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Collin Furtado · · 7 min read“Rule of 25” is the key to startup IPOs, says Asia Partners’ Nick Nash
What is the “rule of 25”? Nicholas Nash, managing partner and co-founder of growth equity investment firm Asia Partners says that it’s the answer to the question, “How big does a startup need to be to go public?”
Asia Partners co-founder Nick Nash / Photo credit: Tech in Asia
Through his analysis, Nash found that the right time for startups to do an initial public offering is when they reach or are close to a US$25 million gross profit level in their most recent fiscal year.
Images from Nick Nash, Asia Partners at the 2020 Tech in Asia Conference / Source: Nick Nash
“That’s when the most magical IPOs happen. It was a big factor behind Garena’s success as one of the anchors of Sea’s IPO back in 2017. This is true no matter how you look at it, whether it’s over the past 20 years, or even more recently in the past five years,” observed Nash.
Delivering the keynote address at the Tech in Asia Conference, he said that when startups are about to be cash-flow positive – or when a company’s liquidity increases to a point that it can settle debts, reinvest in the business, return money to shareholders – their investment multiples rise tremendously. “People are going to give you a lot more valuation credit for having a business that produces cash flow,” he adds.
Image credit: Nick Nash’s presentation at the 2020 Tech in Asia Conference
Image credit: Nick Nash’s presentation at the 2020 Tech in Asia Conference
Nash was formerly the group president of internet company Sea, which runs gaming platform Garena, ecommerce site Shopee, and payments platform AirPay. He retired from the role in December 2018, after the Singapore-based firm’s October 2017 trade debut on the New York Stock Exchange. He went on to launch Asia Partners in January 2019.
Using the data of every internet and software company IPO in Asia (excluding Japan) that listed on all exchanges in the last 20 years, Nash revealed how companies that had followed the “rule of 25” had gone on to raise a significant amount of investment when they went public.
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