In 2019, Jeroen van Glabbeek was trying to take his company public. But despite all the preparation he’d done to get his ecommerce platform CM.com ready for listing, the timing just wasn’t right and he decided to postpone.
“When the market changes, there’s always uncertainty if [the listing] will go through,” he says. “When we were trying to list via IPO in mid-October, the market was not good for IPOs, and many were cancelled. It was nothing to do with the companies themselves but more with uncertainties in the markets.”
Undeterred, van Glabbeek considered his options and changed tactics. He approached one of Amsterdam’s SPACs, or special purpose acquisition companies — companies set up by investors with the aim of acquiring (or "sponsoring") another company to take them public. CM.com then successfully listed after being acquired by Dutch Star Companies ONE in February 2020.
How should a founder choose between an IPO or a SPAC? And how can they get their business ready in the meantime?
Lay the foundations
There’s a large amount of groundwork any company that wants to go public will need to do — from setting up an investor relations function to getting internal operations up to scratch.
Van Glabbeek prepared for CM.com’s IPO through pan-European exchange Euronext’s TechShare pre-IPO programme, which connected him with lawyers, auditors and founders who had successfully gone public.
The biggest thing he learnt was the amount of time and team resources founders need to invest in preparing.
As part of our project to go public, we had to define a robust governance process. We took some time to decide who makes the decisions in the future
Van Glabbeek and his team worked out the roles of the shareholders and management boards, as well as the new governance structure of the company, beforehand. This made it easier to demonstrate to potential investors how the company would be managed once public.
“As part of our project to go public, we had to define a robust governance process. This took us a lot of time because we knew you can only change it once before the IPO — after that it’s far more difficult to change the company’s structure. We took some time to decide who makes the decisions in the future,” he says.
For founders who are used to making all the decisions themselves, this transition can be challenging — to them and their team.
“You have to explain what you’re doing, people new to the management board will ask questions and it takes more time to make a decision,” he says. “It’s a little more work but once the company grows, it’s not necessarily a bad thing to take more time to make decisions and involve more people because everyone has insights.”
Van Glabbeek warns that some startups focus too much on the IPO. He recommends having a dedicated team working on the listing, leaving others free to work on the business’s growth to keep up momentum.
“A lot of fast growing tech companies, the year that they list, their company doesn't function as well anymore because the IPO is a distraction,” van Glabbeek says.
SPACs aren’t for everyone
Using a SPAC to get listed worked for CM.com. Aurélien Narminio, head of equity listing at Euronext, says SPACs have their own advantages. Yet IPOs can be preferable in many cases, notably for founders who want to keep their independence.
“The SPAC sponsors will come with their investment thesis and vision for your business,” Narminio says. “They will be under pressure to deliver the value they promised their own investors, and will have little choice but to steer your strategy in a certain direction.”
He says the main benefits of listing through a SPAC are speed of execution and price certainty. “You’re getting listed through an M&A process giving you price certainty as soon as the share purchase agreement is signed, and access to the market within three to five months on average. In contrast, in the context of an IPO the final price will be set on the first day of trading and the process of getting listed usually takes five to nine months.”
The SPAC sponsors will be under pressure to deliver the value they promised their investors, and will have little choice but to steer your strategy
Lower risk was what appealed to van Glabbeek: “The main reasons for [choosing] a SPAC was that it was already listed, the money was already raised and there was less execution risk. We had made a deal that would go through and we would be listed. It was fairly straightforward because CM.com was already prepared for listing.”
So who should choose a SPAC? SPACs suit complex startups, those in the hyper growth phase or companies that are hard to value. SPAC sponsors perform in-depth due diligence on behalf of their investors to understand the company’s potential in detail prior to listing. As such, they can better perform the valuation of complex businesses compared to market investors who rely mainly on the IPO prospectus.
The IPO appeal
The advantage of an IPO over a SPAC is that the founder has more control.
“In the IPO process you’re getting ready to be on the market,” Narminio says. “You’re marketing your firm to the public, you’re being transparent. You explicitly state your story, your strategy and which direction you are steering the business towards. As a founder, you maintain that independence and the market buys (or doesn't buy) your stock.”
In the IPO process you’re getting ready to be on the market. You’re marketing your firm to the public, you’re being transparent
He believes startups that have more “hands-on” founders might be better suited to an IPO, as they’ll want to maintain their independence and are more willing to deal with uncertainty.
But IPOs come with more risk: they’re more exposed to macroeconomic factors and volatility that can affect the share price on the day of listing.
You can never over prepare
While going public took time and effort, van Glabbeek has no regrets. He believes preparing for an IPO was a big part of its success — they marketed CM.com well, which attracted even more investors after going public.
“Just after we listed, the traditional SPAC investors wanted to sell their shares because the SPAC had acquired a new company. We needed new investors who liked our company and wanted to join us,” he says. “We then had a good base of potential investors and it boosted our company stock’s visibility.
“We’re now three times bigger than before we listed. We have three times more employees, three times more clients, three times more revenue. We grew very fast in the last few years and some of that is because we raised capital and invested it, but we also have more visibility as a publicly listed company and it worked out very well for us.”