It’s been a mixed year for IPOs, according to Jason Paltrowitz, executive vice president of corporate services at OTC Markets, and the differing fortunes of newly public companies could lead to investors looking more closely at equities next year.
Speaking to online television network Cheddar, Paltrowitz commented on how the botched WeWork IPO could change what investors look for in public companies.
When asked how investors are likely to behave in 2020, he said: ‘I think they’ll look below the surface. I think WeWork is a transformational moment, where it’s not just what you hear on the news or how cool something sounds. Investors are really looking below the surface to see what is profitable, what the ownership of a company is doing, and what its plans are for profitability. You don’t necessarily have to be profitable, but you [need to have] a clear plan toward profitability.’
While Paltrowitz acknowledged that there has been a lot of discussion since the WeWork IPO attempt about whether unicorns with significant private funding should go public at all, he added that the transparency of the public markets is essential.
‘It was going public that shone a light on some of the issues around WeWork, which demonstrates why being a public company is so important,’ he said. The transparency and disclosure requirements of being a public company are the best ways to return value to investors, he added.
Direct listings
Paltrowitz was also asked about direct listings, which he said have become a talking point on the floor of the large national exchanges following Spotify’s landmark direct listing last year. He said direct listings will likely continue to be a talking point because they represent a route to the public markets for large companies that don’t need the financial windfall of an IPO, but added that small and micro-cap companies have been offered direct listings through OTC Markets for more than 10 years.
‘While you’re seeing some interesting things in the unicorn space and the large-cap space, in the small-cap space you’re seeing companies going public all the time and raising capital all the time – they’re just doing it in more innovative and interesting ways,’ Paltrowitz said.
He added that OTC Markets recently submitted a comment letter to the SEC in relation to its search for ways to simplify, harmonize and improve securities offering exemptions. Paltrowitz said that in the small-cap space there were several regulatory changes the SEC could make – including 13F filing reform, transfer agent registration and disclosures about who is promoting company stocks – that would lead to a more effective market for issuers and investors.
