Witnesses to the initial public offering (IPO) of M17 Entertainment (M17 娛樂集團) got to see a car crash in slow motion.
Earlier this month, the Taiwanese streaming-content player was attempting to list on the New York Stock Exchange, but the debut never happened, prompting road rage from cofounder Jeffrey Huang (黃立成).
It is easy to blame the bankers — and no doubt they deserve to take a certain amount of the hit — but I would argue that M17 should not have tried an IPO, and for this, company management is also responsible.
There are a few companies I think should never have listed.
In Asia, Line Corp and Sea Ltd are on that list. In the US, I would name GoPro Inc, Roku Inc, FitBit Inc and probably even Twitter Inc.
Single-product companies with fragile earnings should stay private or be acquired.
However, founders — and of course venture backers — seem to be a bit too in love with the idea of an IPO. The spotlight of a public listing tends to show the weakness in a business model, with compliance, investor relations and public relations liabilities to boot.
The risk is that the business never really reaches those pre-IPO expectations and the shares slide, but in a decade-long bull market, such cases are the exception. Expect this to change if and when the market turns.
Because there are so many stories of founders who resisted buyouts and went even bigger, the IPO-or-bust philosophy prevails.
In Asia, this is becoming more apparent. Listing rules for Japan’s Mothers bourse mean that a company need only operate for a year and is not required to post profits. The result is dozens of listed companies unready for prime time.
China requires a history of profitability, while Hong Kong does not. A new China Depositary Receipt program would likely waive the profit requirement, because the stock is already listed elsewhere.
The prime candidate right now is unprofitable smartphone maker Xiaomi Corp (小米). Watch this space.
An IPO is not always the most expedient way for venture capitalists to cash out given lock-up periods. An acquisition can give an immediate injection of liquidity, but a buyout is just not as sexy as a listing.
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