Achieving profitability after a cancelled IPO

This article is an excerpt from an episode of Startup Snapshot, a Tech in Asia podcast that features the leaders and innovators in the Asian startup scene, and discusses the highs and lows of their founder journeys. It is heavily revised from the original transcript. Listen to the full episode on Spotify, Apple Podcasts, or Google Podcasts.

June 7, 2018. It’s a day that M17 Entertainment CEO Joseph Phua will likely never forget. That morning, the startup was supposed to begin trading on the New York Stock Exchange, but it had to cancel its listing right there and then – the first company in the bourse’s nearly 230-year history to do so.

Phua spent some time holed up in a Chicago hotel room after the incident, trying to come to terms with what had happened. Drawing inspiration from Ancient Chinese war stories, Phua picked himself up, moved his family to Taipei, and got to work rebuilding M17. Within six months from the IPO attempt, he turned the business around and achieved profitability with a topline growth of 70%.

On this episode of Startup Snapshot, Phua gives some insight into the trials and tribulations he faced during M17’s botched IPO and shares what he did to help the firm turn a profit in a short period of time.

What happened with the 2018 IPO?

It was the 7th of June, 2018. It was a Thursday, I remember very clearly. We rung the bell at 9:30 am: We had our team, our families all there in the New York Stock Exchange, and we were just waiting for the first trade to start at about 10:30 am. I’m trying to paint this as vividly as I can because this is the image I see almost every single day when I close my eyes.

About 10 minutes after we rang the bell, I was informed by one of the underwriters that there were some issues with one or two of the investors in the order book that we’re supposed to complete. When I dug deeper, I realized that two of these investors had not completed the regulatory processes to be allowed to participate in a process like this. So we were scrambling from 9:30 am all the way until 11 am: I was going investor to investor, seeking for assistance to see if we could get past some of the red tape that I had just heard [about].

I’m trying to paint this as vividly as I can because this is the image I see almost every single day when I close my eyes.

I remember Shang [Koo], my CFO [chief financial officer], at about 11 am he told me, “Joe, it’s not going to happen today, so let’s go back to the boardroom and let’s just delay this for 24 hours.” I remember telling him firmly, “No, we’re not going to delay; we’re going to get it done. We’re going to get it done right now because the whole team of 600 people – in Japan, Taiwan, and everywhere – is expecting us to get it done today. How can we postpone it even for a day? It’s not possible.”

But I soon realized that there was no way around it. So over the next four days, we camped out in a boardroom in one of the banks and we were working with the bankers and some of our investors to try to figure out how to fix this problem.

On Monday, just before the markets opened, we had a solution, and so were about to embark on a process that should’ve been completed on Thursday, but the feedback was not that positive. When a process like this suddenly gets delayed by four days, it sends thoughts into people’s heads, like “What’s going on? What’s wrong? Why has it been delayed? Is this safe? Maybe I should not invest, maybe I should hold.”

I realized I couldn’t risk taking away so much equity value from the company. How could I open trading and possibly see hundreds of millions of dollars wiped away from the equity value of the company because of something as irrelevant as a trading red tape we had to go through? It just didn’t make sense at all, and I had to make the call then to just pull out from the whole process and come back another day.

How did you deal with everything after cancelling the IPO?

After New York, I brought my family to Chicago. During the four days while I was in Chicago, I holed myself up in the hotel room, I didn’t go out. I watched a lot of Netflix and my family went out. I was trying to come to terms with what had just happened and I was trying to figure out what was next.

I was trying to draw upon books that I’d read, different things that I’d seen happen across the world, to try to figure out what steps [to take] next. I actually drew [inspiration for] what I did last year from a lot of the books that I read as a kid, in terms of the Chinese wars that were fought in the olden days.

M17 came back from that and became profitable at the start of 2019. How did you make that happen?