How the Startup IPO Process for Startups Works
An initial public offering of success is a crucial moment for a startup. It’s a sign of success. It also comes with its share of costs. Make sure you are ready before venturing into this stage of a startup’s life.
Financial meaning of an IPO
An IPO raises needed capital to help a company grow. It’s a payday of sorts to founders and investors who stand to profit. The price of the stock may even go higher between the IPO and the secondary market offering.
There are stories about entrepreneurs becoming millionaires or even billionaires after their companies went public. This isn’t the case. The companies best prepared to go this route are ones that already have a solid track record and are in an industry that’s already the focus of much hype.
It also is neither a cheap step for a company to go through the IPO process nor a solution for every company. If you don’t have audited financials for the past few years, you may want to think of another way to raise cash. The same goes if your industry isn’t on the fast track to growth. There may just not be enough interest there.
Cultural meaning of an IPO
It’s not only about the money. A successful IPO spells out success for a company. It generates interest and can be a signal to the top talent in the industry that this company has made it. This can also be a boost to employees’ pride, especially after sticking with a startup through thick and thin.
There are other disadvantages as well. The investors become part owners and get a say. Also, just like the public will take notice of a successful IPO, the public takes note of an unsuccessful one as well. 
Indonesian First Startup IPO
Kioson yesterday became the first local tech firm to list on the Indonesian Stock Exchange (IDX).
It’s unusual for an early stage company that still posts losses to go this route. Despite concerns, Kioson achieved its modest target.
The startup raised US$3.3 million from selling 150 million shares. That’s just slightly more than the median deal size for a series A venture capital round in Southeast Asia.
At a press conference yesterday, the startup said that the offering was more than ten times oversubscribed, meaning there was more investor demand than could be met. It also pointed out that the share price jumped from US$0.02 to US$0.04 on the first day.
It’s a positive result, but Wellson Lo, founder of Stockbit, an online community for Indonesian investors, calls for caution.
“The fact that the share price is up 50 percent in the first day of trading sometimes grabs headlines in the media, but we have to pay a particular attention on the ‘liquidity’ of the share itself,” says Lo.
He points out that, in the first day, only 23,400 shares were traded, which amounts to less than US$1,000. “This can mean a lot of things, but investors should be careful since price movement is less important in the absence of healthy trading volume,” adds Lo. On its second day of trading, the volume has dropped to 3,400.
Kioson runs a network of small shops that sell digital goods like phone air time, gaming, and ecommerce vouchers through its app. It was founded just over two years ago and now has 19,000 kiosks across Indonesia.
According to its latest financial statement, its total revenue in 2016 was roughly US$1.9 million with a US$840,000 loss.
Support from the top
“The company has potential even though it’s young,” says Kerry Rusli of Sinarmas Securities, the investment bank that underwrote Kioson’s IPO.
Sinarmas Securities is a local investment bank associated with the Sinarmas conglomerate.
It may have been more inclined to take the risk of underwriting the IPO because Kioson isn’t a startup of the Silicon Valley type, where a team of entrepreneurs creates an innovative product from scratch and raises venture capital to grow the business. It’s co-owned by several established companies. Artav Mobile Indonesia, a mobile phone SIM card and airtime distributor, holds the majority.
Kioson’s IPO was also supported by the Indonesian Stock Exchange itself – it has been trying to attract tech companies to list by launching an incubator earlier this year.
Rusli says that’s because it wants fresh wind in the public markets.
“Usually we see companies in property, manufacturing, oil and gas, or coal. But there is a slowing down in the demand for this from retail investors.”
Retail investors are individuals who invest from their own wealth, in contrast to institutional investors, like pension funds or insurances.
There’s also the government directive to nurture the local ecosystem of small and medium enterprises, Rusli points out. This includes encouraging more local investment in budding businesses.
“With Tokopedia, Go-Jek, Traveloka, a lot of Chinese investors came to invest in ecommerce here. Kioson was also approached by private equity investors but it wanted to give retail investors the opportunity to participate,” he adds.
Lo shares this point of view. “Since not everyone has access to investing in private companies, this IPO presents the option to the general population to participate and invest,” he says.
“Although they have to be aware of the risk that they take when they make such investment. Whether this kind of investment should be reserved to the accredited investors who can handle the risk or make it available to the general population is another topic that’s debatable.”
He recommends interested investors to wait and watch the development over the next couple of weeks. “Basic rules of investing dictate that investors should really understand the business, management, the broader market, etcetera, before investing in a specific company.”