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You can retain control of your shareholding by embracing alternative routes to liquidity

by Wanda Rich
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hard working bearded colleagues preparing business presentation on laptop while having SBI 324033812

By Alexander Green, Co-Founder &Chief Evangelist at Globacap

This year has been a hot bed for IPOs in London as we slowly but surely emerge from the pandemic. We’ve seen a number of high-profile listings from the likes of Darktrace, Moonpig and Trustpilot, but more recently, Wise (formerly known as Transferwise)became London’s biggest tech listing, after the company reached a valuation of nearly £8.8 billion at the end of its first day of trading. 

Companies are looking for the liquidity and prestige that comes with a high-profile IPO. Yet anyone who follows the trials and tribulations of tech IPOs will know that they’re not without their risks. Deliveroo -for all the hype and anticipation -flopped on its first day of trading. 

Deliveroo was expected to be London’s biggest tech IPO but saw its stock price plunge 31% in the first few minutes of trading. In the end, concerns surrounding the treatment of workers and the embrace of a dual-class structure made it one of London’s worst IPO launches. Yet business leaders are seemingly undeterred from taking advantage of supposed “IPO windows”.

Deliveroo and Wise did something different before listing, by offering their shares to their customer base first. This achieved varying levels of success between the two companies, given Wise went on to be London’s biggest ever float. But this could indicate a new trend to offer customers preferential shares earlier than going public. It indicates Wise, in particular, as being less risk-adverse by offering a direct listing as they don’t require the issuance of new shares.

Recently, we conducted some research delving into the views of finance leaders on the prospect of an IPO, and our findings reflected an overall desire to ease off on the rush to public listing. A vast majority (87%) of CFOs and finance directors say that they intend to keep their company private for as long as possible and hold off on an IPO. However, this drops to 84 per cent among leaders in the finance sector, and just 78 per cent among those in tech. 

In the shadow of a year of decidedly mixed IPOs, it’s time business leaders seriously considered alternative routes to liquidity. As IPOs continue, we will continue to witness huge failures just like Deliveroo, so why would a company choose to run the risk? It all comes down to available options – and understanding that the traditional company liquidity process is broken.

You would expect innovative companies at the cutting edge of UK industry to be deterred from the traditional, established way of doing things, but that can’t yet be said for realising liquidity. So many continue to choose the old, traditional route, when they should be empowering themselves to stay in control of their shareholding. 

IPOs, direct listings and company buyouts are no longer the only options thanks to technological advancements in private capital markets. More options are now available to companies who want to generate capital, offload shares or even exit, without the need to go public.

So, what does the future look like? Thanks to Blockchain technology, there is an alternative. It will enable tokenization of securities and enable companies to list on exchanges without the need to IPO. The world outside of finance is starting to understand the benefits of physical asset tokenization – the rise of NFTs has shown this. It’s also the logical direction of travel for many financial processes. 

There will always be companies that see an IPO as a goal, particularly for the buzz it can generate and status it can offer. However, what unsuccessful IPOs have taught us is that there are clear, fundamental issues with the traditional process. It’s only right that, in this day and age, this is evolved and improved to open new opportunities for companies. We deserve to see a wider range of liquidity options.

The innovation blockchain technology has brought means companies are now able to take back control of their shareholding and gain a new route to liquidity. And early adoption provides a true point of difference in increasingly saturated markets. It won’t be long before companies start to fully utilise the advances brought by blockchain, and at that point we’ll likely see a trend of more companies feel empowered to shun the traditional process.