In Jan 2005, Storm Ventures invested in IML a fabless semiconductor company based in Campbell California. In 2008 the company had $47 million in revenue and was profitable and the board began evaluating options for an IPO (Initial Public offering). The board concluded that a NASDAQ offering was not feasible for a variety of reasons:
1/ IML’s revenues were below $100 million
2/ IML had a high customer concentration with Samsung accounting for a majority of the company’s revenue.
At the same time the Taiwan Stock Exchange (TWSE) was out in Silicon Valley marketing its stock exchange as a venue to access capital as well as to provide liquidity for investors. The TWSE was going to for the first time; allow non -Taiwanese companies to register and sell stock on the TWSE. IML began evaluating this alternative and in early 2009 decided to file for an IPO on the TWSE .
The process took almost a year and IML finally on May 18, 2010 became the first non-Taiwanese company to trade on the TWSE. The stock was priced at NT$ 143 (US$1.00= NT$30 )and went up to NT$ 243 before settling down.
Here are my thoughts:
1/ The IPO process took much longer than I anticipated as both the company and its advisors were learning the rules in Taiwan as well as the Taiwanese regulators were trying to determine which rules should apply to non-Taiwanese companies and which ones did not apply to companies incorporated out of Taiwan.
2/ The cost to go public was an order of magnitude lower…closer to $ 300k rather than $3 million. This included , legal, accounting and D&O insurance.
3/ IML did raise $40 million less an underwriter fee which again was much lower than the standard 7% a US banker would have charged.
4/ The PE multiple was similar to a semiconductor company on the NASDAQ.
5/ Taiwan will follow International Financial Regulations (IFRS) which means that from an accounting perspective IML’s financial disclosures are very similar to what they would be on the NYSE or NASDAQ
6/ The lock up for insider was similar to what one would see here on the NASDAQ…for the first 180 days all of Storms shares were locked up and then 50% was released. After one year 100% was free of lock up. But we were still subject to blackouts and other restrictions on trading similar to the US
7/ The stock was bought by mostly individual investor (more than 70%) with very little institutional buying. Even now, more than two and a half years as a publicly traded company IML’s institutional ownership is below 20%. This was a bit of a disappointment for me as I had thought that there will be larger percentage of institutional ownership. One of the down sides of individual investors is that they look for dividend income.
8/ Liquidity has been an issue for Storm as we cannot distribute IML shares to our LP’s easily as each of our LP’s would need to open an account in Taiwan which places an unnecessary burden on our LP’s.
Overall I would say that the NASDAQ and NYSE still provide broader and deeper pools of capital and liquidity, and remain the gold standard for accessing public markets; but there are alternatives for those issuers willing to look elsewhere. Unless US legislators and regulators understand the global nature of markets and the need to be competitive globally, we in the US will lose the lead we have in financial capital markets.