We all know the ingredients that make up Singapore’s flourishing tech ecosystem: a conducive business and regulatory environment; ample government grants; its ability to attract VCs and leading tech companies to set up shop locally.
There is, however, one crucial chapter yet unwritten in Singapore’s quest to become a lucrative spot for tech investment – companies going public through Singapore’s own stock exchange (SGX).
Since 2014, SGX had seen three tech and innovative companies listed on its platforms. They are: iFAST Corporation Ltd, home-grown leading internet-based investment products distribution platform that owns fundsupermart.com, YuuZoo Corporation Ltd, a social and m-commerce company, and Trendlines, a Israel-based company with a medical and agricultural tech incubator business model.
Just last month, YuuZoo inked a multimillion deal with with China-based e-commerce and mobile payment giant Alibaba to organise and run the AliSports World Electronic Sports Games (“WESG”)
SGX aims to ramp up tech company listings with Catalist. e27 speaks to Mark Liew, COO of boutique corporate
finance firm Prime Partners, a sponsor on Catalist, to learn about how tech companies can leverage on Catalist, and what he observes are the more viable tech verticals.
What can Catalist offer?
Currently investors at foreign stock exchanges appear to be more savvy with tech industry, and thus, are able to offer higher valuations for smaller tech companies.
SGX is not typically seen as tech cluster, says Liew. But it is seeking to cultivate that through Catalist.
As a stock exchange that is beginning to dabble with the burgeoning tech ecosystem, companies who do list stand to reap a benefit that might not be afforded to them at overseas stock exchanges – scarcity premiums.
This means that companies are able to list their shares at higher prices than if they chose to go public on other stock exchanges.
“Whenever there is a new cluster, the companies listed tend to enjoy scarcity premiums because investor demand for such companies exceeds the available supply of companies,” says Liew.
And right now tech investments are in high demand.
“If you can find the right companies, those companies tend to enjoy scarcity premium because investor demand for such companies exceeds the available supply. It’s similar to what we saw in the Mineral, Oil and Gas (MOG) space. When the first few mining and oil companies came on to the Singapore exchange, we saw that they enjoyed slightly higher comparable premium than the equivalent companies listed on the ASX,” adds Liew.
Of course, as more companies come on board, the scarcity premium will eventually be driven down or averaged-out. But for now tech companies who list on Catalist stand to get a better deal than if they list on a tech-saturated stock exchange.
Liew says Catalist provides the right platform for less established, growing tech companies to accelerate their growth.
“Other than pure funding, you get access to a pool of investors. And our anchor investors tend to be individuals or boutique funds. These individuals will typically have some understanding or familiarity in the industry – or what we consider smart money. They will have contacts or networks that can help the company open doors in terms of getting new business down the road,” says Liew.
The companies who list on Catalist typically raise up to 20 per cent of the dilution of the current group of shareholders but this forms the foundation for them to raise additional rounds of funding on top of Catalist.
“So it’s not just about the initial listing but it’s about getting on to a platform that is able to fund the company’s the next stage of growth, and Catalist provides that function,” says Liew.
Between 2013 and 2015, Catalist companies raised more than S$3 billion (US$2.2 billion) through IPOs, reverse takeovers, placements, rights and bond listings, a significant jump of 54 per cent when compared against 2008 – 2012. The board also displays healthy liquidity and good turnover velocity of more than 100%, significantly higher when compared to other growth platforms in the world.
What kind of tech companies would Catalist attract?
While Catalist attracts emerging tech companies, they still need to have an established track record and fulfill certain criteria.
“As a sponsor, we are only interested in companies that are more mature. We typically do not invest in or work with companies within three years of their inception. We see them but we do not actively work with them,” says Liew.
According to Liew, companies in their early years or stages are far more prone to failure, which make them risky investments.
Once a company has moved past the three-year mark, have established some viable business model or product prototype, and have moved out the pure accelerators and incubators – that is when it is more equipped to be listed.
Depending on the market the company is in, revenue stream may also play a big role.
“If the companies are in the right sector–one that is very hot, investors will be less concerned about the profitability model,” says Liew.
“If they are in the more matured segment, then investors are probably going to expect some level of profitability. Because with more maturity means greater competition, if they are already so many players in that emerging space, and you are not profitable or can’t scale, the chances of you being profitable will less be likely lower. So they trade off that risk return,” adds Liew.
For companies that are focussed on disruptive technology, investors will tend to focus more on the underlying technology and growth potentials. If the company is tackling a matured sector, investors will focus on the management and founders.
“The more tech-driven, the more sensitive the success of the business is to changes in an early stage movement, because these are not established and they are trying to be disruptive. Looking at the trends is very critical, and finding out what is the market potential.” explains Liew.
Liew however, believes if the skills of the founders would be inconsequential if they are not in the right sector, because there would not be enough upside to attract investors.
For Liew, the medtech, fintech and clean energy companies present the most lucrative value propositions.
These products include wearables, payment gateways and solar cells technology.
The way forward for Catalist
In addition to attracting local tech companies to list, Catalist is also seeing more foreign companies coming onboard. In 2015, non-Singapore companies accounted for 55 per cent of the total funds raised on Catalist at IPO.
But are there concerns that these foreign entities might eclipse local companies? Liew believes this is not the case, on the contrary, it will strengthen the local tech ecosystem.
“Singapore has a very small tech ecosystem. To improve and enhance that, you need to bring in a lot of foreign entrepreneurs with different ideas, so it is that interaction between local and foreign companies and the sharing of expertise and resources that will drive the industry forward,” says Liew.
Some companies might use Catalist as a stepping stone to list on the Mainboard once they have matured. In fact, 17 companies on Catalist have already accomplished that. But Liew hopes that companies will be able to carve out their own identity on the Catalist.
“Hopefully the Mainboard and the Catalist will grow to a point, where like Nasdaq and NYSE, they are two uniquely different entities.. In the past companies that list on NASDAQ jump on to NYSE when they mature. Now, that isn’t the case as each boards have their own identity and space.”
Disclosure: This article was produced by the e27 content marketing team, sponsored by SGX.