The recent launch of the nascent NXT market is an exciting addition to New Zealand’s capital markets. It provides a platform for small and medium sized businesses to access the benefits of ‘going public’ without attracting the large fees and rigorous disclosure requirements of the NZX’s main board.
Why Would People Use This Market?
More sophisticated investors, attuned to the higher risk attached to fast-growing SMEs, are likely to be attracted to the new market. To encourage activity, promote liquidity and provide investor confidence, the brokerage First NZ Capital will perform market making functions, posting buy and sell prices, and Edison Research will provide analyst coverage.
Why Do Businesses Go Public?
Finally we are getting somewhere. Businesses going public on the NXT will benefit from the ability to raise capital from the public on demand, accessing new sources of long-term capital that can be reinvested into the business. Due to the increased scrutiny of a public listing, companies can often obtain more favourable borrowing conditions. Investors will benefit from the transparency, liquidity and enhanced corporate governance of a public listing.
How Does The NXT Interact With Equity Crowdfunding?
The NXT market has the potential to assume a bridging role between equity crowdfunding and a full public listing on the NZX main board. Rather than acting in competition with seed funding, it has a complementary and symbiotic relationship.
Wait, Don’t You Do Equity Crowdfunding?
Yes! Companies who have previously raised capital through Equitise may seek exit or liquidity options for their shareholders. The NXT provides the first step for businesses that, after a period of growth, want to list their equity on the public market. This allows their existing stakeholders to ‘monetise’ their investment and creates a viable exit strategy.
Exit Strategies?
The NXT is just as important an addition to New Zealand’s public markets. The NXT allows SME’s and high growth companies, which otherwise could not list on the main board, immediate liquidity for all existing shareholders; and provides, in conjunction with seed funders and equity crowdfunders, a full stock exchange continuum from start-up to genesis. Additionally, it is a positive signal from regulators and markets that a strong focus is being placed on the smaller, high-growth area of business in New Zealand.
This article follows on from our earlier introductory blogpost, 'What is the NXT?'.