To be or not to be Public: Reasons for IPO Instead of VC for Growth

There are slowdowns  on the venture capital market sometimes, especially in small countries with rather short VC history and experience. In times of vacuum going public might be a reasonable decision for startups, small and medium companies to look for investments elsewhere. On the stock exchange market for instance.

“One reason that an initial public offering might make more sense over VC is if the stock exchange which is facilitating the IPO has some sort of a program for stimulating and supporting small and medium size companies.  The Bulgarian Stock Bourse has introduced a €25К voucher scheme, an excellent and rare example in the EU”, Ivan Raykov, General Manager, Financial Market Service, a daughter company of the Bulgarian Stock Bourse, explained Trending Topics. The scheme was launched in July and was developed in a partnership between the BSB, Ministry of Economics and representatives of the local startup ecosystem. The vouchers cover the prospectus and the listing of the company. An IPO in this context would be considered successful if the company would raise at least €250K, representatives of BSB explained.

High tech and digital companies are one key focus of the introduced scheme and Bulgarian biometry company Biodit is most probably the first startup to take benefit of it (Trending Topics reported). So far there have been only two IPOs of technology companies on the Bulgarian bourse – Sirma Group Holding and Allterco. Trending Topics asked one CEO who has gone through the process and one who is planning an IPO to put together a list of reasons to consider this approach:

A lot of money

There are assets for around €9 Billion on the Bulgarian capital market, the mutual funds also manage around €1 billion, Financial Supervision Commission data shows.

“Compared to the around €10 million VC available now on the local market, this is much more interesting option for a company that needs to grow”, Julian Sofroniev, CEO of Biodit, said.

“Thanks to our investors on bourse, we managed to expand and the products of Alterco Robotics are now on 64 markets. We also managed to extend our portfolio to 12 new IoT products and we’re already working towards a IoT R&D center in Bulgaria”, Dimitar Dimitrov, CEO of Allterco shared his experience. The company successfully closed its IPO on the Sofia bourse in 2016, as investors submitted offers for 2.5 million shares.

Diverse investors

An interesting fact is that in 2016 two thirds of the investors who purchases shared in Allterco were private persons.

“It allows you to reach out to more investors. Another benefit from my point of view is that an IPO would allow current VC investors in the company to exit easier and faster, if they want to”, Sofroniev of Biodit stated.

No competition

The Bulgarian Bourse is characterized by lack of new companies. In the past five years there have been less than five IPOs in Bulgaria and two of them were tech companies.

“For Alltero that was a positive factor and a guarantee for the successful start of the company. Investors are interested in technology companies, there’s free capital, but not enough applicants. In my opinion tech companies being rare on the bourse have a competitive advantage”, Dimitrov commented.

Potential new clients and partners

“An IPO attract the interest not only for the financial performance of a company, but also for its products and general development. Public companies are anticipated as credible businesses and turns out to be a competitive advantage when dealing with international partners and clients”, Dimitrov added.

PR & Image

Last but not least an IPO on a market that rarely experiences it is something that naturally attracts media and public interest. On the other hand, being public automatically raises the trust in the company.

Even though size of the company doesn’t play any role when listing, the initial public offering it doesn’t make sense for everyone. “A company will have an advantage raising capital through IPO vs. a VC round if it has overcome certain stages in development: if the company has matured its business model to a self-sustaining level, if the core technology has evolved past the experimental stage, and if they can invest the capital they raised to a profitable purpose such as expansion, or development of additional business models”, Ivan Raykov of  Financial Market Service added.