga vouched for the TSE, saying Aucfan has seen continuous growth in revenue and profit since its IPO, maintaining high profit ratios of over 40 percent. He said the main requirement to list a company is that it must be making revenue of at least US$2 million per year. Startups offering their products and services for free in a bid to gain early traction will have to stick to traditional VC and angel investors until they have some cash to show for their efforts.
Takenaga noted that he also considered Singapore to list his company a few years back when the Japanese stock market was still reeling from the fall of Lehman Brothers. “Even in that situation, the Japanese market was better than Singapore,” he said.
The main advantages of seeking an IPO at such an early stage are easier recruitment, more visibility, increased market confidence, and the ability to raise further capital in future public offerings. The startup raised JPY 700 million (US$6 million) in its IPO last year.
A household-driven market
On Mothers, Tsukamoto explains that the number of shares issued on the Japanese stock market can be much lower than on other exchanges – an important factor for startups that don’t want to give up too much too early. Whereas the NASDAQ requires a company float a minimum of 1.1 million shares, Mothers only requires 1,000.
He points out another beneficial characteristic of the TSE: Japan’s stock market is very household-driven. Roughly four-fifths of the market is made up of individuals, or retail investors, as opposed to institutional investors. Retail investors tend to be more receptive to smaller companies.
This all sounds great, but keep in mind that listing on any stock market means publishing quarterly earnings results – everyone will have access to your company’s financials. On top of that, the Japanese yen recently hit a seven-year low against the US dollar. Give or take, listing on the TSE takes about 12 months.
This post IPOs aren’t just for the big boys. Startups can find a shortcut in Japan appeared first on Tech in Asia.
IPOs aren’t just for the big boys. Startups can find a shortcut in Japan
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