Yesterday's float of fast food website Just Eat showed again that UK listings are attracting tech starlets – and it seems that IPOs are very much back in vogue. But how do you go from fledgling to FTSE 100?
Just Eat has become the latest tech company to float on the High Growth Segment of the London Stock Exchange, demonstrating the continuing appetite for UK-based listings. Since the start of 2011, according to Deloitte research, 20 technology companies have listed in London, with only one having listed in the US.
But while going from a privately-owned, high-growth tech starlet to a publicly-listed business isn't without its challenges, under the right management it can open new markets, drive innovation and attract transformative new talent.
Those factors, combined with renewed business confidence generally, has led to a notable increase in IPO activity over the last six months, and Scotland's technology credentials means there are a number of strong candidates currently thinking about making their debut on the public markets.
So what do you need to know before you take your business to IPO?
1. Get your timing right: To list on the LSE's High Growth Segment (HGS), you need to be able to demonstrate 20 per cent compound growth over the previous three years. Companies which float on the HGS tend to be priced on their latent value, rather than current performance, so showing a track record isn't just a technical prerequisite of listing, it influences the value and subsequent performance of the share price. Time your run to give you the best start on the market.
2. Tell a good story: Potential investors are only interested in your past performance up to a point, what they really want to see is where you're going. Paint them a compelling picture about the growth in your existing market, what new markets you might target, how you'll bring in new products and services, if you're planning to expand overseas etc. Show them this is only the start of your stratospheric future.
3. Make your technology shine: Just Eat worked at IPO because there were no questions about the ability of its technology to do what it's meant to do. If a tech business goes for a listing off the back of a series of failures, it's not likely to go well. Similarly, if you're targeting serious growth, make sure your technology can be scaled quickly and effectively – this isn't the time to bump your head on the ceiling.
4. Have the right team: Everyone says people are their biggest asset, and this is never more true than when you're trying to raise finance in the public markets. Having a credible, proven team is one of the most important parts of a successful IPO, and if you can include someone with previous experience in a listed company then so much the better. That said, if you're planning to float, your team should be pretty sound already – but it's worth proper consideration.
5. Get ready for change: Running a privately-owned tech business and answering to the fickle public markets are two very different things. One CEO of a listed business I spoke to recently said he spends as much as 25 per cent of his time on City-related work. Investors want to know what their money is doing, and they'll expect you to be answerable for that – which can take some getting used to.
6. Keep telling the story: The public markets are pretty unforgiving, and market caps can fall through the floor in extremely short order. The City will need updates, transparency, and – above all – something to get excited about. For example, how are you going to spend the money raised through the IPO? The best-performing listed companies regularly give the markets a reason to believe in their vision, and while financial performance is the biggest part of that, make sure to provide the right narrative along the way.
Which other factors are important when considering an IPO?
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