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How Access to Private Capital is far easier now - no need to IPO

Thursday, December 10, 2020

Four years ago, when Afterpay (ASX.APT) listed on the ASX its Board of Directors had to weigh up the   pro’s and con’s for IPOing. In reality, at that time, access to private capital was limited and much harder to access than it is today.

Accessing the public market for capital at that time was really the only way for an early-stage Australian company to rapidly scale up.

Afterpay CEO Anthony Eisen recently recalled the fraught decision-making process to take the company public, as he and Afterpay co-founder Nicholas Molnar carefully weighed the various challenges including:

  • to scale, to innovate and having to explain what you’re doing while you’re experimenting.
  • the level of venture capital in Australia wasn’t as great as it is today…it’s increased remarkably but we actually didn’t have the option, to be frank, like I think we would’ve had today.
  • “In many ways, it might’ve been good to have had more choices at the time, but that’s where our path led us, and we have no regrets.”

Traditionally the environment for Australian technology firms wishing to access capital was only by tapping funding sources such as:

  • Friends and family;
  • Private investors generally;
  • Private equity and Venture capital;

Early-stage capital is expensive, partly because of the principal risk, as investors consider how likely they are to lose their investment.  Many start-ups go from hero to zero overnight. But it is also expensive because of duration risk as the winners can take a decade or more to achieve liquidity.

Angel and seed investors tie up their money for years before they (hopefully) get it back. When the alternative to private market investing is public market investing, where liquidity means that money can be invested and returned within seconds, the number of investors who willingly lockup capital for years in early-stage start-ups is understandably small. Anecdotally, that is why they are called angel investors, only an angel would do it.

If private companies could offer cash, stock and liquidity, they would win the talent wars with public companies because they could offer the best of both worlds — private company growth curves with public-like liquidity. That lottery ticket for start-ups where employees have to sacrifice salaries will finally turn from paper wealth to real wealth.

That is why PrimaryMarkets has built a Global Trading Platform to enable the listing of shares in private companies whereby their shares are traded (buying and selling) to provide the required liquidity. 

PrimaryMarkets is unique in that its listing Platform is akin to a traditional share exchange but in addition we can also undertake and facilitate capital raising, share registry services, KYC/ AML verification and escrow payments as a “one stop shop” for the investor.

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