Venture-Backed IPOs Head to Taiwan

Venture capitalists have had a tough time making profits amid a lack of initial public offerings and mergers and acquisitions of their start-up investments in the past few years. While that activity has improved so far this year, many venture-capital firms are trying to be more creative in how they reap returns generally.

Storm Ventures managing partner Sanjay Subhedar

For venture-capital firm Storm Ventures, that means taking some of its start-ups public in overseas markets. In 2007, one of its investments, mobile games company Com2uS, went public on the KOSDAQ exchange in South Korea. And this Tuesday, another of Storm’s investments, semiconductor start-up Integrated Memory Logic, is slated to go public on the Taiwan Stock Exchange.

Storm managing director Sanjay Subhedar recently discussed why some start-ups are heading overseas to go public.

WSJ: Why take a start-up public overseas?
Mr. Subhedar: The bar is lower and the cost is lower. In the U.S., the cost (to go public) is $2 million to $3 million and (start-ups have to meet the bar of) $100 million in (annual) revenue. When Com2uS went public, it had $12 million in (annual) revenue.

WSJ: What are the hurdles to taking companies public on overseas stock exchanges?
Mr. Subhedar: The easy part is legal and accounting–you just get the experts to do it.
But there are hurdles. Employee options are a big part of U.S. companies and investors understand it. In Korea and Taiwan, option expenses aren’t ignored and people are more concerned about option dilution.
In terms of liquidity (for stocks that trade), the markets overseas aren’t as deep as here.

WSJ: What’s the profile of IML?
Mr. Subhedar: We invested in IML in January 2005 and put in $4 million. Last year, the company had $75 million in revenue and in the first quarter, it had $20 million, so it’s on an $80 million revenue run rate.
We expect the IPO to raise about $40 million. The subscription period ended last Tuesday or Wednesday, and it was significantly oversubscribed.

WSJ: Do you expect to take more companies public overseas in the future?
Mr. Subhedar: We are. I’m told there are 40 other U.S. companies waiting in the wings behind IML to go public in Taiwan.