Event Recap – Myth-busting for Scale-ups: Capital Planning and the Listing Process

Sarah Gardyne Event Recap

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Our online panel discussion, Myth-busting for Scale-ups: Capital Planning and the Listing Process, was one of the key events on the Techweek2020 calendar this year, presenting us with another opportunity to host a virtual TINTalk for participants from around the country.

Our experienced panel consisted of Sarah Minhinnick, who heads up issuer relationships at NZX; Tim Wixon, head of technology industry at BNZ and lead on its tech sector portfolio; and Darrin Grafton, CEO and Co-founder of Serko, who’s well versed in travel technology.

Below is a summary of the key points covered by the discussion around capital planning and the listing process.

Is investment the key to rapid growth?

Looking back at figures from our 2019 TIN Report, public and investment backed companies exceeded anticipated growth based on the number of companies in these two categories, collectively accounting for 73.9% of TIN200 growth.  Two thirds of TIN Rising Star companies are investment-backed or listed.   

In 2019, Seequent, Soul Machines, 90 Seconds, and Plexure alone secured $84m in funding from high profile international investors. 

For a selection of listed TIN200 companies, we can see post-COVID success reflected in their share price.  Pacific Edge has had a 289% increase in its share price over the past 12 months while Pushpay has recorded an increase of 140%.  Fisherl & Paykel Healthcare’s share price grew 111%, also notching up a net profit after tax of $280 million and the creation of 600 new jobs in South Auckland since the onset of COVID-19.  

 There are early signs are that both Angel and VC markets remain interested in New Zealand and are responding positively to tech investment, with Soul Machines, PredictHQ, and FarmIQ all striking deals with international investors since the start of this year. 

What are the minimum criteria for companies to list, what companies are best suited to listing, and how has listing been impacted by COVID-19?

Sarah Minhinnick outlined that there are some minimum requirements to listing on the Exchange. Companies must have a minimum valuation of $10 million, a shareholder spread of 100 holders, a 20% free-float and governance requirements that must be met.  There must be a minimum of three directors, of which two need to be independent and two must be New Zealand residents.  In addition, there are continuous disclosure requirements.

The COVID-19 pandemic has put a lot of stress on company balance sheets but the market has been delivering great capital raising outcomes for a range of companiesSarah Minhinnick - Head of Issuer Relationships, NZX

“We tend to focus on whether it’s a growth business, and look at the size and scale of the business. We also look at its growth aspirations, competitive advantage, market position and whether it can cope in the listed environment,” added Sarah.

“The COVID-19 pandemic has put a lot of stress on company balance sheets but the market has been delivering great capital raising outcomes for a range of companies,” said Sarah.

She added that quite a number of companies have done capital raising of $20m or less.  These deals have been very successful; are mostly over-subscribed and have attracted really great support. “In times of distress like this, there’s a value in coming to market,” said Sarah. “Companies are raising money to strengthen their balance sheets so they can keep operating and keep employing people.  Some companies are also raising money to position themselves to make an acquisition or execute a growth plan.”

Sarah believes that investors are rational and want to invest in companies with good assets and good stories.

“There are some interesting dynamics driving investment behaviours. We’re seeing investible cash at an all-time high at the moment with people hunting for good opportunities.  The search for yields is also driving that,” added Sarah.

What capital raising options are there for companies via a bank?
“We look at it in two ways - working capital and term debt,” said Tim Wixon of BNZ. “We work with tech industry companies across TIN’s definition of tech. Term debt tends to fund a step change in the company, acquisitions, expanding R&D or funding other offshore growth activity.

“Our observation is that around 90% of tech companies performed well over COVID,” said Tim.
How has being a listed company assisted you through the turbulence of COVID-19?
“We weren’t immune to that initial fear factor that gripped the industry and our stock took a hammering,” said Darrin Grafton of Serko, developers of travel and expense management software.

“We needed to go through an education process with where we were sitting in the market and what we were building on. We only lost a small percentage of our expense revenue and that was in large part due to giving the market an understanding of where we were. It may have moved our goals of where we wanted to be in five years’ time, but the same opportunities existed. We had modelled in a risk scenario based on the GFC, factoring in a market correction at some point. And we made contingency plans to ensure our business could survive that.”

Darrin said that the key part for any business is the planning – Serko runs a six-year-plan which he says might sound excessive, but if you’re successful in the early stage then your plans moving forward are more likely to be successful and you can confidently talk to the market about the opportunities.

“Many tech companies fail through poor cash management,” he said. “We run a conservative balance sheet which gives our investors a huge amount of confidence. We keep 10% of our workforce flexible and shut our workforce down immediately when COVID-19 struck, giving our investors the confidence they needed.”
In a COVID world, how has raising money through listing changed?
“Risk planning is important,” said Sarah. “We’re already seeing a pivot towards the scenario of there being another shock and how a company can survive if their revenue goes to zero for three months or more. We think we will see companies focussing on their capital planning and thinking about how they will cope. The velocity with which people have come to market to raise capital has been marked – since COVID-19 arrived in New Zealand we’ve had $6.8 billion of capital raised on NZX – that’s remarkable compared to the half a billion dollars raised in an equivalent timeframe during the GFC.”

“There was almost $6B raised in the pandemic era – that’s remarkable compared to half a billion dollars in the GFC.”Sarah Minhinnick - Head of Issuer Relationships, NZX
“The other thing that we’ve seen during COVID is how active the retail sector in New Zealand has been – with Sharesies, ShareMeUp and other retail platforms,” says Sarah.

Serko dual lists as a model on both the Australian and New Zealand Stock Exchanges. “There are no more passionate people about New Zealand success than New Zealanders,” says Darrin. “I believe NZX is a good home for NZ Inc. I think it’s really important to support New Zealand if you’re a Kiwi business.”

Sarah added that the best deal always involves your home market. “The investors fundamentally understand the story; they really want to invest in New Zealand.”
Why not list earlier in a company’s life?
Darrin began by saying that companies shouldn’t worry about valuations when they’re first listing.

“I believe NZX is a good home for NZ Inc. I think it’s really important to support New Zealand if you’re a Kiwi business.”Darrin Grafton - CEO & Co-founder, Serko.
“What you’ll get on the upside will be way more than what you expected,” he said. “Private markets come with all sorts of fishhooks while the public market is run under a set of regulations and rules that define it.

“We listed for under half of what we could have got. The team believed in the long-term vision of what we could execute. You must trust yourselves as founders – that’s really key.”

Darrin said that 24 companies listed in 2014 and there was then a hiatus from that period. Tech went through a blip as it got caught up in the problem of how the market categorised growth.

“If your story doesn’t match what your investors are buying into, they’ll bail,” said Darrin.

“You’ve got to keep creating businesses that are listing for the right reasons – articulating a story and executing on it. “We never changed our strategy, but rather we changed the way we communicated to our investors.”

“Under-promise and over-deliver is my mantra,” he said.

Our thanks to our sponsors - NZTE, EY, Absolute IT, James & Wells, BNZ, NZX – for their support of such a topical and informative event.

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