Before this week, you almost certainly had never heard of Guvera. And to the extent that it's become more broadly known over the last seven days, it's for all of wrong reasons — at least from the company's perspective.
You see, Guvera, an online music streaming service, is looking to go public, with a valuation of up to $1.3 billion. For a company that last year had $1.2 million in sales. And lost money — over $81 million in the last 12 months. That's a tall order.
The company came to prominence in no small part thanks to strong comments from a couple of tech pioneers. Atlassian co-founder Mike Cannon-Brookes is quoted as calling the IPO 'terrifying'. And Seek co-founder and venture capitalist Paul Bassat tweeted:
"The quality, readiness and valuation of some of the tech companies coming to market is an absolute disgrace"
The comments from Bassat and Cannon-Brookes have been widely reported and commented on.
And, seemingly stung into action (though it's always possible these things were already underway) ASIC and the ASX have — temporarily, for now — postponed the float.
What's wrong with Guvera?
The criticisms of Guvera are many. That the private equity backers are related parties of one of the company's officers. That it's losing money (and has precious little revenue). And that without the float proceeds, the company would struggle to continue operating. Plus more.
Those observations are all true. And while I respect the success of both of the tech titans quoted above, and I agree with their assessment of the risks of investing in Guvera, I don't think the company should be precluded from listing on the ASX.
After all, it'll hardly be the only company on the exchange that is losing money. Or that will need to raise more capital to stay in business. Or whose executives have potential conflicts of interest.
Picking on Guvera, no matter how worthy the criticism, has the effect of sending the message "the market is working properly, except for this particular company".
And in acting to review Guvera, the regulator and market operator are giving the impression of action (because, in fairness, they actually are), but Guvera's fate will only address a symptom of the broader problem — not the problem itself.
Which is?
The elephant in the room
Far less reported was Paul Bassat's second tweet, immediately after the one quoted above.
Tell 'em what you said, Paul:
"Some advisers and entrepreneurs will make a killing but it will be a zero sum game and retail investors will be the losers."
And that's the real issue.
Indeed, the AFR reported last week:
"In some instances accountants, who received kick-backs, helped clients set up self-managed super funds to invest in Guvera in circumstances allowed under a regulatory loophole due to close from July 1, 2016."
Frankly, if Guvera has been honest in its prospectus, and the company meets listing rules, it should be allowed to join the ASX. If investors are aware — truly aware — of the very, very significant risks involved in buying shares, neither ASIC nor the ASX.
If there's something wrong with Guvera's prospectus, the float should be postponed until it's fixed.
If there's something wrong with unprofitable businesses listing on the ASX, then we should remove hundreds of unprofitable businesses already trading on the bourse. (And for the record, of the 1900-odd companies listed on the ASX, less than 700 turned in a profit over the last 12 months.)
But if the problem is with the incentives of those in the financial planning world, then stopping Guvera from listing presents the facade of doing something about a problem without actually doing it. It'd be window-dressing, pure and simple.
Foolish takeaway
Retail investors deserve protection from those who would take advantage of them. Perhaps Guvera is among that number, but the bigger problem is below the surface — and those who are taking advantage of retail investors will still be in business next week, whether Guvera floats or not.
