The IPO of travel technology company Serko, which has been losing money for at least the past three years and is not expected to turn a profit for the next two, will make founders Darrin Grafton and Bob Shaw rich men. Each will hold shares worth at least NZD13.5 million if the float on the NZ stock exchange is successful (Update 10/6: money raised ahead of schedule). They will also retain control of the company with a 40% combined share.
Serko’s prospectus reveals that the corporate travel and expense management software company “is currently not expected to be profitable for at least two years and is not expected to pay a dividend for the forseeable future”.
The company, which operates a transaction fee business model, has lost NZD2.5 million since 2011 and is expected to drop another NZD9 million in the next two or so years.
In his investor’s letter Chairman Simon Botherway wrote that “Serko requires significant investment in its people, products and geographic expansion in order to grow its revenue base and eventually record profits.
“There is no guarantee that this expansion will be as successful as hoped.
“Serko therefore carries a higher degree of investment risk when compared with a more mature and profitable business.”
CEO Darrin Grafton wrote: “The decision to proceed with an IPO at a relatively early stage is not a decision we have taken lightly.”
The fact is Serko is still small fry.
It generated revenue of of NZD6.7 million in the year ending 31 March this year.
Most it – 90% – is coming from Australian based clients using the Serko system.
Mr Grafton is forecasting rapid revenue growth with NZD11 million in revenue is expected for the year ending 31 March 2015.
So Serko is selling a growth story.
The NZD22 million it’s looking to raise for 32.6% of its shares will be invested in staffing up, entering new markets and developing fresh products.
Whatever happens the big winners will be Darrin Grafton and Bob Shaw, who established Serko in 2007.
Not exactly an overnight success, but great money if you can get it.
Assuming everything goes according to plan Serko shares will start trading on June 24.