Tech IPOs Must Convince a More Experienced and Skeptical World

Are we losing confidence in the transformational power of technology? Or have we simply become too jaded, too presumptuous and too entitled?

The truth probably lies in a little of each. It's been a while since The Next Big Thing. Apple has gone incremental on us, Big Data is proving to be as amorphous as its title and somehow set-top tv boxes just arent stirring the blood.

We are in 'show me the money' mode. There is little we seem prepared to take on faith and, for that matter, little evidence that we have much faith to begin with. Corporations are sitting on veritable Himalayas of cash, waiting for assurance. Governments are retrenching, mostly because it is the fashion and because there primary contributors, who also happen to be the cash mountain kings, are telling them that doing so is what serious people do.

Some pundits seek to reassure us by saying the markets are 'taking a breather.' Such fatuous attempts to ascribe human motives to electronic networks may make us feel a bit better but hardly provide useful answers.

The reality is that we are no longer overawed by the technology that sustains us. We demand results and proof that those results are real. And it's about time we did so. JL

Alison Smith reports in the Financial Times:

Once a bubble has popped there is no reflating it. But for those tech companies that can explain to more critical investors how high growth will turn into profit, there is still time to put a patch on the puncture.

It is more like a slow puncture in a tyre than the pricking of a bubble. Compared with the sharp share price falls of some of the world’s largest and most famous internet stocks in the US and Asia, the 4-5 per cent drops suffered by three recent UK tech initial public offerings suggest retreat not rout.

This is no bad thing. Just Eat, AO World and Boohoo.com have been trading on eyebrow-raising multiples since their respective launches. A correction was due.

Their early ratings seemed to value them as tech giants where profitable growth was assured. Instead, they are companies undertaking traditional activities such as retailing but through laptops, tablets and smartphones. That business model does not make them the equivalent of companies whose focus is hard-to-replicate technology. If their claims to disrupt their markets are proven then they will justify higher valuations. For now the jury is still out.
At least this time round, investors have better data on which to form their judgments. In the dotcom boom of the early noughties, it was much harder to tell where profitable growth would lie. The internet’s record since then offers a better guide as to how companies can monetise popularity.
Once a bubble has popped there is no reflating it. But for those tech companies that can explain to more critical investors how high growth will turn into profit, there is still time to put a patch on the puncture.
Into Africa
“Semper fidelis” or “Always loyal” is the motto of the US Marine Corps where John Vitalo served in the 1980s.

It could be loyalty to Bob Diamond that has persuaded Mr Vitalo that he should join his former Barclays boss in Atlas Mara, Mr Diamond’s vehicle for snapping up African banks. After all, the two were both at Credit Suisse First Boston before Mr Vitalo joined Barclays in 2002 – six years after Mr Diamond had signed up.

Or it could be that after almost five years as Barclays’ head of the Middle East and north Africa, Mr Vitalo believes that Atlas offers a better vantage point for tapping into Africa’s twin attractions of a growing population and an under-developed banking sector.
The two organisations certainly start from different positions. Barclays has been in the region for most of a century and controls one of the four biggest banks there. Africa is the group’s third largest contributor, after the UK and the US.

Atlas listed only in December but has been busy since. It has raised $325m and announced two deals within two weeks – one in Rwanda and one in Botswana.

Yet there is a common quality needed for success: the smart use of technology. This requirement points away from banks that depend on legacy systems and branches and towards those that enable customers to get cash using mobile phones at shops in shanty towns.
So Mr Vitalo’s ecommerce experience as well as his emerging markets background should be valuable. Once Atlas has digested its current deals, perhaps its next venture should be a tie-up with a mobile company.
Not quite Houdini

“With one bound, he was free.” Premier Foods’ liberation from its financial woes has been nowhere near as simple as the hero’s escape from certain death in classic adventure yarns. But at least it has been effective. Tuesday’s announcement of the results of the £353m rights issue draws a line under the last element in its £1.1bn refinancing package.

Even as the group famous for Mr Kipling and Bisto stumbles blinking into the world of mainstream food producers, it is not meeting a cheering crowd of investors. Analysts had pencilled in a post-rights issue price of 91p, but the shares are now just below 70p.

This is not a reflection on the performance of Gavin Darby, the chief executive who joined improbably from the telecoms sector last year. He has already made progress and he should be able to do more to boost the group’s venerable brands once that is his only day job.

That said, sales last year were slightly down. Many of the food retailers who make up Premier’s customers are themselves under pressure even if they were to conclude that ambient cake sales were the way forward.
Premier says its flexible manufacturing capacity and mix of brands can help it sell more to the discounters who are making life hard for the supermarkets. Despite this, its growth prospects are limited, leaving investors looking for income. Only when Premier’s ability to generate cash enables it to resume dividend payments will it finally be free of its debt-laden past.