With the chances of going IPO ‘damn close to zero,’ this may be the best exit option

SOSV’s William Bao Bean Bean at Tech in Asia Jakarta 2018 / Photo credit: SweetEscape

For many founders, turning a scrappy startup into a huge, enduring business and taking it public is the ultimate dream. Apart from being a badge of honor, an IPO can be a source of enormous windfall for entrepreneurs and their early backers.

It isn’t for everyone, though.

“The chances of anybody in this audience going IPO is pretty damn close to zero,” William Bao Bean, general partner at VC firm SOSV, said onstage at Tech in Asia Jakarta 2018, as he gave his take on the right exit strategy. “Think about it like unicorns, which are mythical animals – they don’t exist.”

What does exist are US$30 million and US$50 million acquisitions which are also life-changing events. “Early-stage investors like us make five times, 10 times our money and we’re happy with it – and there’s a lot of them,” Bao Bean added.

Co-panelist Teddy Oetomo, chief strategy officer of Indonesian marketplace Bukalapak, agreed. “Out of all the Indonesian startups today, there’s probably just two or three – and that’s excluding ourselves – that are ready for an IPO.”

For Oetomo, who used to work in asset management, you either go big or go home. He says global investors would probably own one to two Indonesian stocks. So if you’re a tiny firm that debuted in the market, what’s the chance of your stock being included in those investors’ portfolios?

“None,” he contended. “Why would you go IPO and not be in the portfolios of some of the largest asset managers in the world? If you’re not in there, you become a penny stock.”

Being listed is like being a movie star

While an IPO is seen as a lucrative form of exit, it’s also largely viewed as a way to fund a business. In fact, a lot of startups in the region have chosen this path to raising capital, rather than relying on venture funding.

A recent example is portable wifi rental startup Passpod, which listed its shares on the Indonesia Stock Exchange (IDX) this week. Passpod’s CEO Hiro Whardana commented: “One of the lessons I learnt is not to wait for huge growth before launching an IPO. An IPO may actually help grow startups.”

Together with Indonesia’s Financial Services Authority, IDX is finalizing a so-called acceleration board where startups in the archipelago can IPO, thanks to lenient requirements. Unlike the other boards, the new board will not require a startup to be profitable, for example, or meet a minimum amount for net tangible assets.

Going public means getting access to thousands of investors and the money they can provide to supercharge your company. It signals that your company adheres to high standards of corporate governance and paves the way for you to easily raise more capital when you need it.

However, it comes with its share of headaches.

“Being a public company is like being a movie star. You will constantly be in the spotlight, you will lose some privacy, you have to disclose a lot of things,” said Pramitha Dianty, Deloitte associate director, in a separate conference session. “There are also costs to going public – you have to pay your advisers and underwriters […] you have to comply with regulatory obligations. You’ll also be under pressure to achieve what you promised.”

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