Founders & friends will know we don't just invest in startups and VCs - the bulk of investable assets are in public markets, fixed income and cash. And since 2012, we've always had a big preference for USA growth names and China tech. And last 3 years, we have a good allocation to SG stocks. Investing in public markets also help us visualize how later stage investors and buyers view startups in terms of valuation and growth metrics.
Hence in 2022, when we saw nasdaq rerate down on rising int rates, we made a call asking all founders to stop assuming money is easy to get from VCs and PE. This turned out to be true and is still true today. We told our founders to focus on cashflow, cut costs without mercy and turn profitable if they can. So for our 52 startups, after 3 years of funding winter, I am happy to see about 9-10 of them profitable, breakeven or at least on path to breakeven. The top 2-3 are doing >1m million in profit and still growing 40-50% and more. Many have revenues ranging from 10-30M.
At the same time, because we invested a fair bit into STI post 2022, we realize that in 2024 and 2025, there has been an upward rerating of SGX stocks. Its not just at STI level which are mainly GLCs, its also at mid cap level where many familiar names have rerated with 50-100+% valuation growth in the 2 years. We think this revaluation is driven by the stability of SG, EDQP scheme and also improvement in company financials generally speaking. For those who don't follow the local market, STI has grown 62% since start 2023. There is no ETF tracking mid caps, but I can see many local names have doubled or tripled or at least grown 50% or more last 18 mths. Valuations of 100-300M companies used to be stuck at 5-8 PE. Now its 10-15 range.
If the market continues being strong, valuations being offered will start to attract companies that traditionally only thought of the VC/PE route to fund raise esp since that option is now at an all time low. Its already starting to happen.
For example, new sgx listings started appearing in good numbers last year. Infotech systems, metaoptics, ultragreen, coliwoo, Toku, assembly place all managed to list and their share prices and valuations are mostly stable. Many post listing raises have also happened. Eg meta optics, is a pure tech story that IPO with hardly any revenue. It has since raised another round at better valuation and stock price is about 3-4X. Infotech systems is HR saas company that IPO solidly profitable. Stock price is now about 30% above IPO amid improving financials. So the animals spirits seem to be creeping back into our market and with more govt funds coming in attracting even more interest, we think there is an opportunity here for our local startups to list locally in lieu of next round VC money which is now ever so elusive.
So how should founders think about IPO? There are many aspects to consider and it is not all about the cost and process and timelines. Those a good sponsor/advisor can help and i won't cover the technical bits.
1) First aspect - Is your company ready now? or 1-2 years from now.
IPO candidates need to have a good story to get public investor interest. You can be deeply loss making but is your technology truly amazing so its worth the risk reward of your cornerstone investors? I think truly amazing tech with near zero revenue is probably a hard sell even today. Though Metaoptics is a great counter example.
The more usual story is a profitable company (at least 2-3M) with a solid market position that wants to raise its profile and raise some money to execute even further. A sweetener with be if this company has a growth rate above 25% and has some revenue scale (at least 20M revenue).
But because the process takes a while and there is a checklist of things to do, we think the sweet spot to start learning about this option is when you are one year away from the financials. Internally too, there are things to prepare so that your finance and compliance are at the right level.
2) Second - What do Founding team/Mgmt want?
Is your goal to cash out next few years and retire? If so IPO is definitely not the right thing to do. Mgmt is expected to want to use the raised profile of being a listed company and the access to constant price discovery and public funds to build the company out much more.
As for exiting stakes, its possible but the liquidity of your stock price post listing and the subsequent performance of the company will determine very much whether founders can sell small or large sums and at what price.
If the goal is to cash out mostly or fully and to stop working, then a trade sale is probably a much better option.
3) Third -So what are the main benefits to an IPO?
IPO is a form of fund raising. So you will be able to raise capital that your firm needs to carry on growing. Having constant price discovery theoretically makes it easier for you to price any sale or issuance of more shares to raise more capital.
Second, being listed also signals to vendors, suppliers, investors, acquirers, partners, employees that your firm is of a certain standard and has more transparency. Hiring could be easier, bank loans easier to obtain etc
The third big benefit applies especially to companies that have investors on a timeline and with a preference stack. A successful IPO will reset everyone into ordinary shareholders and most shareholder agreements agree that an IPO of min X value is something that mgmt can pursue and which pref holders wont block.
This removal of pref stack will give back more control to founders and free founders up to re-appoint a new board and also really have a much longer time frame to think about their business. I think this could be a big point and motivating factor for many founders. The investors won't mind too since an IPO will generate liquidity and an outcome for them to report back to their LPs.
The only group of investors who may be a bit unhappy will be those who invested at valuations that are still above what the IPO values at. Very possible since deals done in 2020/22 could have been at unjustified multiples. But I would think bearing the liquidity and possible future stock improvement in mind, even this group of investors should want the IPO. At least get back some money.
4) Fourth - Any good case studies locally? Or what needs to happen post IPO so i don't become one of the zombie catalist firms?
A successful IPO is just the start. There are many nightmare stories of post IPO poor performance and lack of liquidity. In the past, mgmt will always also blame on market conditions. But if the market conditions do improve as hoped by ecosystem players and govt, then it becomes incumbent on mgmt to ensure your IPO is a success.
Here's what's needed. Strong improving story showing up in financial performance. That's key. Deliver or outperform what you shared in the prospectus. Now your board is aligned on timeframe. Strong regular engagement with fund managers and the public via a mgmt that can articulate the vision, story and performance.
Two names we have tracked over the years that we feel have done this well. And both have used their listing status to grow from relatively small listed firm many fold to today.
- iFAST Corporation
- LHN Ltd
Hope this article is useful to founders and ecosystem players who read it. Ning & I have already been actively engaging our founders and correct ecosystem players so that this option is well explored and understood. Who knows maybe we will also get an IPO from our portfolio locally and that firm grows to be an iFast!
