TSX Prepares for a Disruption in Equity Financing
At a time when startup veterans and venture capitalists are questioning the value of going public, the TSX has made a big move. Last week the TMX Group had announced they will launch TSX Private Markets for potential high growth startup companies.
Visionaries like Sean Parker, Napster co-founder, and former president of Facebook, have publicly questioned the need for companies to issue IPOs. “My preference is to always keep a company private,” says Parker. “We now have very efficient secondary markets with SEC-qualified investors, hedge funds and family offices that are actually willing to buy private securities.” The benefits of going public have become “less clear”.
In our era where we understand the future of growth in the global economic eco-system lies in software and high-technology, disruptive solutions need to be explored. Big markets like TSX and NASDAQ cannot afford to ignore the growing negative sentiment of going public taking root in the Valley — the global hub of innovative thinking and startup culture.
If You Can’t Beat Them — Join Them
The TMX Group isn’t the first to explore the avenue of creating a funding marketplace for private companies. Earlier this month NASDAQ launched NASDAQ Private Market with the goal to develop a platform for private companies to achieve greater liquidity and build relationships with institutional investors.
The benefits for private companies is apparent through liquidity. Those in the startup community in Canada understand the general risk aversion of Canadian investors. Being listed on a private exchange may nudge an investor in the direction of following through with the cheque. Additionally, it would allow companies to manage share programs for employees encouraging a feeling of more direct ownership. And finally, private companies can use this platform to develop a relationship with institutional investors, easing the transition to an IPO.
Easing the Decision to IPO
Easing a private company’s decision to IPO is the most important reason why the exchanges are making this move. What better way to make sure high-growth innovative companies are listing on your exchange than by pre-listing them during their initial growth phases? With this announcement The TMX Group is moving upstream and into the long-tail of the equity market. Not dissimilar to what AirBnB has done for hotel bookings.
Clayton M. Christensen, author of “The Innovator’s Dilemma,” convincingly argues that the reason large companies fail is because disruptive players entering at the lower end of the market slowly eat away their market shares. A disruptive solution servicing a wider customer base has real potential to re-shape a market’s definition of success. When this happens the incumbent companies lose their footing. AirBnB has re-defined the hotel experience so successfully they now have massive hotel chains worried, relying on regulation and lobbyists to “even the playing field.”
One cannot go so far as to say The TMX Group has found its “AirBnB” of the equity markets. After all, this announcement comes three weeks behind NASDAQ Private Market’s actual launch. But this move definitely holds progress. The success of TSX Private Markets, and the future success of The TMX Group at large, will depend on whether or not they facilitate and create a replicatable process around their listed private company’s success. Until they do this we can applaud their efforts to support startup and private companies and their anticipation of a shifting marketplace.
Co-founder and CEO of Atendy www.atendy.com
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