The 3 Types of Companies & Which Can Go IPO

Crawford Jamieson is managing director and co-head for Asia Pacific global capital markets for Morgan Stanley. After decades dealing with financial markets, Mr. Jamieson says these are the four types of companies that exist and this is their potential to go IPO:

Let me start by saying there are four stages of business progression for you to think about when it comes to your company.

Company Type 1

The addressable market for this company is unproven. You still don’t know how big the market is at this point. The company’s own business model, may not be proven so they are not really showing revenues, their top line growth is uncertain and their profitability is definitely uncertain. [Potential to launch IPO is very low]

Company Type 2

This company will have a proven addressable market, proven top line growth, and proven profitability. For example take Line messenger from Japan and also present in other parts of Asia. Last year I did their IPO. Given their dominance in Japan, it was pretty clear what their addressable market is in terms of the advertiser market in Japan for instance. It’s very clear what their penetration is and what their advertising avenues will be. We also know their top line growth is good and they are extraordinarily profitable.

Company Type 3

But obviously if you look at other companies like Snapchat, which was taken public, they are obviously a stage before that. They have a demonstrated an existence of an addressable market and have demonstrated ability to start to monetize, but surely not yet profitable. And each of these companies has a different opportunity in the public markets to a certain extent dependent on how the markets are performing.

So what does that mean for you?

If you look back over time, you can start to think about these markets in terms of bubble, a high multiple, a normal multiple or a low multiple. Maybe it’s a proxy for just market conditions. Two third of the time we live in a normal market situation. We are living in normal market conditions today. The market environment you’re in will have different, various implications for what you can capture conceptually in terms of value, so if you’re a sponsor, owner or manager in one of these companies, it doesn’t mean your company can’t go public, but what exactly you will be taking public and what you will be valued at will start to vary tremendously depending on where you are on your business model. And when we look at components of value – fundamental value, perceived value in terms of the future business model and scarcity value, you will get different terms of credit depending on how much of each value component you carry.

[About India Mr. Jamieson added, “I very much love India, and I’m very enthusiastic about the people and the business models. For many years I have been saying at Morgan Stanley, that for investors this really is the next wave of opportunity for global investment. People are incredibly constructive. On India we have nine straight months of on flow of foreign investments into Indian securities. And frankly what these investors need is more product. Less telco, less financials and more great growth stocks.”]