You are specialized in stock market listings of smaller companies with a market cap below CHF 1bn on listing. Why should Swiss start-ups and scale-ups consider a stock market listing?
Because being acquired is not a given. According to the Swiss Venture Capital report published by Startupticker, roughly 1050 Swiss companies have had 1-4 rounds of funding between 2014-2020. My own research shows that to date, less than 5% of these companies have been acquired. Companies have shareholders with different holding horizons. The entrepreneurs have a moral obligation to make an effort and at least assess the viability of several liquidity options for their backers, including that of a stock market listing. A public listing is also good for motivating employees, attracting talent, giving the company a different standing and credibility vis-à-vis clients, partners etc.

For me though, the key benefit of going public is that it allows the entrepreneur to stay on and continue growing the company, while the VCs and other backers exit partially or totally. In addition, if the company performs, business- and share price-wise, those months spent by entrepreneurs chasing the extra million of cash and worrying about term sheets should be history. I have seen public growth companies raise tens of millions during an afternoon, for example. This also allows the management to spend more time focusing on the business. Besides that, preparing a company for going public has many other benefits in itself.

Such as?
With concrete IPO plans, it should be easier to raise funds in private rounds because you have a credible shareholder liquidity plan in sight. You also learn a lot about your peers, particularly the international ones, and about how to better position yourself in front of investors.  IPO preparation has a large element of streamlining the company and getting the house in order. Therefore, if the fantastic M&A offer does come along, the company would be much easier to due diligence by the potential buyer, and much quicker and agile to respond to the offer. At the same time, concrete and viable IPO plans may even be the ones triggering an actual M&A approach. There have been quite a few cases in Switzerland recently, particularly in healthcare, where the very fact that a company was on the verge of going public kicked potential acquirers into action and made them offer a significant premium.

“I would like to see Swiss entrepreneurs being less shy about exploring the IPO option.”

You often say that Swiss entrepreneurs need more examples of successful listings to start considering the stock market route for growing their company and for providing liquidity to shareholders. What good listing examples did 2020 bring?
I would start with the IPO of Implantica, a Swiss-grown medtech company. Implantica listed successfully on Nasdaq First North in Stockholm in Sept 2020 and was heavily oversubscribed. It raised 1.3 billion Swedish krona, corresponding to around 130 million Swiss francs, which gave it an initial market value of roughly 433 million francs. After 5 months of listing, the shares are currently trading 98% above the issue price. On Jan 4th 2021, Implantica announced its inclusion in the First North 25 index, which consists of the largest and most traded shares listed on the First North Growth Market. This means most investment funds that benchmark against First North 25 are likely to build exposure to Implantica. I would also like to mention the resounding success of the Swiss textile materials technology innovator HeiQ. HeiQ became a public company by way of a reverse takeover into Auctus Growth Plc in early Dec 2020, raising 60 million pounds, corresponding to around 73 million francs in the process. The company listed on the Standard Segment of the Main Market of the London Stock Exchange with an initial market cap of around 171 million Swiss francs. It is now trading 45% above the placing price. ADC Therapeutics has also done well on the New York Stock Exchange post its IPO in May 2020.

These are all listings that happened abroad. Any smaller company listings in Switzerland in 2020?
Yes, SIX did have two listings of smaller companies, an IPO and a technical listing, which means that no funds were raised, but both of them were spin-offs from larger organizations, rather than venture stories like the ones above. I am talking about Ina Invest Holding, a real estate company, and V-Zug, the well-known Swiss kitchen appliance maker. V-Zug has done quite well since public and is up around 30%.

Are you seeing an increase in interest in IPOs from Swiss entrepreneurs?
Definitely. For example, let’s take a look at TechShare, which is the Euronext IPO preparation program held here in Switzerland, where I am a partner and coach. Over the past 3 years, we have had almost 40 entrepreneurs and their companies keen to learn the ropes of how to take their companies public. Quite a few of them are now at the stage where they are engaged in discussions with investment banks.

So the demand is starting to be there. What about the supply, in terms of appropriate listing venues and the right level of investor interest in listed Swiss ventures?
The foreign stock exchanges have got both the variety of venues to suit smaller issuers, as well as the appropriate advisory and investor ecosystem. Switzerland is, unfortunately, lagging behind on all these three fronts. Implantica, as far as I am aware, tried to list in Switzerland first, which obviously did not work out. The company is now happily listed on the growth segment of Nasdaq Stockholm, creating value for Swedish investors, who clearly showed more interest in it than their Swiss peers. To my knowledge, a few other companies went through the same process and then successfully listed elsewhere.

If other stock exchanges in Europe and the US are much better suited to small IPOs, why shouldn’t Swiss companies just list there?
In my view, going abroad should not be the default option. A good Swiss smaller company should have a red carpet laid out for it domestically first. If then this company decides to list abroad, it should be for a business-related reason such as an expansion in that foreign market or joining a platform where key peers are listed. It should not be because the company has no other choice.

What do you think is the biggest issue that prevents entrepreneurs from listing their companies in Switzerland?
It is the lack of an appropriate small-cap IPO and post-IPO ecosystem. I feel that Switzerland is currently missing a public market segment that is tailored to smaller companies, a more competitive and proactive environment of specialized smaller company advisers and interest in small caps from institutional and individual investors.

Which one of these three issues do you think can be fixed first?
The market segment for smaller companies. Switzerland is the only developed country I know that does not have such a segment as part of its capital markets offering. The UK has LSE AIM. Euronext countries have Euronext Growth. Sweden has Nasdaq First North. These are all infrastructures created to allow growth companies to list without the cost and regulatory burden of the main markets. And there are lots of companies listed on them. These market segments have their loyal institutional investors, their dedicated set of advisers and so forth. If you are a company that is looking to raise, say, 30-40 million Euros on Euronext, you are likely to list on Euronext Growth. If you are bigger, you go to the main market, if you’re smaller, you go to Access. This is where we need to get to in Switzerland: flexibility and choice.

Who should be hosting this smaller company segment?
In most markets where there is a well-functioning smaller company segment, that segment is generally hosted by the country’s largest stock exchange operator. Yes, there may be other smaller players with alternative venues, but the tone is generally first set by the core exchange.

Therefore, in the case of Switzerland, I believe the easiest would be for SIX to do it. For me, it is a no brainer. If SIX took the initiative, getting the Swiss advisers and investors to be more accommodating to smaller companies should be much easier than if any other players were first movers. SIX has the credibility, the experience, the infrastructure, and the resources. I’m probably one of the most experienced Swiss-based professionals in junior markets and first went to SIX with the idea of such a segment in late 2015, when I moved to Switzerland. Now it’s 2021. Personally, I am not sure why it is more desirable to build a digital exchange in Singapore when your own market has such an unfulfilled gap, with so many high-quality growth companies that could become excellent IPO candidates. BX Swiss could do it as well, given that it is an established player and already has an adviser and investor following for its smaller issuers. I have also seen a handful of new projects in this space, and I strongly hope one of them succeeds. However, particularly in the case of the technology-driven initiatives, I find it hard to see how one could build an appropriate platform without an initial strong understanding of traditional small-cap markets.

You mentioned two other issues related to the ecosystem: the lack of a more competitive and proactive environment of specialized smaller company advisers, post-listing hand-holders, and a lack of interest in small caps from institutional investors. Could you elaborate on that?
Switzerland’s investment banking environment is dominated by two giants, whose core stock market listing business focuses mainly on mid and large caps. Personally, I do not find it a surprise when entrepreneurs say their companies are deemed too small to be taken on for an IPO by these two banks. These banks’ reaction does not necessarily mean a certain company is unsuitable for a listing. It means that the entrepreneurs need to also talk to smaller cap focused bankers before they draw their conclusions. Many entrepreneurs, however, unfortunately, stop exploring the IPO route ahead of taking this second step.

Then, there is the issue of syndicates. If you look at who is responsible for IPOs, you will most often see syndicates of 2 to 4 banks, rather than a single bank. People explained to me that in Switzerland, this happens because banks prefer to share the risk, by sharing the pie. This means the pie, the size of the offering, needs to be large enough to be worth the effort. In contrast, in many other jurisdictions, smaller deals, let’s say fundraising of up to 100 million francs are usually handled by 1, maximum 2 banks. This gives banks much more motivation and flexibility to work with smaller deals.

Then there is the lack of competition. Switzerland has only roughly 5 investment banking set-ups specialized in small caps. Compare this to the choice you have as a company and the proactivity of the brokers in Sweden, for example, where there are over 20 to 30 investment banking entities specialized in small caps. We need more competition here on the ground. Last, but not least, the costs of some of the IPO-related services in Switzerland are often not adapted to what a small-cap can or should pay. This comes also partly from lack of competition.  I saw for example situations where smaller Swiss companies were asked by local advisers to pay 3-5 times the price that service would cost in London or Paris.

What about investors?
There is no denying that in Switzerland there is a lot of available money for investment purposes. However, what surprises me is that there are very few institutional funds that invest in real small caps. Personally, before I moved to Switzerland, I had never seen investment funds with a small-cap mandate, but at the same time a minimum market cap threshold of 500 million francs or even 1 billion.

What I find even more puzzling is that some Swiss institutions take this ultra-cautious stance vis-à-vis highly transparent and well-scrutinized small caps, but are quite keen to jump on the crypto and token bandwagon at the same time. I would make a similar comment with regard to individual investors. Why would people not want to invest in an IPO where the high growth issuer has been subject to months and months of detailed due diligence, has the right governance in place, and would rather part with their money for an exotic back-of-the-envelope token offering?

Do investors in other countries get incentivized to invest in smaller public companies?
In some countries, institutions and or retail are given tax incentives to direct funds into the small-cap segment, for example in the UK and in France, and retail investors can invest their pensions into small caps.

What is needed so that there will be more IPOs by Swiss tech startups in Switzerland?
I would like to see Swiss entrepreneurs being less shy about exploring the IPO option, and the investors, advisors and market operators being co-ordinated and united in creating a welcoming public market environment for the home-grown champions.