Sophie is an Associate in the investment team. Before joining AppWorks in 2020, Sophie had 10 years of experience covering public equities. She was part of the portfolio management team at Neuberger Berman, focusing on emerging market opportunities. Prior to that she served as a research analyst at Credit Suisse, JPMorgan, and London-based Autonomous Research. Sophie holds a Master of Finance with distinction from Warwick Business School and BS Finance from National Taiwan University. Her passion and expertise, however, extend far beyond just researching companies and industries. She is also an author of two published poetry books and holds a keen interest in human psychology and human behavior.
Whilst founders and early investors often regard an initial
public offering (IPO) as an end goal, public market investors rather see it as the company’s first
debut, akin to the NBA draft. With that said,
there are some key qualities that the capital
market looks for in a public company. In fact, there is already a standard of
what is regarded as a ‘good IPO.’ I believe by understanding this, mid-to-late
stage founder-CEOs can design a more
structured roadmap for going public, or even rethink whether
an IPO is actually the best option for their company. This piece of article is more written for growth
stage founder-CEOs. However, if you’re an
early-stage founder, I believe this article can also shed some light on what is ultimately valued the most
in the sometimes arcane process of filing for an IPO.
Trust is what helps
companies earn long-term loves in the public market. It’s a playing field with big guys that have already proved their sustainability, building layers upon layers of trust as
each quarter passes. Trust is cultivated not only through data (a result of management and
operation), but also through market reaction. This means, executing a good or even strong IPO is indeed very important because
the trust is then solidified from day one.
Three qualities: Growth, Size, and Momentum
From my 10 years of experience in both brokers and asset
management firms, I see growth, size, and
momentum the three qualities that
overwhelmingly dictate the success of an IPO. Usually
a banker would prepare a scorecard, rating a handful of factors that
advise the parameters of a public offering. But, these three in particular have
an outsized impact on a company’s debut, and understanding
their underlying mechanics can help founders
become more informed before they enter the negotiating room and differentiate true advice from sweet words. I will also introduce
a few unfortunate case studies to help illustrate the importance of these factors.
Growth
Growth, like in any fundraising process, is the most important factor. In the public market, growth expectations are not as high as in private, early-stage startups where 100% month-over-month is the norm. However, a 3-year compound annual growth rate (CAGR) of 50-60% is still an ideal benchmark to strive towards, at least for a technology company. Consequently, timing of an IPO is a key consideration for startups; list while there are still strong growth prospects, otherwise poor market feedback is all but certain.
Candy Crush Saga, a staple among every grandma’s home screen, had gone through such pain. Its Irish parent company, King Digital Entertainment (delisted in 2016), first filed for an IPO in September 2013. Soon in December 2013, news about King’s consideration of delaying the IPO due to market concerns about the sustainable growth of the company had spread. Back then, Candy Crush Saga accounted for over 75% of King’s gross bookings and it has already reached 500 million downloads, topping the charts of the iTunes store. From the IPO filing, monthly unique players (MUPs) had already declined in the latest quarter by 6.5% , whilst gross bookings and revenues dropped 2-3%. This implied a negative signal for the growth expectations post IPO. The resulting impact on King’s stock price was evident, down 16% on the day of the IPO, with its valuation dropping US$ 2 billion (from US$ 7 billion) in the span of two months. Moreover, the follow-up financial reports confirmed the market’s concerns; King delivered a mere 20% in revenue growth in 2014, and subsequently declined 25% in 2015.
Chart: KING already showed a decelerating trend of MUPs and Gross Bookings in the last reported quarter (4th quarter in 2013) before IPO.
Size
Size is a very important factor, but often overlooked by many startup
founders; although, it may matter less if the growth rate is significant, say 80-100%
year over year. Size encompasses both a company’s market cap and daily trading value and collectively determines the number of investors that can potentially
participate. In Asia, the most ideal professional fund size is at least US$ 1-3
billion, which means an average position would be minimum US$ 20 million. This
implies two things: (1) since most funds are
not allowed to own more than 10% of the company, there’s an implied minimum market cap of US$
200 million; and (2) even if a fund is willing to trade for 60 days (three
months of working days) to buy enough shares,
it means the daily trading value needs to be US$ 1.6 million at least (assuming
a fund would not trade more than 20% of the amount to avoid affecting the
price). However, the math here represents the bare minimum case. Most investors consider US$ 500-1,000 million as the bottom threshold for market cap, with anything below yielding
very little appetite.
Many startups in Asia might face issues here. In Taiwan, it is a very common experience.
For example, we have Kuo Brothers (8477
Taiwan), one of the main e-commerce players that was listed at a valuation of
only US$ 30 million. This already implied a potential daily liquidity lower
than US$ 1 million, greatly limiting the size of the potential investor
pool. I was fortunate enough to chat with the chairman of Kuo Brothers Jerry
Kuo and get his thoughts on this matter: “We certainly recognise the limit from
our size, which actually leads to Kuo Brothers being greatly undervalued.
However, coming to the public market still has its beauty, especially in talent
recruiting and business expansion, at least for Kuo Brothers at the current
stage. I believe in time the market will recognise our value as we grab more
shares from this highly potential market in Taiwan.”
Despite many Southeast Asian stock markets sharing similar features as Taiwan’s, founders in this region have long recognized the necessity
to expand and reach a certain scale before even
thinking about filing for a public offering. Sea
Group’s 2017 IPO on the NYSE paved the way for
Southeast Asian startups. It was the first unicorn from the region that went public at a valuation of over US$ 4 billion. Many other
unicorn startups in excess of that size including Grab, Traveloka, and Gojek
are now on deck.
Momentum
Momentum is the last but
no less critical factor for a successful IPO. When I
say momentum, I mean the market reaction in the first couple of days or months preceding
a company’s first day of trading. Some may regard
momentum as a function of trading or
expectation management. I would define it as a
reflection of a founder’s ability to deliver on their promise to the market. Momentum is generated only
if a company achieves, if not exceeds its forward-looking guidance. It is about
execution. If there are any technical matters to take into
consideration, at most I would suggest avoiding setting your listing window
during major political or economic events such as elections or Fed meetings.
I would categorize momentum into three stages. These stages
all matter, but it’s better if a
company builds a strong momentum throughout, or at least exhibits a gradually recovering trend.
Stage
1: The IPO day – I would recommend that
a company must never underestimate IPO day. It very often sets the tone of the
market reaction. It is a direct reflection of the market’s appetite or view of
the IPO pricing, and future growth potential. When deciding the IPO valuation, higher doesn’t necessarily always mean better; a valuation on the high
end could lead to inflated expectations and therefore a higher probability of
price correction on IPO day.
Stage
2: Before the first reporting –
Investors tend to build some buffer in their model. They tend to apply some, if not a major discount to the
guidance outlined in a company’s IPO prospectus. That
is why expectations are rather mixed and vulnerable before the first reporting.
Do not do anything that leads to further doubt. Again, it is about execution. A
company should deliver what it has promised, signalling that the
business is on track and in good hands. Any mistake (or misfortune) at this stage
could instantly break investor trust, requiring
an extensive amount of time and effort to rebuild it.
Stage
3: First reporting day – A company
should deliver a good set of results that are in line with the guidance provided during the IPO process.
The market reaction on the first reporting day will anchor a basic view on the
company. If the reaction is strong, the company would have secured a
solid level of trust among investors. On the other hand, a bad reaction would take
extra effort and time to rebuild the company’s positioning in investors’ minds.
Snap’s IPO in 2017 is a great example here. Although Snap’s
share price surged 44% on the first day of trading, the stock price soon lost
momentum. Major reasons were related to the uncertainty of the IPO valuation,
which was at 62x P/S ratio vs. Twitter’s 4x and Facebook’s 13x back
then. Stock price fell 50% from the peak before the first reporting in the second quarter of
2017. However, the results made the situation worse. New installs of Snap dropped 21% year over year,
comparatively worse than Instagram’s 8% year-over-year increase in the
same period. Revenues and user growth also undershot, eliciting deep
disappointment among investors and sending the price of its stock even lower. After this, Snap hovered at a low-price range for two
years until they managed a comeback in 2019.
Focus on your flywheel
Given the qualities discussed, I hope you now have a better idea of what exactly it means to be IPO-ready. My final piece of advice echoes popular sentiment among the most common early-stage pitfalls to avoid—premature scaling. Do not prematurely go into an IPO for the sole purpose of competing against the big guys. We all agree that going IPO has its merits: It offers an exit for your early investors, and lets veteran employees realise the value of their ESOP and efforts. In the meantime, the public market is indeed an effective and open place for (friendly) funding. However one should not ignore the fact that public market investors are not like the VCs and angels who spend years watching your company grow. Every inch of your ambition, vision, and execution are now under the eye of public scrutiny, where investor reactions tend to be immediate and widely irrational. So irrational, in fact, that an entirely new field of study has emerged called behavioral finance, where a handful of psychologists and economists have already been awarded Nobel Prizes. When expectations go sour, both valuation and liquidity (trading value) drain even faster. This vicious cycle can significantly impede the value and momentum of your business, taking years to build up again.
Therefore, I would highly recommend growth stage founders put a proper plan in place when considering an IPO. Make sure you have good growth, good size, and good execution and hence can deliver good initial momentum. Only then will you be in a position to reap the full benefits of the public market.
【We welcome all AI, Blockchain, NFT, or Southeast Asia founders to join AppWorks Accelerator】
#漢文在下 Today AppWorks Accelerator is proud to announce our new collaboration with Flow. Since investing in Flow back in 2019, we have been closely working with the chain’s creators Dappers Labs—the very same team behind CryptoKitties and NBA Top Shot—and observing their methodical approach in pushing forward new applications on the Flow blockchain. Starting from gaming and entertainment, we see a strong ecosystem thriving with the support from Flow’s infrastructure, which includes over 300 projects in the pipeline and over 3,000 developers building on Flow’s Testnet.
While at the same time from AppWorks’ side, we see NFTs being the next frontier in the Blockchain space. As NFTs are still at a relatively early stage, startups have the advantage of being a disruptor vs. the big guys. We hope that as NFTs start to take off, all the best founders can gather at AppWorks, learn from each other, and become winners in the next 5-10 years.
To encourage founders to seize the growth opportunity in the next decade, AppWorks Accelerator is announcing our collaboration with Flow. This collaboration will focus on supporting founders and teams working with blockchain technology, in the Greater Southeast Asia region, that are ready to build the open world on Flow.
With the resources from both AppWorks’ and Flow’s ecosystems, we want to ensure teams have all the support they need to build amazing products for consumer-scale adoption. We look forward to seeing more applications built in NFT, DeFi, and consumer products that people like to use in their everyday lives.
Resources provided by Flow:
Dedicated support from the Flow team regarding tech, marketing, community, and product
Office Hours sessions with the Flow team on a referral basis, facilitated by AppWorks
Access to Flow’s educational resources and valuable experiences shared by existing blockchain projects already live on Flow
Top projects in the accelerator may receive investment opportunities from some of our investor partners
Access to FLOW token credits to bring your application to Flow mainnet and bootstrap your initial user acquisition strategy
These founders are encouraged to apply:
Working on NFT and/or DeFi
Blockchain developers
Want to build and launch their product on Flow
With the support from:
Blocto by Portto, official digital wallet partnered with Flow (AW#19)
Founded in 2010 by Jamie Lin, AppWorks Accelerator is a startup community created by founders, for founders. We are committed to fostering the next generation of entrepreneurs in Greater Southeast Asia and to accelerating the region’s transition into the digital era.
Every six months, we take in founders operating on the frontiers of AI, Blockchain, NFTs, and Southeast Asia, equipping them with the necessary resources, mentorship, and guidance to get their ventures off the ground.
As an international founder we know there are many considerations when applying to an accelerator. That’s why we’ve created an FAQ page to help you decide whether or not AppWorks is suitable for your startup.
As of May 12, AppWorks Accelerator #23 is open for applications. You can find important information about the Accelerator experience on our main page.
The FAQs
1. What do I need to know before joining an accelerator in Taiwan during COVID? What is AppWorks doing to help founders make the most out of the accelerator before it’s completely safe to travel and congregate? How are you helping founders deal with the impact from the pandemic?
The world has seen nothing like the COVID-19 pandemic, and we can confidently say that no founder we know had this on their disaster mitigation plans. But the experience of being a founder is all about learning and adaptation, even when things look dire. We are here to support you to do just that, no matter the circumstances.
To make sure founders accepted to AW#23 will have the benefits of connecting to batchmates, to mentors, to markets, and to essential knowledge and services, we have designed a hybrid program that serves both local Taiwan-based founders as well as international founders abroad that cannot physically enter Taiwan due to various COVID-related restrictions.
Currently, up to six hours of online sessions per week are provided, ranging from office hours with our partners to coaching sessions and workshops with founders from all over GSEA. Such meetings include founder mentoring sessions with veterans of the technology industry who have launched startups from zero to one, and even listed several IPOs.
Finding connections with supply chain partners and other potential business partners will not be a problem, either, since we will help to connect you to these resources through virtual introductions.
In addition to providing these and other aspects of our curriculum online, we will continue to make services such as cloud resources and other perks from our technology partners available, as we have been doing for the past 10 years. There is no obligation to sit in the physical accelerator space in order to take advantage of them.
Finally, we will continue to monitor visa and travel restrictions in a timely way and update you with new information we learn during the application process.
The moment it becomes easier to physically travel to Taipei, you and the other AW#23 founders will be the first to know. And rest assured, although offline events have been strictly limited, you’ll still get to meet hundreds of investors, journalists, corporate executives, and other partners who can make a positive impact on your founder journey through the online version of our Demo Day.
2. How can AppWorks Accelerator help an NFT founder? Why is AW#23 specifically calling for NFT startups?
Although NFTs are technically an application of blockchain, we believe that they are actually significant enough to deserve their own category, similar to the relationship between e-commerce and the internet. Compared to 3 years ago, the blockchain industry is now much bigger and more mature, with various chains, wallets, exchanges and the likes, serving as the infrastructure with lots of quality development tools available, allowing founders to run lean, experiment, and launch NFT products fast.
It now appears that the initial application of NFTs is leaning more towards the proof of digital art and asset ownership; but, we believe that in the long-term, many more types of use cases will evolve through NFTs. As NFTs are still at a relatively early stage, startups have the advantage of being a disruptor vs. the big guys. We hope that as NFTs start to take off, all the best founders can gather at AppWorks, learn from each other, and become winners in the rise of NFTs in the next 5-10 years.
As an NFT founder, you can expect these from joining AppWorks Accelerator:
a. Grow with the largest blockchain founder community in Greater Southeast Asia
Entrepreneurship is a lonely journey. After starting your own business, most of your friends and family won’t understand the ups and downs you’re experiencing as a founder. If you can share these experiences with fellow founders who are as capable and determined, who understand when you encounter setbacks, you will be more motivated to continue. In addition to about 50-60 other founders accelerating together in the same program, we will hold frequent alumni gatherings where you’ll meet many alumni who have gone through the 0 to 1 stage.
The ecosystem established by AppWorks Accelerator now consists of 395 active teams with a total of 1,331 founders. Together, these startups total US$ 8.05B in revenues. The blockchain ecosystem within the AppWorks community now consists of 57 active teams with a total of 94 founders. Together, these startups total US$ 295M in revenues and employ over 700 people globally. The largest founder community in the region can help support founders working on NFTs who want to learn the ins and outs of entrepreneurship through introductions of resources and connections in the startup ecosystem.
b. Learn together with NFT startups
Although NFTs are still a relatively new concept, there are already a few NFT-related startups in the AppWorks ecosystem, such as Blocto (AW#19), a mobile portal to the blockchain world featuring seamless integrations with different wallets and web browsers; Lootex (AW#20), a digital marketplace that runs NFT auctions; and Animoca Brands, an AppWorks portfolio that is committed to promoting the development of blockchain and NFTs in the gaming industry. For this upcoming batch, we are specifically calling for founders working in the NFT space to join the community and build a better ecosystem together.
c. Flow ecosystem and resources
AppWorks is also the second largest investor in the public chain Flow, developed by Dapper Labs, the team behind CryptoKitties and NBA Top Shot. If you’re interested in developing a new business model on Flow or the chance to talk to various stakeholders in the Flow ecosystem, you can receive more direct resources and support from AppWorks and Flow’s exclusive collaboration.
With the largest community in the region alongside support from the Flow ecosystem, founders working in the NFT space will be able to grow and thrive in their founder journey.
3. What does AppWorks look for in applications?
When AppWorks reviews applications submitted by founders, we pay special attention to a founder’s North Star. Some questions that might help you think about whether AppWorks is a good fit for you:
Why do a startup?
What problem do you want to solve and why?
What do you believe fundamentally needs to exist in this world that doesn’t already?
What kind of future do you want to create and how will you get there?
What have you already done to demonstrate your commitment to tackling this problem?
AppWorks Accelerator’s online application covers about 30 topics related to team background, product/service, business model, market analysis and more. It is very detailed and requires time to complete. It also includes a required one-minute self-intro from the founder (CEO).
4. Does AppWorks Accelerator cost anything?
No. AppWorks Accelerator has always been free for founders. We will not charge rent or service fees, nor will we require any form of compensation, such as sweat equity, options, revenue, or profit-sharing. Our exclusive mission is to help founders.
5. We need funding now, can we get investment by joining AppWorks?
The short answer is it depends on what stage you are in your journey. When capital can significantly enhance the strength and competitive advantage of your startup, any AppWorks founder is welcome to start a discussion with us on fundraising. We will do our best to advise and support you with US$212 million in assets under management.
Please note, AppWorks Accelerator will never require teams to accept our investment before joining the accelerator, nor will teams ever need to provide any form of equity or revenue / profit share returns.
6. Why wouldn’t AppWorks admit founders working outside of AI, Blockchain, NFT, or SEA?
We believe that AI and blockchain are based on the good foundation that the internet has built, and the extended data applications and the decentralized model will be a huge disruption that founders must leverage in the next decade. Within Blockchain, NFTs enable wider adoption of blockchain technologies and applications as we move closer to the digital world.
At the same time, SEA’s digital revolution is well underway, with a young, ever-expanding, and increasingly affluent middle class driving brisk economic growth across the region. SEA also features one of the world’s largest populations at over 650 million people, many of which are digital natives and early adopters of technology, lending itself as a hotbed for entrepreneurship and innovation.
Therefore, this is the focus of our attention for now. In the last 10 years, we’ve seen the popularity and penetration of mobile internet. If you want to seize the opportunities in the next decade, think about how to leverage these key areas to create the future.
7. I am not a technical founder, or I need to find an engineer to help scale my idea, can I still apply?
Yes, you can. In a manner of speaking, you have come to the right country.
Taiwan graduates over 25,000 hardware and computer science engineers each year and is world-famous for the engineering and computer science mastery that has boosted the quality of international companies like Apple and Acer in hardware and Google and Microsoft in the software category, to name but a few.
We strongly recommend founders who come to Taiwan check out the country’s vast human talent resources. Part of the founder journey will be about learning how to hire, and there is probably no better place in Asia to do that engineering hiring than here.
8. My service (or product) has not yet started to make money. Can I still apply?
Of course! There probably isn’t a better time to learn in an accelerator than as a founder just starting out. This period before a founder has built a startup into a scalable business model with Product-Market Fit is called the “seed stage”. During this period, founders always need more than funding; they need a variety of entrepreneurial-related insights, inspiration from other founders, and room for trial and error. AppWorks Accelerator was built to provide these, and more.
9. I already raised a Series A / I’m profitable, is AppWorks right for me?
The most important thing for us is to identify where a founder is in their journey.
Reaching a funding goal can be a cause for celebration, but it’s also a relatively minor part of the growth of a founder. So many more things can go right or wrong, even with a funding round. There are many other facets to master. When we admit founders into the program, it is because we have carefully considered what they need as a founder, and how our resources and network, and Taiwan’s unique market and supply chain position in the world, can help them grow.
Joel Leong and Henry Chan at ShopBack had already built a business model and received seed funding in 2015 when they launched in Singapore, before they came to AppWorks Accelerator #13 in 2016.
Joel told us that had the team known about Taiwan’s massive US$ 42.2 Billion GMV a year e-economy and how it made it possible to figure out crucial e-commerce and engineering solutions for them, they would have made the move to Taiwan sooner. It demonstrates that funding rounds and business model maturity do not limit founders to learning something new. As long as you think that AppWorks can help you in the entrepreneurial learning process, you should apply.
10. Since I am not a Taiwanese citizen, can you help me obtain a proper visa?
International founders admitted to AppWorks Accelerator, according to your qualifications and needs, AppWorks can help apply for the Entrepreneur Visa or Gold Card in Taiwan. This enables founders from overseas to concentrate on work in Taiwan without having to travel abroad to sort out troublesome visa issues. We have professionals at the Accelerator who can offer advice on this process.
11. After the AppWorks Accelerator program begins, do I have to be there every day? Can overseas teams participate remotely?
AppWorks arranges about four to six hours of speaker series, workshops, office hours, and gatherings each week. These are tailored to the needs of current batch founders. We encourage teams to participate in as many of them as possible to learn from the veteran founders we invite to these sessions. AppWorks also provides a free co-working space. As for whether the team should choose to work in AppWorks, this is up to you.
If you want to test the Taiwan market with AppWorks, or set up a technical team, we strongly recommend you to invest the time and effort to personally understand Taiwan’s cultural environment and market.
12. Do I have to set up a company to join AppWorks Accelerator?
Not necessarily, but we would recommend an overseas founder to set up a Taiwan office, especially those of you that are B2B facing. This may better enable you to find business partners and negotiate commercial agreements later. AppWorks has professional accounting and legal specialists who can assist in handling procedures for landing in Taiwan.
As Andrew Jiang, co-founder of Soda Labs (AW#17) told us, when you take the time to physically show up in the market, you get “10x the attention and focus of potential customers and partners” you seek in your business development process.
13.What is the difference between the application’s first mover round and final round?
The application period is split into two intakes, with interviews and admissions facilitated on a rolling basis. Based on past experience, teams that submit their application earlier tend to have a higher chance of being admitted, and are also immediately granted access to all the resources that AppWorks Accelerator has to offer.
We hope the above FAQ can help you clarify your questions about AppWorks Accelerator. If you seek more clarity, please write to: a@appworks.tw and we will try to answer your questions.
We welcome all AI, Blockchain, NFT, or Southeast Asia founders to join AppWorks Accelerator. Applications will be open until July 21th, 2021.
衡量每個 NFT 的價值，技術並非主要考量，最重要的關鍵，在於發行者的 IP 或是 NFT 內所涵蓋的內容。好的內容來自有特殊的歷史意義、創新的表達方式、獨到的詮釋觀點與角度⋯⋯等各種面向，也因此，媒體用心製作的好內容，在 NFT 的模式下，將有更多元、更有效率的內容變現機會。
《連線》(Wired) 雜誌創辦人、科技趨勢思想家 Kevin Kelly 在 2008 年的經典文章「1,000 位鐵粉」(1,000 True Fans) 就預言：「成功的創作者，你不需要數百萬位客戶，你只需要 1,000 位鐵粉 (True Fans)，這些鐵粉，會購買任何你創造的商品。」
對媒體來說，NFT 模式則將 Kevin Kelly 的預言更進一步實現，因為鐵粉有更方便、更實質的支持方式。以我個人為例，從小就愛閱讀雜誌、大學編校刊，從第一份工作開始投入雜誌與媒體工作 18 年，至今仍收藏許多雜誌，例如 911 事件、Michael Jackson 過世、Steve Jobs 過世、歐巴馬首度當選美國總統、Facebook 用戶突破 10 億人⋯⋯等重要歷史事件，我都會選擇我最信任的雜誌品牌，購買能提供我最權威、最具歷史意義觀點的當期雜誌來收藏，甚至會購買收藏特殊期數的復刻版；在雜誌工作時，也經常會有企業、受訪者或是教學單位，希望授權報導的文字內容、照片、資訊圖表 (通常收不到什麼錢)。在 NFT 模式下，這些行為都變得更有意義與價值，媒體有更具體的變現與獲利方式，收藏者手中具有歷史意義、特殊價值的媒體內容，也有了更客觀與便利的鑑價和割愛交易方式。
