Last week the Zimbabwe Stock Exchange (ZSE) released a draft set of listing requirements for a new (yet to be launched) alternative market for Small and Medium scale enterprises (SMEs).
This new Zimbabwe Emerging Enterprise Market (ZEEM) is meant to offer smaller enterprises the chance to list on the local bourse, something that is taken as an avenue for raising capital.
With an economy that has been experiencing a lot of relief (employment creation and income generation) from small and medium scale enterprises which exist largely in the informal market, this sounds like a great way to draw out potentially tradable enterprises that have a lot of earning potential.
Some of the listing requirements include the following:
1) The applicant must have share capital of at least US$250,000 (including reserves but excluding minority interests, and revaluations of assets and intangible assets that are not supported by a valuation by an independent professional expert acceptable to the ZSE prepared within the last six months).
2) The public shall hold a minimum of 26% of each class of equity securities and the number of
public shareholders shall be at least 150.
3) The directors must have completed the Directors Induction Programme (“DIP”) or must make
arrangements to the satisfaction of the ZSE to complete it.
4) The applicant must appoint an executive Financial Director and the Designated Advisor must be satisfied (and submit confirmation in writing to the ZSE) that the Financial Director has the appropriate expertise and experience to fulfil his/her role.
5) The applicant must appoint a Compliance Officer and the Designated Advisor must be satisfied (and submit confirmation in writing to the ZSE) that the Compliance Officer has the appropriate expertise and experience to fulfil his/her role. The Financial Director or the Company Secretary may fulfil this role.
6) The issuer must produce a profit forecast for the remainder of the financial year during which it will list and one full financial year thereafter.
7) The issuer’s auditors or attorneys must hold in trust 50% of the shareholding of each director and the Designated Advisor (“the relevant securities”) in such applicant from the date of listing, and a certificate to that effect must be lodged with the ZSE by the issuer’s auditors or attorneys.
8) The relevant securities, whether new or existing, are to be held in trust until the publication of the audited results, after which 50% may be released and the balance one year
thereafter. The relevant securities may only be released after notifying the ZSE.
9) At least 25% of the directors must be non-executive.
It’s not surprising though that the requirements are hardly easy ones to meet. Trading on any bourse isn’t child’s play and the regulators always put safeguards to cut out the pretenders.
For local tech startups though, it still looks like the option for listing is a pipe dream. The local bourse hasn’t seen any attempts at a glorified tech listing in ages. Now even with a bourse created specifically for the SME segment where startups fall, it’s a long walk to raise a basic requirement like the $250,000 capital base.
Another challenge is the absence of a thriving venture capital and angel investing culture for tech ideas. These early stage investors always propel startups and their ideas closer to an IPO.
So what should startups do? Ignore a platform that is going to be a way to cement their credibility in the investor market and offer an opportunity to raise resources for expansion?
To put it bluntly startups need to up their game.
What applies for angel investment and venture capitalists also resonates for the Stock Exchange. Beyond the obvious point of having a bankable idea, a huge consideration is its scale. Investors are keen on products or services that have a huge impact, something that comes back to the size of the problem being solved.
There are numerous startup ideas that have identified a problem and have a solution, but the market being addressed is hardly large enough to whet the appetite of investors that are keen on strong returns on investment and dividend growth. This will always come back to haunt any wannabe Alibaba or Facebook when the startup starts sniffing up the corporate and retail investor road.
Another important aspect is the long term focus that startups need to adopt if ever they want to consider tradable investment avenues.
Is the startup willing to operate with a focus for growth and continued existence that can be passed on to other investors? The bourse is hardly the place for short term projects, something that any startup founder will discover even before they raise the capital requirements or sign on advisors.
Are you considering the Zimbabwe Emerging Enterprise Market (ZEEM) as an avenue for raising capital for your startup? The complete listing requirements are available below.