London Stock Exchange-Elite: Using AI to Consolidate the Gap Between Public and Private Markets

From Left to Right: Moshit Yaffe, Co-Founder & CEO, Zirra; Luca Peyrano, CEO, ELITE; Aner Ravon, Co-Founder & CPO, Zirra

 

London Stock Exchange has some 2,500 companies listed, but what is less known is how it helps the companies in the private sphere.This help is otherwise known as ELITE, London Stock Exchange’s training and acceleration program dedicated to enhancing private company’s capability to scale, providing them training, growth practice, polishing business models, and helping them reaching investors alongside managing the fundraising process.

You would expect the only private company accelerator operated by a stock exchange to bind its graduates to go public in London. Instead, a company’s final destination is up to the company’s motivation.

Since launching five year ago, ELITE can claim involvement from 600 growth private companies (an equivalent of more than one-fourth of the total number of its public companies) from 26 countries in Europe including U.K, France, Italy, Spain, Portugal, Belgium, Denmark, Finland, Israel, Russia, Poland, Georgia, and Turkey.

It had a significant role in a few of the greatest success stories in Europe, such as Golden Goose, the Italian high-end shoe company, who grew its revenue from €30 million when they joined the program to about €150 million today. Last March, the company was acquired by Carlyle Group and a pool of investors led by Ergon Capital.

Other successful alumni include British snack retailer Graze, that delivers natural food, flapjacks, and popcorn to residential home or workplaces daily via post. Its business enjoys annual sales of more than £70 after expanding from the UK to the US; Naked Wines, the UK-based wine retailer financed by crowdfunding, that already employs around 150 people and its revenue increased in the recent year by 26.3% to £142 million; and Frescobaldi, one of the oldest wine producers in Italy, that didn’t join ELITE to raise money, but to improve management skills of the company and manage the transition of control from one family member to another.

So far, ELITE companies have almost €50 billion in aggregated revenue, and they employ 215,000 people in 34 sectors. In the five years since incepted, 160 ELITE companies raised €4 billion in total, and more than 200 companies went through M&A transactions or created a joint venture.

After years of matching companies with potential investors, last year, ELITE decided to upgrade its financial services, launching ELITE Club Deal, a private placement platform allowing private companies to raise funds from institutional investors and private equity firms such as BlackRock, Fidelity and Carlyle, Equinox and RiverRock. The new platform facilitates investment opportunities by streamlining the capital raising process for the program’s companies in a simpler and standardized process.

Now, with the new private placement platform, Luca Peyrano, ELITE’s CEO, predicts significant growth in the numbers of the companies in the program. “The goal of ELITE, is to help grow startups and businesses to access premium investors more quickly.” said Peyrano. “Top institutional investors, family offices and private equity firms have already joined the program, looking to buy minority stakes in some of the 600 companies ELITE has to offer. ELITE hopes to speed up the process of capital raising from one year or more to six months.”

 

 

Luca Peyrano, CEO, ELITE

 

Peyrano and the London Stock Exchange visited Tel Aviv last week to attend the Annual Capital Markets Conference, in which he presented the new private placement. Peyrano also met with some of the ELITE’s companies in the country such as eToro, Innotel, and Geekapps and also gave an interview to Moshit Yaffe, CEO of Zirra, a startup that has developed A.I and big data technologies to analyse companies. Peyrano and Yaffe talked about bridging the gap between public and private market with technology, the need for new methodologies of deal making and the effect of Brexit on the financial landscape in the long term future.  

Moshit Yaffe: So if you were to simplify ELITE what is it?

The ambition of ELITE is to change the way financing engages with business. Companies today are used to raising funds in a complicated process that requires a lot of effort and a high number of duplications regarding activities. This involves a multitude of opinion letters and due diligence procedures. However, we believe that the process can be simplified, and at the same time remain adequately respectful of the regulation.

We feel companies need a lot more support before raising capital and that raising money is the end goal, not the beginning one. A large institution like us needs to take care of the downstream activity of raising funds and ensure that these companies are ready for the process.

Yaffe: How did you attract institutional investors and private equity funds such as Fidelity, Blackrock, and Carlyle into ELITE’s placement platform, and what do they gain from it that they can’t find elseLondon-based

they like about ELITE is the concept of preparing companies for an improved, enhanced dialogue with them. As global investors, their job is to commit themselves and taking risks in investing in any company. They would like to consider the business, the business plan, the management.

They don’t want to consider problems such as a lack of transparency, lack of control of internal systems, or inability to communicate. These things should be already be taken care of when contacting investors, because the competition for raising capital is so significant, that those that will be selected will be those who behave the right way. Investors can now spend less time and spare the unnecessary triple checks on attractive businesses with a platform such as ELITE.

The platform had already adopted the technology services of The Hub, a London-based Fintech in which ELITE invested early this year, allowing investors to screen deals and manage their portfolio.

Yaffe: At the conference, you mentioned that the ELITE program has seen the most success with Israeli companies – could you give us a bit more insight into this success?

The middle eastern country has a vibrant startup industry and is already strongly involved in the British public trading arena. This can be seen by its public bond offering and 29 of its public tech companies such as XLMedia, Crossrider, and Telit Communication traded in London’s public markets.

ELITE has gained tremendous momentum in Israel and currently hosts nine Israeli companies in the program. Among the nine are: eToro, a social trading and investment marketplace that allows users to trade currencies, commodities and stocks; Geekapps, a native app creation platform that has just launched a website creation platform that competes with Wix.com; Showbox, a cloud-based video creation platform for brands and enterprises; and Innitel, a VoIP service provider, offering small and big enterprises affordable integrated phone and call center solutions;

 Yaffe: How is technology changing the way business is done from your perspective?

Peyrano: We believe things can be done in a simpler way than they are currently being carried out. For many years, practices were built in an environment empty of technology. From the other side, regulations prevented things from changing too quickly.

One of our goals is to simplify the process of raising funds with the adoption of new technologies so that the whole process will be quicker. Let’s take, for example, the documentation necessary to raise funds. We have almost 600 companies in our basket. We can ask everyone to call their lawyers and build up their terms of conditions, re-inventing the wheel, and ask them to create their business plan for two, five or ten years. Then we can let our investors experience a nightmare digesting every single presentation.

However, if you use technology in the right way – the whole process can be simpler.

When carrying out due diligence, technology can help us get information quicker and in a more efficient way. We believe that using A.I technology helps us to better understand, detect problems at a faster rate and prevent problems from arising in later stages of the deal-making process. We also explore new technologies to help us present investors with a standardized model that will ease absorbing information. It is not only the way we give information but the way we capture it.

Yaffe: Will startup companies feel flexible enough to choose going public in New York at the end of the ELITE program, Instead of LSE?

Peyrano: ELITE is agnostic on a company’s final destination. Of course, we as London Stock Exchange compete globally and remain open to attract businesses from everywhere leveraging our undisputed technology and reputation. Nevertheless, you can not tell a successful company where to go. What you can do – if you are in this position in LSE – is to focus on delivering value to your clients and keep opening up options for them and their future growth. After that, it’s the company’s decision where to go.

What’s in it for us? First, ELITE is a business that generates revenue and grows, but we firmly believe that the more we work for supporting companies, capturing opportunities, independently from the IPO in London, the more we’ll see positive dynamics coming back to us and LSE as well.

Yaffe: Do you think the Brexit will have positive or negative impacts on your plans and targets?

Peyrano: It is challenging to say right now because these are macro factors that will have an effect only in the very long term. Let me just say that you’re not going to build or dismantle a global financial hub in just a few months, not even in just a few years.

The UK is all about creating a network of players who are skilled in leveraging international networks and creating a friendly legislative environment and having an appetite in dealing with diversity. And when I say diversity, I also mean companies outside of the UK, in regions such as Europe, Americas, Asia or Africa. The international, cultural element, the ability to digest global capital from every point on the globe is something that is embedded deep in the UK financial market, as much as the entrepreneurial elements are rooted deep in the Israeli industry, and that will never change.  

ELITE is already deeply embedded in the Israeli industry, partnering with Bank Hapoalim, Barak Capital, and many others. Speaking about the Israeli startups’ ecosystem, Peyrano admits that the Israeli segment among ELITE companies is one of its fastest growing. Peyrano is also convinced that Israeli companies can gain from the extensive network of ELITE and LSE companies. “The digital platform brings together thousands of companies, institutional investors, and financial intermediaries to enable easier interactions on a global scale,” said Peyrano. “Those who will be quicker than others in taking the advantages of such a growing grid network will benefit more than those who will wait five years until they realize that.  

 

 

From Left to Right: Moshit Yaffe, Co-Founder & CEO, Zirra; Luca Peyrano, CEO, ELITE; Aner Ravon, Co-Founder & CPO, Zirra

Moshit Yaffe is the CEO and Co-Founder at Zirra, a technology company that has developed A.I and machine learning capabilities to effectively analyse public and private companies. This kind of technology might answer ELITE’s needs of supplying investors with valuable, insightful analysis of private companies before engaging with them, thus helping to standardize due diligence process and in general, increasing transparency in the investment process, maximizing the match between an investor and a portfolio company.

The Zirra analysis process involves both Intrinsic and Relative valuation algorithms. The intrinsic data includes revenue and expense estimations, traffic trajectories, investment history, IP history, and velocity, based on aggregated sources. In the relative analysis, data is compared and benchmarked with a database of thousands of companies with correlation to stage, space, size, and trajectory. It then produces a map of competitors based on the data set, rated in accordance with the degree of direct competition, its size, threat, and proximity of the shared customer and partner base.

The final result is a detailed research report on each company, focusing on success and risk points, estimated metrics, competitive landscape, market forecast, exit indicators, business and marketing strategy and HR & leadership analysis.

Zirra’s CEO: Private Companies – Not as Private as They Think

“With today’s tools, you have easy access to information surrounding the success and progress of any company, regardless of whether it is or is not listed,” said Moshit Yaffe, Co-Founder, and CEO of Zirra, at the London Stock Exchange Annual Capital Markets Conference that took place on Wednesday 14th June in Tel Aviv. “Private companies are more and more afraid to go public because of the requirement to disclose numbers. But we at Zirra, a tech company that analyses other companies using big data and A.I, say: transparency is already here. private companies are not as private as they think.”

Yaffe participated in a panel of CEOs, dealing with questions regarding startups going public and the process preceding it. The panel was led by James Clark, Head of Tech and Life Sciences in primary markets at the London Stock Exchange.  Before starting Zirra, Yaffe took Vigilant Technologies public at AIM but now all energies are focused on the privately held startup company established in 2014 that raised $2.5M from investors such as former Microsoft execs Moshe Lichtman and Soma Somasegar, AOL, and Professor Dan Galai.

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“Common sense tells us that financials are crucial to understanding the company’s progress and chances of success. But in fact, your current financials are not the critical factor in determining your success because it doesn’t say anything about your future,” said Yaffe. “Even if you won a significant deal with a customer – it has nothing to do with your next deal or with how your financials will look in two or three years from now. So, today, we can already tell a lot about a company, whether it is private or not.”

Yaffe added: “As a company that promotes transparency, we behave in the same way. If a Zirra clone analyzes Zirra, it will get all the necessary information it needs to do so. By going public, you are not opening yourself up to transparency because that exists already. Going public suggests that you, as a company has realized the benefits of IPO: gaining more business, getting people to know your company, and liquidity for investors” said Yaffe.

 

From left to right: James Clark (LSEG), Ido Erlichman (Crossrider), Moshit Yaffe (Zirra), Amir Gutman (Aviv Venture Capital) and Inbal Lavi (XLMedia)

 

Yaffe also shared some tips for entrepreneurs that are considering to go public: “It is vital to realize the amount of money you would like to raise and to plan what you’re going to do with it. You have to think about the consequence of such a move for your current investors, including the very early ones. Taking a company public is not the hard part, but the day after: where you need to focus on not only delivering but also on meeting lots of investors and directing your energies towards them, as well as towards running the company.

Inbal Lavi, CEO of Webpals, an XLMedia (LON: XLM) subsidiary, shared the company’s road to an IPO. “We were generating cash all along the company’s history, so it’s not that we couldn’t grow had we not listed. However, the plans were bigger than that, and we felt we could use the public platform to raise more funds, and enhancing our business both organically and via acquisitions. In the end, we didn’t make any acquisitions because we were highly diligent regarding M&A’s, but we did heavily invest in our technology. When I joined the company in 2014, there were a few developers in the company. Today we have over 70, and they created a platform that allowed us to deliver the results we get paid for.”

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XLMedia, now traded at £258 million, is a performance marketing company that deliver online and mobile users to businesses through a publishing arm and a media arm. The company raised £17 million on the Stock Exchange. “We did have some struggles in the process,” said Lavi. “when we came to the market, we found it quite difficult to explain what we are and what we do. There was no real comparable to our company; we were compared to the Israeli adtech sector which is different from the other, so only to explain and tell our story to investors was quite challenging. We worked very hard in talking to investors, trying to understand how we can refine our story because our story was hard to digest. But the biggest challenge was- and still is- planning the right strategy and delivering it.”

Ido Erlichman who became Crossrider’s (LON: CROS) CEO last year, spoke about the successful pivot the company had in the last year, raising the company’s stock in 234%. “The board decided to change the focus of the company from advertising technology to cyber and from B2B to B2C, to go up in the value chain and be closer to the end user. Because we had expertise in the cyber security space, we decided to either develop or acquire a product and build up our user base.”

“There are two simple rules I’d suggest you adopt: Firstly you should manage the business and let your broker maintain the share price, and second, always under promise and over-deliver. By keeping these both rules, you will get the appreciation in the share price domain.”

Aviv Gutman, a managing partner at Aviv Venture Capital, said that due to the vast diversity between companies and thanks to the bigger number of growth companies, there is also a difference in financial needs. “Companies first need to decide if they want to go public or raise private money, and this decision should be the first one,” he said. “Later, the company needs to tackle the question if the IPO fits its goals as well as its founders and the company’s culture. In general, if the company wants to raise money, it doesn’t need to go public.

“Going public should mean an answer to these questions: What are the goals of the company? What are the characteristics of the management? The management team needs to be very representative, very strong, frequently talk with investors, invest a lot with investor relations. It is a statement to say I’m going to be public. I’m going to be here forever, I’m not looking for an exit- although it happens, as was in the case of Mobileye that was sold after its IPO in Nasdaq. In the same time, a willingness to go public goes hand in hand with allowing some liquidity for employees, and early angels investors.”

Gutman continued with a tip to entrepreneurs thinking about going public: “Entrepreneurs believe that they should go for an IPO only in NASDAQ and only if Goldman Sachs or JP Morgan will take them public- otherwise, it doesn’t compensate for the effort. This is a big mistake. The ELITE program of LSE presented here is doing an excellent service to entrepreneurs in that manner: it educates them, and prepares them with best practices, ideas, skills of working with IR and investors and the market – and this is very important. I’d put the focus on entrepreneurs education at least one year before going public.”

James Clark concluded the panel by saying: “I’d like to think that our biggest competitor is ignorance, because in many cases decisions are made not based on business cases, but based on emotions or ego. So, whatever your future looks like, always do a due diligence ahead of making decisions like an IPO. Often, the best decisions are based on numbers, so you have to make sure you have them.”