Matt Briers has been the CFO of Wise since 2015. In 2021, Matt led the company to a direct listing on the London Stock Exchange, the first major direct listing in Europe.
Wise, founded in the UK in 2011 by Kristo Käärmann and Taavet Hinrikus, has revolutionized cross-border payments for individuals and businesses by making them easier, faster and cheaper. After 10 years as a private company, Wise followed in the footsteps of Spotify and Slack by doing a direct listing instead of a regular IPO, at a valuation of $11bn.
With Matt, we discuss the rationale and timing to go public for a profitable tech company which doesn’t need to raise money, his experience of the direct listing process, and the considerations around a UK listing rather than US.
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Disclaimer: this discussion is not financial advice, nor an investment recommendation, nor a solicitation to buy or sell any financial instruments, or an offer for financial services or any other transaction. The information contained in the recording have no contractual value and are destined for an informational purpose only. Amundsen Investment Management and the participants on this podcast may have holdings in the companies being discussed.
Per: Matt Briers has been a CFO of Wise since 2015. In 2021, Matt led the company to a direct listing on the London Stock Exchange, the first major direct listing in Europe. Wise, founded in the UK in 2011, has revolutionized cross-border payments for individuals and businesses by making them easier, faster, and cheaper. After 10 years as a private company, Wise followed in the footsteps of Spotify and Slack by doing a direct listing instead of a regular IPO at a valuation of $11 billion. With Matt, we discuss the rationale on timing to go public for a profitable tech company, which doesn’t need to raise money, his experience of the direct listing process and the considerations around the UK listing rather than the US.
Gautier: Matt, thank you very much for being on the show. Highly appreciate. Maybe I should let you introduce yourself first and then Wise, obviously.
Matt Briers: Hey everyone. My name’s Matt Briers. I’ve been the CFO for Wise since 2015. For those that don’t know Wise, we used to be called TransferWise. Some of you may have been a customer for longer. We got started about 13 years ago, trying to solve the problem of moving money around the world. Our two founders got started to solve this problem, which if you wanted to move money from the UK to Europe or Europe to Australia, it’s going to be really painful with your bank. It’s going to be really slow. It’s going to take days for the money to get there. Then when it arrives, you’re going to realize that it was really expensive, and this might have surprised you. It could cost you 3 to 4% in a hidden fee by your bank.
Kristo and Taavet got really pissed off at this, and set about trying to solve it. What they started doing themselves was just moving money between themselves. Kristo would put some money in Taavet’s bank account in the UK and Taavet wanted to get money from Estonia to London, and he would put some money in Kristo’s bank account in the Eurozone. Local banking payment systems are really instant and actually free in these jurisdictions. The challenge was getting it cross border. This worked really nicely for them, but they decided to scale this, and here we are today as public company.
We’re moving well over £100 billion a year of people’s money around the world. We do this for people, small businesses, and for those that you maybe use the product today, you might know that we do a lot more as well. We became Wise instead of TransferWise. We do more in transfers. People can hold money with us. They can invest the money. You can spend money on your card. You can receive money in many different bank accounts of ours around the world. Really now, Wise is the ways that people who have international money needs to really solve this problem.
We move money radically cheaper, as cheap as 0.4% in some markets, and over 60% of our payments are now instant. That means instead of the 3 to 5 days, it’s in your bank account within 20 seconds, which is pretty cool, and that we’re really proud of.
Gautier: Very successful story. That’s amazing. Well done for that. I hope it’s only the beginning of the journey.
Matt: That’s for sure.
Gautier: You joined the company in 2015, right, Matt? so a couple of years ahead of the IPO in ’21.
Matt: That’s right, yes. Six years, exactly. We were obviously quite a different company back then.
Gautier: Did you have previous experience with public markets when you joined them as a CFO?
Matt: None at all. For anyone who wants to be a CFO out there, I was- actually, this is my first real proper job in finance. I worked at Google before in the finance team in Europe, but actually, a lot of these things can be learned. That’s for sure.
Gautier: To remind everyone back in ’21, obviously the IPO market was on fire, right? You probably were pricing an IPO every week. European markets were up 15%. Even in the UK, we saw a long series of tech companies coming to the market. The Herd Group, Deliveroo, Darktrace, Trustpilot, Alphawave, and then Wise decided to go to the market in July ’21. Can you remind us what was the rationale at the time to consider a public listing?
Matt: We’d always been clear that at some point we were going to become a public company. Our mission is very long-term. In order to achieve what we want as a business, we need to build a valuable company and have a really supportive long-term shareholder base. Once we were really successful as a private company, we realized that over the next, not even 10, but maybe 20, 30 years, it’s inevitable at some point we’d need to become a public company. It was the only real way to support ourselves at the scale that we want to operate in the future.
The question really then is like, when do you become a public company? We thought about this earlier than 2021. We thought about it obviously later than 20- but I’d say for a number of factors, like that was around the right timing. There’s no magic solution. The reason to go public as well is whilst you’re going to get there in the long run is it’s like some companies IPO, to make an offering is to raise capital, and some companies do it for liquidity. Ours was, we were already profitable. We didn’t need to raise money. The question is, when do we convert our stock to being a public stock such that we can actually provide liquidity to our early shareholders and our employees as well?
Gautier: Then why ’21 was the right timing then? Why not earlier or later? What was motivating the timing?
Matt: That’s a good question. Every time you spend time on preparing to be a public company, you’re spending time on that rather than spending time on something else. The question is, are you ready? Are you able to divert time to that while still being able to grow the company and invest as you want? If you do this too early, if you don’t have a robust structure in the company to be able to finance legal audits, teams to be able to focus on that while the rest of the business cracks on and keeps going as it is. If you do it too early, there’s a chance of like massive disruption, and you can see companies grind to a halt when they’re trying to go public.
Then on the flip side, I believe that if you do it too late, actually, like when you become a public company, a bunch of things need to evolve in the company, like nothing fundamental, but just how you maybe administer or govern or run the financials of the company to evolve. I think if you delay that too long, like the bigger you are, I would argue that the harder it is to change that later. We made a judgment call that we were looking at this through 2019 and 2020 and 2021. We were like, right, when is the right point? We were fortunate that it was somewhat within our gift, because we are profitable. We didn’t need to raise the money.
When we realized that we were in a 18 to 24-months window in, I guess, mid 2020, that we said, well, we’re going to do this. I said to Kristo, I remember saying we could do it in six months or we could do it in 18 months or we can do it in 24 months. I remember saying to him, “Look, if I’m going to do this in 24 months, Kristo, I’m going to focus on it for the next 24 months. Why not just do it in the next six to nine months and get it done?” Ultimately this is what it comes down to.
Because I remember at that time, we weren’t thinking, “Wow, there’s a window. Let’s get it done in the window.” We didn’t need to raise money and couldn’t possibly predict these windows either. Our logic was like, okay, we’re committed to doing this in a period of time. Let’s just get on with it, get it done and Keep focusing on running the company.
Gautier: That was a window, but I remember as well, Deliveroo, they were still down 20% versus its IPO when you guys went ahead.
Matt: You’ve got to remember that if you’re a business that needs to raise money, you’re really sensitive to this. You’ve got to make sure you’ve got off a certain point in time, you’ve got access to capital. For us, it didn’t really matter. If the window was shut, then we say, “Okay, the window’s shut. Now’s not the right time.” Or maybe we would, because we’re not raising money in a direct listing and stuff. The thing is that maybe it didn’t really matter where the market was. We’re just literally becoming a public company instead of a private one. For us, it was, it was a little less emotional, the timing decision, because we weren’t trying to optimize raising money at a higher or a lower price.
Gautier: You went with, a different structure, a direct listing structure, right? Which is very innovative in the sense that I think is the first one for a tech company in the UK at the time. In Europe, you had Spotify, that was back in 2018. They went to the US, which was then followed by Slack. I think Coinbase, Roblox followed the same structure, but we didn’t have a similar example in Europe and the UK. Why that direct listing then structure and not the traditional IPO offering?
Matt: On the one hand, they’re different, but on the other hand, they’re not that different. A direct listing, really what this is, you’re putting the shares on the exchange on a certain day and letting them start to trade at a price at which an auction would define. I think it’s worth just being clear, just the mechanically how the London Stock exchange works is every stock, every morning starts trading in an auction for five minutes. Every stock at the end of every day has an auction, and these settle and they clear the base trading. Like Shell would start trading at a price. It would settle after that five minutes, and then it trades through the rest of the day.
Essentially a direct listing is the same where we had to structure this with the LSE, and we had to define how this would work. It’s pretty clear where we started in the morning with an auction for our stock, where people put offers into buy stock, and people put sell orders in at different prices. The market essentially finds its price. It’s not set by management. It’s not set by a bank. It’s not set by the selling shareholders. It’s essentially like it finds a price at which stock will trade. Then the stock trades just like any normal stock would.
Whereas an initial public offering is the night before you would sell a bulk of stock at a certain price, and then the stock would trade the next day. Essentially the only difference is you don’t have that essentially a private transaction happening the night before. Why this is fundamental is like the differences are clearly like you don’t have that last-minute decision of setting a price for that initial trade. That is a price at which all of these stocks are compared against today. Then as well, so what you end up with is you have willing buyers and willing sellers at certain prices.
That’s great for management because ultimately you are not trying to price the stock high for your existing shareholders or low for your new shareholders. You’re letting them trade on their own terms. A lot of the other stuff around a direct listing is actually very similar to an IPO. You still would have the price discovery process. You still have all of the prep to do to be a public company, and you would still do all of the early process of analyst presentations, of educating the market, getting them to understand your business. The fundamental thing that is different, and you still have a prospectus, the fundamental thing that is different is you’re not building a book in order to create that first transaction the night before.
Gautier: Now you’re not building the book and you’re not setting the price yourself, right?
Matt: Exactly right. I think this is much healthier for management. It’s like you have these willing buyers and sellers, and you’ll remove some really complicated conflicts that exist within the shareholder base.
Gautier: You could do that because, as you say, you didn’t need to raise any capital.
Matt: That’s right.
Gautier: Obviously that helps then to consider a direct listing structure, but you still need to find sellers or get some of you pre-IPO investors willing to sell at a price, obviously, they don’t know yet. I know they have to wait for the auction in the morning, but you still have this challenge to get a good understanding who are the potential providers of liquidity in these public markets. You need to get at least a pre-IPO shareholder base, which is mature enough or willing enough to get a listing done, right? That’s another condition.
Matt: Of course. To some extent, this is the problem you have anyway with an IPO. If you’re doing an IPO where it’s purely primary capital, you need the shareholders to agree to a price at which you would happily sell stock in order to create the dilution. Then if you’re doing an IPO where it’s purely secondary, you have this complication where you could get to the night before, and the investors would say, “Well, actually, I don’t want to sell at that price.” Then as management, then you do end up in a tricky place, because you’re like, “Well, hang on a minute. Okay, well, what price would you sell at?”
Then this end up to get them walked up. The only way that you can get people to buy at that price is it puts an awful lot of pressure on the projections or the guidance or the expectations that the buy side has on the business. This is part of an IPO process, this tension. It’s like you get a long way down the process, and you don’t actually have certainty necessarily that you have a transaction. Whereas with a direct listing, we were very clear up front that– Mainly what the shareholders want is they want the option for liquidity rather than actual liquidity on the day.
Then the price, the pricing discovery will happen in the market. Then if it’s at a price that’s acceptable for the selling shareholders, they’ll sell stock. If it’s not, then no stock will trade. That’s still okay. Ultimately, what we did is we said, well, we’d like a minimum level of liquidity on the first morning in this first auction. Our shareholders committed to providing, I think it was around 3% or 4% of their stock. This is in the transaction documents you can read. To say, right, this is, I think about it as kindling for a fire. It means that they didn’t really mind so much what the price was on that 3% to 4% of their shareholding, but this would get the fire started, and then an auction would get going.
This meant that we had enough liquidity to stop trading, but not too much that basically the shareholders were worried about like too heavy a discount or not as to how it would start trading on the day. As a team, we said, well, back in 2020, we said, “Okay, if we can get all of our shareholders agree to this structure, then we’ll move forward.” We knew very early on in the process that we had full support from the shareholder base to support this direct listing approach, which meant that we knew we had that early liquidity in the auction.
Gautier: Very interesting. You had some visibility on the supply side. On the demand side for the investors, you said that this is a very similar process in terms of price discovery and investor education. That means you were actually roadshowing and meeting investors as if that was a traditional IPO.
Matt: Exactly right. We did like the early looks and the non-deal roadshows or however these get branded. I remember we listed in July. In January, we met some investors very early on, and that’s useful. Then again, I think in March, April, I can’t remember exactly, but probably at three points during the process, just like you would for an IPO, we spent time with the investors early on with the analyst community and then again with investors. I think it was really no different to a typical IPO.
Gautier: Again, you don’t set the price. As a CFO or management team on the road, any frustration in feeling maybe that you don’t have a direct influence on the outcome of the valuation or how your pre-IPO investors were assured you were rightly incentivized as well to get the best outcome for them as with a public listing?
Matt: I think it’s impossible to get the best outcome on one single trade on the night before or on the morning of the day. Our investors had to believe that they were going to- with any IPO or company going public, as a selling investor, you have to believe, will I get the right outcome over the first one, two, three, four years? As management, what we need to do is to set the company up to succeed for existing and for new investors over that period of time. It needs to be attractive for the investors to feel it’s valued appropriately and attractive for new investors to want to invest and be on the journey for another 10 years.
We were really incentivized to make an orderly transition to– When I say incentivized, we’re all shareholders. That’s the only incentives we have. Our goal was to make an orderly transition to public markets where our existing shareholder base and the, as important if not more, the new shareholder base felt like it was a great process, and we’re excited to be on the bus. I think you have way less conflicts in a direct listing with that than you do in an IPO.
Gautier: Less conflict in terms of what then?
Matt: You’re not setting a price., and that the market’s finding a price. You have willing buyers and willing sellers. Our job is to make both sides understand the company and take a view on price. Our job is not to set a price at which we hope that a lot of stock will change hands.
Gautier: Why do you think there’s no more direct listing than traditional IPOs? What’s the bottleneck here?
Matt: I think in the past, there’s probably two things. In the past, a lot of companies, especially tech companies going public, need to raise capital. They don’t really work if you need to raise capital unless you raise it privately way before. Then it’s very similar to running an IPO. You may as well run an IPO. Those pipes work really well. Then the second is like, it’s a path less trodden. I think in an IPO, investors have got, public market investors in particular, a time pool. An uncertain or a new process has to be really worth engaging in. Some investors would say, “Well, why would I engage in this if I can’t guarantee I’m going to get a slug of stock in the initial offer?”
I think a lot of feedback we got was like, “This is new. I need to try and understand this.” I think Wise was definitely a stock that was worth then trying to understand. I would hope that maybe in the future, particularly with the focus in private tech firms in the minute, maybe, well, there’s more profitable companies coming to market in the future, which means that there’s less pressure on IPOs to raise capital. Then if the path to direct listings is more well-trodden, then maybe that’ll make direct listing more relevant to more companies, if that makes sense, because it’s a viable route for them.
Gautier: As you say as well, what you implied here is that investors are already somehow familiar with your company and your business model, right? Maybe you need to be already known to investors, institutional or retail as well, maybe to consider a direct listing?
Matt: Actually, I don’t subscribe to that. I think that’s a myth. I think there’s a bunch of myths around this. Because the investor education we did was exactly the same for an IPO, I would say that’s not true. All the documentation is the same. There’s still a buying stock at a certain point. It’s the actual process of how the auction would work and having them like, is it worth them gearing up their machinery for a slightly different process? Say for example, instead of just putting an order in the night before and making sure they got a slug, and if they did, they did, and if they didn’t, they didn’t, they need to just engage with how that early auction is going to work.
I think the more those happen, the easier it’s going to be for them. Also, this really is just how they trade stock every day anyway. I think it was just the unfamiliar. I think as it gets more familiar, then it’s going to get much easier. If you think about it in reverse, like if the standard way of doing this was direct listing, well, okay, I understand this company, here’s why I’m prepared to pay for it. I’m going to put my buy orders in and then we auction. When this product comes to market, I’ve got my buy orders in the auction, and I’ll either win the stock or not based on what I think it’s worth.
Then if they said to you, well, it’s going to work slightly differently now, they’re going to do this thing on the Sunday night where they’re going to decide to sell a lot of stock at a certain price, and they might allocate some to you or not. You need to put a bid in for a certain price, big, small, et cetera. That actually in reverse sounds more complicated than a direct listing to me. I think over time, the direct listing is going to get more familiar and especially for companies that don’t need to raise money, a easier way to go public.
Gautier: Very interesting, because actually, if you think about it, even the investor education process is very similar to traditional IPO, right?
Matt: It’s exactly the same.
Gautier: It’s exactly the same. Then you could ask yourself a question, what is the value out of the investment banks, in a public listing, because then eventually it’s just– Sorry, direct listing, a technical listing. Then when the banks will page you the idea, they can find investors and help you getting the best valuation and the best investor book at the time of the IPO, that argument doesn’t really hold anymore.
I’ve heard the argument that, obviously, they earn lower fees in the context of a direct listing as a traditional IPO. I guess those advisors have probably less incentive to push for direct listing as well as a result. Do you think that could be one of the arguments or again, that’s pushing it?
Matt: I think it’s very easy to jump on this narrative, but banks have not been underwriting IPOs for a long time, as far as I can tell. I think in the past, like they would take risk on the IPO that if the stock doesn’t sell, though they do some of this, but primarily what what your advisors– Because they’re really just advisors, not the bank’s capital. What the advisors are really helping through the process is a good blend of like handholding you through the process. Helping you really understand, like craft a story that investors understand and will buy into, because it’s a different type of investor as a public company investor to those that are investing in you privately.
Help you answer the questions positively and avoid the potholes, and then really prepare you to talk about the company and market the company to the public markets. That’s like this marketing activity as well as a lot of the plumbing of how to help you actually transition your stock onto the public markets. I would say we use Goldman and Morgan Stanley, and. they were really valuable in actually helping us understand the plumbing of how to get our shares physically trading on the London Stock Exchange, which you would hope would be simple, but is really not.
Actually, that transition of the project management, the design, and the handholding of all of that stuff has got nothing to do whether it’s an IPO or a direct listing. I think what you’re paying them for is that rather than the underwriting that they don’t do on an IPO or a direct listing anymore anyway. I think this argument as to like, should they get paid more or less for an IPO versus a direct listing is a bit mute. I don’t see a difference. I didn’t actually notice a radical difference in workload. The thing with an IPO is it’s easy for them to charge a percentage of the capital raised, whereas in a direct listing, you don’t raise any money. You just need to be upfront and say, “Well, what’s the fee?”
Gautier: That makes a lot of sense and choosing rightly your IPO advisors and banks to make sure, as you say, you crack the right equity story and you get the plumbing right is obviously very important. I think there’s another key difference though still is your inability in a direct listing to choose your shareholder base day one. I know some management teams or shareholders really want to have that luxury and to choose which investors to allocate, probably given a sense of security, knowing where the shares are going and a sense of stability over time. Although we all know there’s a lot of turnover in your shareholder base. This inability to choose a shareholder base day one, did you thought about that? Any negatives in the direct listing versus traditional IPOs in that sense?
Matt: I understand this argument pretty clearly, but I would argue a few things. One is, in an IPO, if you’re trading 25% of the company on the first in the IPO, which traditionally in the UK you would have historically seen, you have the chance to put 20% in the hands of four or five or six or seven long onlys and then 5% in the hands of the funds that may trade your stock and provide liquidity. I think the reality is like, that rarely happens anymore. In the US, IPOs are 6% to 8% to 10% float. If you take the IPO context, a very small proportion of your company is changing hands on that first day, and that is all for the first six months.
Then really when your stock changes hands is like after day 180, when the lockups come off of an IPO. We didn’t have any lockups. Then it’s a free-for-all just like on a direct listing. On the one hand, I think this is overstated as to what actually happens unless you sell a huge amount of stock in the IPO, which therefore you have to sell at a price that is at a discount and brings all the challenges. Then the other is like, there’s nothing stopping you doing this before you go public. Baillie Gifford were already one of our leading shareholders before the IPO. They’ve been in since 2015. They’re an amazing shareholder.
BlackRock, like Jupiter, a bunch of these really good public company shareholders were already good supporters of the company before we went public and keeping a keen eye and then build their positions afterwards. I think that it’s actually easier to build those relationships when you’re private than when you’re public. I think there are ways around that. Then I also do know that long-term supportive shareholders, ultimately they have an IRR, so they can be in in the morning, absolutely want to hold you long-term but need to sell at the end of the first day at the stock pumps. I think that happens too.
I totally understand the attractiveness of that, but our view is that over the very long term, we need to build these relationships anyway. We’d already built a lot of them already.
Gautier: How many investors did you have more or less on the cap table?
Matt: I’m trying to remember how many lines. I would say we had around 40 to 50 investors of which it was pretty concentrated to– Well, actually it was not concentrated. Probably had 15 to 16 or 17 that were in the 1% plus cap.
Gautier: After the IPO, have you monitored your liquidity versus other listed stock or IPOs in a sense to try to measure if that liquidity was lower as a real result of the direct listing or no impact from your experience?
Matt: Liquidity, average daily trading volume is pretty important. I remember looking after six months after being public, so it would have been, early 2022 and looking at what percentage of the company had changed hands since being public. I looked at just the cap table before and after. I remember it being about 17% to 20% of the company had changed hands at that point. I was like, okay, that’s not that– The cap table didn’t look that different, but actually even a large UK listing, until the lockup, only 20% of the company really would have been changed hands, because that’s what would have traded in the IPO, and then everything else would have been locked up for the first six months.
Actually, relative to an IPO, especially a US one, I thought, yes, a fair amount of stock has changed hands. The progress of that transition to public markets had definitely started. We do look at daily liquidity. Our daily liquidity is in line with that we see for the amount of free flow or stock that is held is roughly in line with other European companies and tech companies. What makes our stock a little less liquid today is the fact that a lot of our early investors, whether it’s our early BCs or our growth stage investors, are still holding onto the stock that chose not to sell or distribute. That’s a nice problem to have.
Gautier: It’s a good sign, sign of confidence.
Matt: Yes, exactly. It means that probably half the stock is held by these folks. If that’s the case, then that’s great. There’s lots of companies that would love a supportive shareholder base like this. I think it’s a good sign.
Gautier: When I checked actually the statistics, I think around 10% of your company changed hands the first week after the IPO. You think about it, 10% is actually in line with the free float of US companies?
Matt: Yes, and then remember, the other 90% was free-to-trade. Whereas in a US IPO, that 10% has changed, and then the other 90% is locked up. You’ve got this big cliff everyone’s looking at after six months, which we didn’t have.
Gautier: Okay, moving on to another topic, the listing location. I’m sure you put a lot of thoughts and thinking about UK versus the US, or maybe some other locations. What were the criteria you choose for the listing location?
Matt: We’re a pretty global business, and our customers are pretty distributed, our revenues and incomes are [unintelligible 00:26:08] as well. We are a London-based company. The main regulator is in London. Obviously, we looked across a bunch of markets, but yes, we’ll be listed in the UK or we’ll be listed in the US. We think about our products as price, speed and ease of use. I try to think about this, but listing is price and convenience. Are we going to get good value, and does it help the company or help the company being listed in that location? Is it expensive? Is it pain in the ass or easier?
When you look at valuations, it was really unclear to us, where you would get a premium valuation. Those are the arguments that, well, US investors understand tech firms much better. Then there’s the argument that Adyen is a world-class company. They’re like, well, actually, there’s very few tech growth companies in Europe. Actually, there’s a scarcity premium in Europe. You can look at either of these and make up the story you want to believe that you’re going to get a premium. Fundamentally, great investors will find great companies. I think if you look at the way we trade, I think that’s true. These exchanges are like entry points. They’re like airport terminals to the world’s financial market.
Gautier: With different rules, different regulation though, right?
Matt: Exactly. From a valuation perspective, they access the same pools of capital. They do have different rules and regs, which may make them more or less convenient. The UK has got a great advantage of, we only have to do full reporting twice a year. I think that’s a real benefit and helps us, that’s for sure. The way we report is pretty convenient for us in UK. I know a bunch of US investors are like actually that’s pretty good. It gets pretty painful having to explain away, move P&L every quarter versus looking at every six months. It helps people be a little bit more long-term focused.
There are rules that there are reporting differences. There are disclosure differences, that’s for sure, but on the margin, the UK definitely wasn’t less convenient than the US if anything, like the reporting disclosures. Well, actually that’s pretty good. Then when you put that together with the time’s over and we put that together with where we’re based, how we know our regulators, and actually the analyst community, a very international analyst community, supporting financial services that really understand our product in the use case.
We’re like actually this is going to be as good a place as any to list. So far, so good. Maybe this will be different for different companies, but for us, this is where we got to.
Gautier: Were there any consideration around governance and dual class of shares as well? That’s a recurring topic.
Matt: I would split those. The UK governance code is, we voluntarily took this on. You have premium and standard listings, and you don’t need to take this on a standard listing in the UK. We’re handling people’s money and building a financial service company. We should definitely hold ourselves to the highest golden standard on this and we do. We were always going to run a well governed company with a fully independent board. A lot of this regulation comes from a good point of protecting customers and shareholders. It’s all pretty common sense. Dual class shares are, you can do them in the UK as we did, but you can’t get into the indexes.
That was a consideration, but ultimately we do this for five years. At the time, this would resolve itself. Then it looks like as well, the UK is definitely thinking about how does it enable companies to provide a form of dual class share structure, which I think is great. We’d have always had a dual class share structure. It was definitely what we wanted to transition from private to public market. We found a way to do that, not just with the listing regime, but also with our regulators. They were very supportive of this. If you think about, we obviously had to work with all of our regulators and explaining this. Obviously, we’ve got alignment on that.
Gautier: This debate keeps going on, and the IPO of ARM just revived it again. There’s a lot of talk about how attractive or unattractive the UK market is and the listing regime in the UK is versus the US. Do you think there’s anything that should be changed or that would be easy, quick wins for the UK to be a bit more attractive and competitive versus the US for tech companies specifically?
Matt: I would have said two, three years ago, or maybe even a year or two ago. If you’re an investing phase tech business, as in a loss, a negative profit, or you’re loss- making company, as in you’re still in that investing phase, I think there’s a lot more investors in the US that are going to really understand your back- or have appetite for that more so than the UK back then. I think that’s changed now. I’m not sure there’s that much appetite for that anywhere in the world, but maybe that will revert. I think there’s much more capital chasing that in the US and there’s much more experience in there that will grow in the UK over time, no doubt.
I think UK, US, there’s a lot of myths around this. We’re happily listed here. Our stock is liquid. We access all of the shareholders in the world that we want to. The vast majority of our shareholders, the phone calls we get are from shareholders in the US who are very happy to trade our stock on the London Stock Exchange. I think these are all probably situational to a given company. I think all the things that the UK regime talks of doing are definitely moving in the right direction. They can do this and whether they can keep those companies here in London, time will tell, but the fundamentals of this are a great place to access the world’s public markets at the moment.
Gautier: If you were to give an advice to CFO trying to think about the best listing location for him, it’s interesting you just said that you have no problem interacting with US investors, and they can invest in your shares every day, trade them. You said that from a valuation perspective today, you cannot conclude that if you get a premium or discount versus US peers. It seems that it’s very down to a decision based on culture, on business location, based on- what would be the main consideration or advice you will give to such CFO?
Matt: We’re fortunately based in London. We have a good market to list in here in London, and it works well with how our operations are set up. That may not be true for every company. Like the US is undoubtedly the deepest exchange and capital markets in the world. It’s a great option. It’s where can you find investors and investors will find you that really understand your company. If you’re a very small fish in a very big pond, that may not work. Really, I think it’s a question of like, where does your story really resonate with the largest pool of investors? We’re fortunate in that we have a global product. We have products in the customers in the US and all around the world.
We’re a scale, $10 billion today, roughly business. That means that we’re really relevant for US investors as well. If you’re much smaller than that, it may be that you may not hit the radar as some of these larger US funds, or it may be that really your product or your brand is really understood locally. There’s lots of great examples of companies that have listed locally. There’s also like if you look at NewBank or someone like this, you’ve done a really successful listing in the US, and they don’t have a business in the US. I don’t think there’s a right or wrong on this. As a CFO, I just want to make sure that I’m listing in a market where I can have really good engaged conversations with investors in that market.
Gautier: Makes sense. I’d like to quickly touch upon the IPO readiness, because being listed requires some preparation ahead of the listing. Looking back, so three years ago soon, can you share with us what was the main rock stream or the hardest one to implement to get the company ready? You said you had no previous experience with public markets, so you had to learn on the way. What are the key lessons learned?
Matt: I think the big trap that’s easy to fall into is this word IPO readiness. You need to do an IPO, but you need to be public company ready. We jam those two phrases together and ended up trying to get ready for an IPO and not really ready to be a public company because you’re so focused on this event that all the work streams are like executing the event. Whereas actually what you really need to be doing is being prepared to be the next day when you go back to the office and have to just run a public company. It’s really hard to focus on being a public company when you’re trying to execute an IPO. I didn’t realize this at the time either. We did all right. We’re okay.
I think when you haven’t been- to your point, when you haven’t been a public company CFO before, it’s really hard to understand what you’re getting ready for. For example, like just the quarterly reporting regime, like setting guidance, managing to guidance, like managing and analysts, consensus and like all of these things like you haven’t had to do before. There are things that you learn to do pretty quickly. Then also like things around disclosure or reporting or all of these things that you need to have the mechanisms in place to do. That was all in the IPO prep. You didn’t really know why it was important because you haven’t really lived in those shoes as a public market CFO.
Advice I would give to a CFO is just go and shadow another public company CFO for a quarter or for the weeks around a reporting cycle. We’ll get them to talk you through it. Suddenly you’ll start to realize like what her challenges were or why some of these things are crikey. Now I know why I need to do that. Because a lot of these things that you work on through the IPO prep or this process, it feels a bit like paperwork that an auditor wants to sign off. You’re like, okay, we’ll just do that thing. Get our policy in place and move on.
It’s actually like you need to have these processes working, and it’s okay. You’ll get there as a public company, but you only really get it when you go through that first cycle. I’m not sure you can ever prep enough. It just generally works out okay.
Gautier: I like your comment that it’s not about IPO readiness, but it’s actually being ready for being a public company, right?
Matt: Yes, exactly. The IPO is just a process.
Gautier: Then it would go against the idea to hire someone as a CFO who has no experience with a public company.
Matt: Yes, exactly. Maybe once you’ve done this once, you don’t want to do it again. I was really lucky. I had two great CFOs on my board in David, who was the CFO of Netflix, and [unintelligible 00:35:08] , who took Alien public, and wonderful people that helped me through the process. Whether they’re on your board or whether they’re just in your personal boardroom, any CFO you should get this help.
Gautier: That’s very important to have the right people around you, obviously. Just reflecting back on the IPO, any important advantage or how it does benefit the company to be public? Or do you think that’s actually really changed who we are today and where you get to two years and a half after?
Matt: Kristo describes this as a conflict change where we just changed the share structure to– They just traded on a public exchange rather than a private cap table. He said this somewhat intentionally, but if you take the attitude into this, that it’s going to fundamentally change the company, then it fundamentally will. Probably not for the better. We went into this very much with a, okay, like Matt’s job’s going to get a bit more complicated, but the rest of us, we can keep building Wise as we are. Matt’s got an expectations management challenge now with a different set of investors.
If we took this approach, it’s been really good for the company, because it’s allowed everyone to keep executing on what we’re doing, and what we love, and how we come to work and how we share information. The company still operates largely as it did. Clearly, there’s a different governance and enhanced governance, I would say, around how we administer the company and run the company, but ultimately the decision-making is fundamentally the same. The benefits are our employees have got, obviously, like it’s a huge team effort, not just becoming a public company, but building Wise. It is the outputs of thousands of people’s work and like being able to give those folks liquidity and a return. It’s pretty cool.
Some of them realize this and really value the equity they hold in Wise. Some people are like, this is something beyond they could have imagined. They’re actually holding a stake in a company like Wise that’s now liquid. That’s great. We don’t talk about the share price. We don’t talk about the stuff inside the company, but we have this nice alignment between mission and building a valuable company as well. That’s a good thing. We didn’t need to access different shareholders. I guess the other thing is like, we don’t need to talk anymore about when we go public.
Gautier: It’s done.
Matt: Yes. It’s pretty cool. Our board meetings are now very much like, how do we run the company for the next 5 to 10 to 20 years? Rather than like these next goals that you need to jump through. It feels like my kids are like a bit younger than this. They’re about 11 and 14 year old, but like, okay, we’re going to go through this school. We’re going to go through that. At some point they’ll leave home. It feels like Wise has left home now. We had great support through being private from our early investors and stuff, but now we’re grownups in a big world, and we need to like, we’re in charge of this destiny, which feels pretty cool as well. We’re purely focused on running the company.
Gautier: Now you can actually talk about how to do it, right?
Matt: Yes. You always worry about what’s in ahead of you rather than behind.
Gautier: There’s no regret, right? Basically it’s not like, oh, we should not have done the IPO. It was a bad decision. Being private for longer was probably a better choice.
Matt: No, we didn’t make any just different decisions. It’s worked out well.
Gautier: It worked really well, exactly. You showed the way, but the fintech sector has probably been the sector raising the most cappies over the last few years in Europe. We haven’t seen many IPOs in the space. After your success, no one really followed in Europe. Actually you had one in the UK capped payment, which is probably not the best example to mention here. If I look at the list, the names of Checkout, Revolut, Klarna, they haven’t yet hit the markets. Why do you think that’s the case? Is that just market conditions or there are other reasons for fintechs not to be ready to be public companies yet?
Matt: I think at least two of the three that you mentioned were still in like capital-raising mode over this period of time. In that sense, you need to, even if you are ready, you need the conditions to be right in order to go public. We didn’t have that complication. I think the last three, you talk about Klarna, Revolut, Checkout, these have had phenomenal success from a growth perspective. I’m sure that the scale that they can operate out and the strength of propositions that they’ve got, they’re all individually going to become, or have every opportunity to become pretty amazing companies, maybe public companies as well.
It’s just around when’s the right time for them to do it. That time will come and maybe over their journey of the next 50, 60, 100 years, I’m sure they vision as well as us, like there’ll just be this point in time when they become public. That’s fine. I think really after we listed, there was a big change in market conditions, and I’m sure this would have impacted others quite significantly. Some may be happy about that. Some may be sad. Time will will tell.
The stronger companies will have been able to access capital, and I’m sure this change in market conditions will have really strengthened- the best companies will have got stronger. I think they’ll come out as very strong public companies. Some companies won’t make it. This is survival of the fittest. That’s why we need these cycles. What do you think is the most significant edge that a fintech company can actually bring to the market or show to public investors that they are winning that?
Matt: Oh, well, so there’s two fundamentals in there. One is like, what’s the edge? I think, did you mean that from an investment or as a competitive?
Gautier: As a competitive.
Matt: This leads to investment as well, but like as a disruptor in that field of incumbents. If you think about what’s Wise done, we’ve worked out a way through not being encumbered by historic ways of pro-charging or building a business and bringing technology in a disruptive mindset to moving money around the world. That means we can do it radically cheaper and radically better than the incumbents and do that profitably, which is the fundamental shift.
If you can do that, you can disrupt a market, take a lot of market share by offering an amazing product and doing it profitably. That’s going to be a valuable company. Whether that’s moving money around the world, whether it’s moving food around the world or cars or anything, that’s going to be a successful business from a valuable business. Why does FinTech win against traditional finance? Well, and it doesn’t always. Does the technology actually help you disrupt? Does the platform that you’re building actually help you do it at a much lower cost and therefore do it profitably?
There are some companies out there that might be offering a free product, which is awesome, but in the backend, it’s not costing them any less. Ultimately, they’re trying to acquire customers and hope one day to build a business model around it. I think there’s a ton of those businesses out there that have just- the tide’s gone out, and we’ve worked out who’s wearing what. If you can find businesses that can build a truly much better product, or as Taavet would say, unless it’s 10 times better than the competition, no one’s going to come try it. You can do that profitably and sustainably, which I think Wise has done and some of these other companies are doing. If you can do that, great.
Then the other thing on tech is, or FinTech, we don’t use these words very much in Wise. Financial services businesses are fundamentally like national businesses. I’m sure when you look at them banks are really like national businesses. Those that are able to scale internationally. I think if you look at tech investors, they’re like, how can I be 10 times? How can this company grow 10 times? You probably need to grow outside your existing market. Some companies, they can use a platform, say, I’ve launched in the UK, can I launch in France? Or I’ve launched in Germany, can I go to Spain? Or I’ve launched in Germany, can I go to Singapore?
Actually as in a traditional banking world, not many banks have managed to do that. HSBC are, but they’ve bought a lot of banks around the world. There’s very few financial services companies that are. I think PayPal have done that. I think we’ve done that. I think Revolut are doing a reasonable job of doing that. Klarna, you mentioned, and maybe the payment processes isn’t the check, the Adiance. What is it around them that surrounds the platform that they’ve built, but enables them to say, “Right, I’ve done that here. I can use the same technology there and build a business on top of that there.” JP Morgan are really good at this.
Very few of the incumbent banks are actually really good at that. I think that’s what, if you go to investors say, “I can see how this company can grow for a long, long, long, long time and profitably, because they’ve got this core thing in the product built into the business model, but also built into the nature of the way the company works. I think that’s makes you competitive and makes you valuable,
Gautier: You need to balance this growth and profitability. Because growth and profitability is nice, but I think especially in the financial space. Your growth is expensive in the sense that it requires some capital, and you need to raise capital to fund your growth as you grow. In terms of just capital requirements that maybe the regulator will also impose on you.
Matt: Then why would you build a business model that’s expensive to grow if you can build a business that’s profitable and more than profitable enough. Like Wise we price a way. Why do we have a margin? Well, yes, it generates distributable income for shareholders, but also generates enough capital. We don’t need to raise capital to grow. We need to hold capital relative to the size of our business, but we’re profitable enough that we generate our own capital. We’ve not raised any capital for six or seven years and we generate more than enough capital from the business.
Actually, we’ve built a business model that is not capital-intensive. We generate more than enough capital and liquidity to be able to fund our own growth. Say for example, in every jurisdiction, we’ll price slightly differently, and we price in the capital needed to grow in Australia, which is slightly more intense. Malaysia is much more intensive. US less. We’re very clear on the capital intensity product.
Then our teams will work because we understand that in our pricing, our teams go back and work and say, “Right, how do I take that capital intensity out of the product?” Because I know that’s going to stop us. If that’s a gating factor, I’m either going to have to charge our customers more, which means we’re less competitive or raise a load of money from our shareholders, which is like, “Why would I want to do that?” It’s very easy to go, “Oh, this is a capital-intensive business. We just need to raise load of capital to grow.”
Gautier: Are the public investors now asking and questioning you about the use of that profitability? Are you returning that cash to shareholders or are you priced to reinvest for growth? How are the public investors looking at you on capital structure and shares policy?
Matt: I do remind that we already return a third of our gross profit goes back into product to marketing at a really amazing return. We’re already reinvesting a lot of this. Then we obviously have a very healthy profit margin. We’ve actually started to buy back some of the stock. For our stock program, we issued a bunch of grants to new hires or existing customers this quarter. We buy that stock in the market rather than diluting more debts. We care about dilution.
We do have more capital than we need. I get the question, should we start buying back stock or paying some kind of dividend? I’m like, “Let’s hold on.” Let’s go back to start this conversation. Three years ago we were brand new public company. Will you be able to keep growing, and suddenly we’re in a period of being more profitable than we want it to be, let alone hopes. I think it’s a bit early to say, “Let’s jump and have an income stock.” We’re still growing and we’re still building a strong balance sheet, which can endure whatever comes around the corner.
We’re still a fraction of the size that we want to be. I think we’re nowhere near the time where we’re optimizing for financial engineering and let’s just keep going with what we’re doing. It’s working pretty well. I say to investors the good news is if you ask the question, you realize that actually, we’ve got quite a lot of capacity one day to pay a very healthy return to shareholders. Let’s continue focusing on growing that capacity rather than optimizing it today.
Gautier: Yes, obviously. There’s a lot of options on the table, clearly. I guess that’s also one of the advantages of being public. It gives you that optionality for whatever comes next, as you said. Matt, we’re coming to an end to this show. Two last questions for me. If I hear you well, if you were to have the decision to IPO or not again the company, you would do it again, right?
Matt: I’d do a direct listing.
Gautier: The most efficient one process. No, but clearly I think it’s a very interesting process. I hope we see more because again, there were expectations that Wise will open up formats. To be fair, we haven’t seen any since the IPO of WISE. Obviously the market has been a bit challenging, but if some of those companies we mentioned become profitable, I think they have a good model to follow. Hopefully we see that coming. Any war or fun fact or war memories you could share with us from the IPO marketing or roadshow, anything funny?
Matt: I set aside a day to read our prospectus. As a CFO, you’ll realize that you’ve got like 300 to 400 page prospectus to just reread because you sign this thing, and you have to have it right. I got down to the stairs to my office, because we did all this at home. I don’t joke to say that my dog had eaten my glasses overnight. I couldn’t read this prospectus on the screen. I had to read it from like five meters across the room on 48 fonts. It was pretty painful.
Then the other is like we did this all from home. We did this like, first half of ’21. We had a few meetings with a couple of team members during this, but we didn’t meet any of the advisors or anyone until we came out of the LSE on the 7th of July and like met up with each other in Parnassus Square. Most people like want to celebrate like being on this strange balcony in the foyer of the LSE. Actually we were like, let’s get outside, because I haven’t seen this team through this really intense period.
It was a bunch of teammates. We got together and illegally might have hugged, but it was pretty awesome to see each other like and just realize that you’ve gone through this experience on Zoom. It was nice.
Matt: It makes great memories.
Matt: Yes, good team experience. What the project was, it was a project, but it was a pretty intense one, and it works all right.
Gautier: What was the project name? Remember?
Matt: Project Owl. I’ll let you work out why this might be.
Gautier: Exactly. Matt, no, thank you very much for sharing your experience with us. It was great to have you on the show. Thank you again for your time.
Matt: Thanks for having me.
Per: Thank you for listening to IPO Stories. In future episodes, we will host CEOs, CFOs, advisors, and other participants in the IPO process to learn from their experience, like from Matt today. If you’d like to show, please follow us on Spotify or Apple Podcasts and share the show with people around you. If you have questions about the IPO process that you’d like us to address with future guests, please get in touch at contact.ipostories.com. In the meantime, please follow us on LinkedIn, where we share news and information about the IPO process.
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