ur Federal Minister of the Economy already announced the age of entrepreneurship in 2015. It was time to revitalize the German start-up culture, the pioneer spirit. He said that successful financing would be crucial here. To achieve this, more high-growth enterprises should be floated on the stock exchange, more public funds should be allocated for venture capital financing and the tax conditions for venture capital should be improved.
New stock exchange segment for high-growth enterprises
The German Stock Exchange also had a thing or two to say in regard to the topic of IPOs and established a new stock exchange segment, which was meant to be custom-tailored to the needs of these companies. From March 1, 2017, the new segment will replace the previous entry platform “Entry Standard”. In doing so, the stock market wants to facilitate access to investors and growth capital for SMEs and create opportunities to finance growth (http://deutsche-boerse.com/dbg-de/presse/pressemitteilungen/Neues-SME-Segment-soll-Unternehmen-Zugang-zu-Wachstumskapital-erleichtern/2812500).
In order to avoid past mistakes (keyword: new market), a so-called capital market partner will ensure the capital market suitability of the enterprise in a due diligence process. In addition, the companies must weigh in with a market value of more than EUR 30 million and fulfill at least three of the five following criteria (dimensions, which can’t be achieved with entrepreneurial spirit alone, but usually only with the strategic and particularly financial support of pre-IPO investors):
- revenues: minimum EUR 10 million,
- positive annual net profit,
- positive equity,
- proof of successful acquisition (external) of a minimum of EUR 5 million equity,
- minimum of 20 employees.
The follow-up obligations include research reports an order by the German Stock Exchange along with compliance with the Market Abuse Directive requirements (ad-hoc publicity, insider lists, manager’s transactions), but neither IFRS accounting nor quarterly reporting.
As a result of such initial public offerings, IPO candidates can not only raise additional capital, they also provide excellent exit opportunities for founders as well as venture capital and private equity investors, who have supported the companies up until this stage. There is still the question of whether the enterprises can possibly get even more out of this situation on their way to the stock market.
Positive marketing effect
Because a frequent problem affecting especially smaller high-growth enterprises, is that they are not well known and have a limited marketing budget. As a result, the IPO is often the door-opener for subsequently boosting the company’s visibility. This is particularly the result of active press and media work concerning the event of going public itself. An initial public offering consequently provides an excellent point of reference for interviews with journalists and therefore the opportunity to suddenly present the enterprise to a broad audience.
In addition, the opportunity should be grasped to directly approach business partners, suppliers, customers and employees via website, social media activities or mailings. Because an IPO is even remarkable for these target groups. It conveys a sense of power and financial strength, which is especially relevant in B2B business with key accounts. We regularly hear reports about stronger customer perception of their organization and more requests by new customers for companies that have boldly ventured on to the stock market.
A win-win-win situation
If the capital market experts are right, an increasing number of companies in Germany will be going public next year. Maybe this will even include a couple of young high-growth enterprises for the new stock market segment. And perhaps one founder or another can even transform their hard-earned “Sweat Equity” into “Sweet Money”. This would not only boost the German start-up culture, but also assist the high-growth company in acquiring new business and customers – and be able to do so entirely without an additional marketing budget!?