Posted on

Private Equity Job vs Hedge Fund Job –- What to Choose?

Yes, there are many issues right now with your funds because of the COVID pandemic. But the world will right itself in the coming day, and you can prepare yourself by being informed of the direction you will pursue in finance.
Both destinations, private equity, and hedge fund jobs are …

Read More

Posted on

3 IPOs and the Lessons They Hold for Today’s Startups

For most startups, it’s no secret that a significant part of their long-term plans is to go public and become the next market darling for investors. The problem most startups have — aside from reaching the critical mass necessary to support an initial public offering (IPO) — is deciding exactly when the conditions are exactly right to go public. Here are three IPO lessons and what they hold for today’s startups.

If you use history as a guide, I’m afraid you’ll find no real consensus on the matter of when to go public with your startup.

First and foremost, you have to exclude the IPO performances of sure things like Saudi-owned Aramco which is en route to becoming the biggest global IPO in history.

You also have to discount the performance of companies like Facebook and Google, who were performance outliers even at the time they made their market debuts.

Instead, it’s instructive to look at some IPOs that occurred within the recent past, to try to draw some conclusions as to what works and what doesn’t. With any luck, you can then extract some lessons to use as a guide for your own startup’s situation – or at least manage to avoid some obvious pitfalls.

To help, here is a look at three recent IPOs, and the lesson that I believe that each has to teach today’s startups.

Uber — May 9th, 2019

Uber driver holding smartphone in car.
Photo credit: rcfotostock – stock.adobe

Of all of the IPOs in recent history, there were none that came with the hype that attended Uber’s IPO.

The well-known ridesharing giant hit the market this year with a target price of $45 dollars per share, with 180 million shares of common stock available at launch. That would put the company at an overall value of around $82.4 billion. The pricing, however, tells an essential part of the story.

First, if you rewind the clock a few months, you’ll find stories that put the estimated value of the business up in the range of $120 billion. As we crept closer and closer to the IPO date, however, that number kept getting revised downward. The value was about $100 billion; then, it was rounded down to the IPO valuation itself. Then, the market had its say.

At the time of this writing, Uber’s stock price is hovering around $27 per share.

In retrospect, it’s easy to see what happened. First, the company pursued an IPO at a terrible time. It was in the midst of a price war with its biggest rival, Lyft. That competition, as well as some structural issues, contributed to Uber posting a billion-dollar loss in its first quarterly report post-IPO.

Mainly, investors got a look at the fundamentals of the business and realized that there was no clear path to profitability — boom — IPO disaster.

The obvious lesson here is to make sure that your startup’s financial house is in order. Have a specific action plan to get to profitability before you even think about an IPO.

Fiverr — June 13th, 2019

Magelang, Central Java, Indonesia, April 16, 2019. Fiverr app in play store. close up on the Android Smartphones screen. - Image
Photo credit: temitiman – stock.adobe

Much like Uber, Fiverr announced plans for a second-quarter IPO this year, despite the fact that it, too, continues to lose money.

The IPO called for an initial share price of $21, and a tidy 5.3 million shares. The company, founded in 2010, was betting that the booming freelance economy would be enough of a lure to convince investors that there was a bright future ahead. It seemed, at first, that Fiverr’s bet paid off — with the stock climbing 90% on the first day of trading to close near $40 per share.

In the months since, however, Fiverr’s stock has come down to earth.

At the time of this writing, the value is back down to near its IPO price. While that might sound like something of a disappointment to the ears of an entrepreneur, it’s actually the mark of a fairly well-executed IPO.

First, the fact that the shares have settled back to the valuation set at the time of the IPO means that the company didn’t overestimate its own importance. Instead, they recognized that their fundamentals indicated to investors that there was still more work to be done in the years ahead.

Unlike Uber, however, Fiverr has few real rivals in its market.

That means there’s every reason for investors to believe that the strong revenue growth the company has posted is a sign of a profitable future ahead.

The lesson to take from Fiverr’s IPO is that your startup can raise a significant sum via an IPO even if you’re losing money. All you have to demonstrate is that your revenues are growing at a respectable rate and that there are no market headwinds to knock you off your path to profitability.

CrowdStrike — June 12th, 2019

On the day before Fiverr’s stock made its debut on the market, another IPO happened that nearly eclipsed it — in the news headlines, at least. That IPO was for CrowdStrike, a growing cybersecurity company based in Sunnyvale, California. If the name sounds familiar to you – it should.

It’s the same firm that participated in the very public investigation of the Sony Pictures hack in 2014.

Remember, they performed the audit that led to the indictment of state-sponsored Chinese hackers? The company pinned the blame for the breach of the Democratic National Committee’s (DNC) email servers during the 2016 election on the Russian government.

CrowdStrike’s IPO was priced at $34 per share for 18 million shares.

As it turned out, the market had an enormous appetite for what CrowdStrike was selling. By the end of the first day of trading, the stock had almost doubled and has since settled in at around $50 per share at the time of this writing.

All of that comes despite the fact that CrowdStrike, too, continues to post losses quarter after quarter.

What CrowdStrike had that Uber and Fiverr did not, however, was a year-over-year revenue growth rate of about 103% that didn’t come at the expense of widening losses. That tells investors that the company’s growth isn’t happening just because they’re throwing cash at their operations.

Instead, growth is a result of solid product performance and a rising adoption rate of the company’s technologies.

In reality, all that separates an IPO like Fiverr’s from CrowdStrike’s is the fact that the latter is already demonstrating an impressive growth rate — even in a hyper-competitive market. Unlike Fiverr, CrowdStrike hit its 103% revenue growth rate in the face of global competition.

At the same time dealing with the PR fallout of being the prime figure in a wild conspiracy theory about the aforementioned DNC investigation.

The clear lesson is that when it comes to IPOs, growth is king. If your startup can dangle an explosive growth rate in front of investors, then nothing – not even the President – can keep your IPO from succeeding.

The Bottom Line

As you may have surmised by now, the examples given here lead to one inexorable conclusion. The profitability of your startup isn’t the determining factor in whether your IPO will succeed.

It’s the growth rate you need to worry about, and how you achieve your growth rate matters too.

If you do it in a market you essentially own, anything less than stellar performance will indicate to investors that you’re not yet ready for prime time. If you do it under adverse market conditions, the effect on investors is magnified greatly.

If you don’t seem to have a route to profitability  — then you’d better have instant name recognition like Uber — or your IPO could be a death blow to your startup.

Andrej Kovacevic

Andrej is a dedicated writer and digital evangelist. He is pursuing an ongoing mission to share the benefits of his years of hard-won expertise with business leaders and marketing professionals everywhere. He is a contributor to a wide range of technology-focused publications, where he may be found discussing everything from neural networks and natural language processing to the latest in smart home IoT devices. If there’s a new and exciting technology, there’s a good chance Andrej is writing about it somewhere out there.

Source: ReadWrite

Posted on

Public Venture Funding Could Help Build Canada’s Tech Talent

Over the last few years, Canada’s technology sector has been experiencing a renaissance. Increased venture funding has been helping to develop a robust tech ecosystem with major hubs in Vancouver, Ottawa, Montreal, and Toronto. Here’s how public venture funding can help build Canada’s tech talent.

Despite this noticeable growth, however, Canadian tech companies still face significant challenges when it comes to attracting and retaining top-quality talent — but that’s starting to change.

Public venture funding has become a valuable avenue for growth for early-stage businesses in the sector, helping to put Canada’s tech industry on the map for professionals both locally and abroad.

Where Canada’s Tech Talent Landscape is Today

Canada’s capabilities for developing tech talent are evident across a number of its post-secondary institutions, and technical education is also seeing investment from industry players.

Shopify is working with Carleton and York universities to recruit grade 12 students for a co-op computer science degree. Despite such efforts, up to 25% of STEM graduates from the country’s top universities leave Canada to work abroad, taking the investment into their education — and their potential to generate tax dollars — with them.

Canada is working hard to make it easier for skilled professionals from abroad to make their way into our growing tech ecosystem.

Government-led programs like the Startup Visa Program and the Global Talent Stream are proving successful in attracting quality talent.

With the Global Talent Stream, for instance, the country has reduced visa-processing times from 10 months to two weeks for those with a background in IT or STEM-related fields. To date, some 1,000 technology companies have hired 4,000 workers through the program.

Imported talent — along with the STEM graduates that stay in-country, are often recruited by major international companies.

These workers are recruited to work in international development offices.

Most of the time, employees in these satellite locations are paid at a discount of what their peers make at HQ. The code developed in these offices is then monetized by international firms. The monetization reduces the effective share of corporate taxes funneled into the Canadian government.

Besides, these companies will often work to move their top talent to their international headquarters, further contributing to Canada’s tech talent gap.

All of these factors add up to a tenuous talent landscape that begs to be addressed by both industry and government alike — especially if we want to see Canada’s tech ecosystem participate alongside other global leaders.

Incentivizing Tech Talent to Stay

If we want to keep existing tech talent in Canada, then we have to ensure that our tech industry is something worth staying for. On their part, tech companies are taking their fates into their own hands.

To combat the lack of private venture funding in Canada, growth-stage businesses are leveraging public venture capital.

Public venture capital has been vital in establishing Canada’s leadership in the resource space. Canada’s average deal size across all deals in 2018 was C$12 million. That figure is compared to US$14.5 million for early-stage companies and the US $42.2 million for late-stage companies in the United States.

Junior mining and energy companies capitalized on public markets like TSX Venture Exchange to attract retail investors. The capitalization also builds success early on. We’re now seeing our technology community leverage these same mechanisms to foster growth.

An added bonus? By being public, companies can better attract qualified employees with stock options, helping them buy into the long-term success of the business.

Both federal and regional governments are working to develop innovation incentives that could develop more appealing job opportunities for local and international professionals.

The job opportunities include the Scientific Research and Experimental Development (SR&ED) tax credit. Federal tax breaks are offered of up to 35% to private Canadian companies that have an R&D cycle at the core of their business model.

As a result, organizations can now afford to seek out highly skilled developers and engineers to help them develop new, disruptive products.

Changes are also being made at the provincial level.

British Columbia, for instance, has established tax credits of up to 30% for individuals and corporations that invest in eligible business corporations (EBCs). 

Tax credits have also helped increase investor interest in many BC-based technology companies, allowing them to better fund their product development and talent pool.

As other provinces and territories opt to implement such practices, there is a greater opportunity for tech companies to access available funding and become more appealing to both home-grown and imported professionals.

There’s Still More to Be Done

These public and corporate initiatives are starting to make a difference in the development of Canada’s tech space, making it more appealing to potential employees both within and beyond its borders. However, there’s still more to be done.

To further incentivize growth in this market, Canada’s federal government needs to take measures that help level the playing field between private and public companies.

With the growing move toward public venture capital, the government needs to recognize the value of public markets. The government must make it easier for growth-stage companies to list on an exchange while still having access to publicly funded incentives like the SR and ED tax credit.

As well, the government should also reward investors for putting their hard-earned dollars toward local businesses, expanding the EBC program across the country. These credits should be made available to public companies as well.

With these measures in place, there will be added opportunities for growth-stage tech companies to make their mark in the space and provide attractive jobs to both local and international talent.

Given all of the initiatives designed to boost tech innovation and funding in Canada, it’s a great place for recent tech grads to build their careers.

By continuing to develop the innovation ecosystem with support from government programs and private investment — Canada can further create a space that attracts and retains local talent and benefits the economy.

Image credit: annie spratt, unsplash

Brady Fletcher

Brady Fletcher

Managing Director at TSX Venture Exchange

Brady Fletcher is managing director of TSX Venture Exchange. Opinions in this piece are his own and do not reflect the opinions or views of, nor are they endorsed by, TMX Group Limited or affiliates.

Source: ReadWrite