Across Nigeria, promising companies are emerging. Nonetheless, some may not necessarily end up as Nigerian companies, as American investors, while not losing confidence in Nigeria, do not trust the legal ecosystems to keep their monies in Nigeria. So, to invest, they now require most firms to re-incorporate in U.S. Yet, the market opportunity remains Nigeria. It is legal and that is part of capitalism. I have proposed how government could redesign our venture capital sector to make it attractive to these investors to keep the companies in Nigeria. Without these emerging companies as Nigerian firms, we would not have future GTBank, Diamond Bank, SystemSpecs, CWG, etc.
Today, there is another way we can even get these investors to keep our companies in Nigeria or take them public in the Nigerian bourse. One way is to move into pure direct listing in the Nigerian Stock Exchange (NSE) [Please note that the Direct Listing as currently done in NSE is not equivalent to a direct-listed IPO in my context. The NSE one is largely for dual-listing where a company can directly list if it is already listed somewhere else. To differentiate, I have called the one designed for IPOs and new companies Pure Direct Listing.]
In the past, I have listed ways to deepen the Nigerian Stock Exchange liquidity paralysis especially in the technology sector.
Pure Direct Listing is simply doing IPO without underwriters. With this process, the companies list and sell directly to investors without any need for underwriters. That will remove the burden of sourcing underwriters which complicate the whole process. While there is risk to retail investors, I am confident that in this Internet Age, we can push these companies to disclose in ways that analysts and investors can independently verify their fundamentals. Spotify is taking that path and is going to save massive amount of money in the process.
Spotify, the music streaming company, has filed to do a “direct listing” in which it will sell its shares directly to the retail-investing public, without going through the usual process of using underwriters who round up institutional investors. As a result, The Wall Street Journal reports, the company’s three financial advisers—Goldman Sachs, Morgan Stanley , and Allen & Co.—stand to collect only $30 million in fees—less than 1% of the total take, and well below the $100 million, or 2.5%, that Snap paid for a similarly sized IPO last year, or the $300 million record paid by Alibaba in 2014. Bankers fear that if the Spotify issue goes well, other unicorns lined up to go public may follow a similar path. About time. (Fortune Newsletter)
The Nigerian Stock Exchange can make it easier for startups to list in the exchange. That is innovation it has to find a way to execute. I propose, among others, for direct listing where any requirement for underwriting is completely waived. The startups, especially technology-enabled ones, will not have to go through the painful process of underwriting new shares, but post-listed, can sell equity to private investors. I want to see PayLater, OgaVenue, and Iroko Partners in the NSE as quickly as possible. We need to innovate to get companies cash they need at optimal risk balance to the economy and investors. While NSE could keep its underwriting requirement, it needs to also offer pure direct listing as an option.