Conference Presentation, Panel
IPOs for SMEs: Can Capital Markets Close the Financing Gap?
Milken InstituteStaci Warden, Ana Carvajal, Ashish Chauhan, Siobhan Cleary, Nick Thadaney, Arumna Abdul, Daniel, Scott Birdwell
- TMX forecasts that approximately 800 companies will graduate from the TSX Venture to the senior market between 2000 and 2015, comprising 50 to 55 TSX Composite index constituents and three S&P/TSX 60 entrants.
- Global SME markets are projected to grow from just over 4,000 to nearly 9,000 listed companies over the last 12 years, representing nearly 100% growth compared to 13% on main boards.
- BSE anticipates increasing the average number of investors on its SME platform from a current range of 50 to 60 up to approximately 500.
- BSE expects a new "BSE High Tech" market to launch with a minimum lot size of $15,000 to differentiate investor protection levels, with no companies currently listed there.
- TMX projects that family-run businesses generally outperform non-family-run counterparts over a 20-year period.
- TIO Networks required 19 years to reach an exit, a timeline suggesting that reliance solely on private venture capital with a three-year horizon would have prevented survival or value realization.
- BSE notes that stagnation of over $100 billion in Indian venture capital funds, attributed to a lack of exit opportunities, may be resolved by encouraging immediate listing on the SME platform.
- The World Bank suggests capital markets in Latin America, specifically Chile and Peru, could enhance SME liquidity through receivable and reverse factoring funds where credit risk is based on large companies.
- TMX expects smaller investment dealers are being squeezed out of the market due to higher regulation and costs, degrading the intermediary community essential for SME success.
- BSE plans to enable state governments to recirculate subsidy funds by investing as equity in listed SMEs, allowing the government to sell out after two or three years to reuse capital.
- Deutsche Börse expects its venture market, launched two years ago, will facilitate global venture capital investment and bring companies to the listed exchange, with at least one company already emerging.
- The World Federation of Exchanges anticipates technology can streamline regulatory filing and generate automatic research coverage to improve the economics of servicing smaller companies.
- BSE projects that companies on its SME platform will graduate to the main board if they exceed a certain size, allowing them to avoid repeated fundraising efforts.
- World Bank and World Federation of Exchanges projections indicate that forced investment policies for pension funds in SMEs may cause distortionary effects if not handled carefully, and that domestic capital markets are essential initial avenues for mobilizing capital before international investors participate.
- TMX expects that constructing a structured basket security or ETF containing multiple SME businesses is currently difficult due to liquidity issues and the complexity of substituting risk in the small cap environment.
- Panelists anticipate that the exchange ecosystem must expand from equity financing to include incubators, venture capital, private equity, and derivatives to remain relevant.
- An audience member suggests reforming the 40 Act in the United States could simplify the listed private equity market and attract firms like KKR and Apollo to list.