Where to List Must Be More Than a Binary Debate for Fintech Firms

By Dani Lipkin, Managing Director, Global Innovation Sector at Toronto Stock Exchange

The UK’s capital markets, it is fair to say, have been going through a period of introspection in recent months. A downturn in IPOs, a volley of warning shots from technology firms and serious political pressure have triggered calls for a wave of reform, and regulators and officials are now on the offensive.

But as ever, so much of the public discussion is informed by anxious peering across the pond towards New York. London is living in fear that its lunch is being eaten by the allure of the tech friendly exchanges, and there is a risk that fintech and smaller growth companies may be dissuaded and unsettled by the intensity of the arguments being put forward on both sides. 

But the decision is more than a binary between the two great financial centres, and we believe there are productive lessons to be learned elsewhere in North America.

As managing director of the global innovation sector at Toronto Stock Exchange, I have seen first hand the concerns and motivation of smaller growth firms as they consider a move onto the public markets. So much of the negative side of that stems from the widely held belief that only the biggest companies can go public or, the sense that an initial public offering will suddenly tangle up teams in bundles of red tape and regulation when they need to focus on growth.

Equity market operators must therefore ensure the markets are not a sudden cliff edge for smaller growth companies. We operate a unique two-tiered exchange system with our junior board TSX Venture Exchange (TSXV) allowing smaller fintech and tech companies to tap into public pools of capital without burdening them with the same heavy reporting requirements as our biggest established players.

Tailoring our market infrastructure towards the firms that need capital most has been key to this, and TSXV has a track record that is testament to that approach. Approximately 20% of the constituents included in the S&P/TSX Composite Index began their life on our junior exchange.

Constant evolution

Never existing in stasis has been central to our mindset. Like the firms listed on them, equity markets should exist in a state of constant evolution and adapt to the challenges and opportunities before them. That does not mean scrapping and overhauling our rules but rolling out new products, better offers for firms, adapting our listing rules to the evolving market needs and constantly improving market infrastructure.

For firms considering a listing, smaller exchanges can also be a valuable step of a larger evolution. While venture capital has been the default option for smaller firms before a major listing, the volatility of the past year and the collapse of Silicon Valley Bank – still rippling through the industry – may be a cause for reconsideration. Junior markets like TSXV can provide stable access to capital for smaller growing tech firms and can also provide a viable stepping stone onto senior markets.

Smaller exchanges like TSXV can also become a way into often unreachable pools of international capital, allowing firms to tap into a North American investor base. These firms can build up acquisition cash, benefit from share currency to use for potential acquisitions, or diversify their shareholders while also winning the association of a recognised global stock exchange. 

Is now the right time for my company?

We would always encourage smaller fintech and growth companies to scope out their international options and mull the various routes ahead of them before making the important move to go public. And alongside the debate around destinations or private vs public, there are always four overarching questions we feel should guide that decision-making.

The first is whether your company truly has a reason to go public. Beyond the fanfare of opening the market, a move to go public is a big decision for any firm. Consider what reason your company has for the move and whether the market you are looking at is the right fit for you. A listing in London may not be the right option for every company for instance, and firms should not think that is the only one available.

The second is readiness. Smaller junior markets like TSXV can provide a less bureaucratic route to public venture capital – but as with any move public, scrutiny will definitely increase. Founders of fintech companies should always ensure the time is right for their company to open themselves up to that.

Any stock exchange will also have their own specific set of requirements. A firm may look to New York as the route into the North American capital markets, but these markets come with their own set of requirements. TSXV could allow some smaller growth companies to tap into the deep North American capital pools with proportionate regulatory  requirements.

Finally, be realistic. It is essential the firms consider whether the market they are listing in has the appetite for what they can offer. In Canada for example, we have a hungry investor base looking for tech and fintech companies. But for some firms in other sectors, we may not be the right home, just as London’s main market may not be right for smaller growth companies. Firms should always choose what market, if any, is right for them to go public in.

More than a binary debate

The central guiding principle for all firms should be remembering that the options before them are more than just remaining private or floating in a blockbuster IPO. There are so many routes for firms to access capital via public markets – and firms should feel empowered and aware of the best route available to them.

Check out the Streets Consulting Podcast featuring Dani: here