In IPO language, a Moonshot is a deal where the stock spikes 40-60% on the first day of trading. We have had several moonshots since the inception of our Fund: Twitter, Shopify, Box and Fitbit, to name a few, fall into this category.
But there is no specific word to define what happened on February 25th 2016 when we sold our allocation in Hatena (3930.JT) with a 200% profit! Hatena, a tiny but profitable internet services company, chose the Mothers Exchange in Tokyo to list its shares underwritten by SMBC Nikko.
We usually don’t invest in low liquidity exchanges and small deals but the staggering results of the last two years with listings on Mothers, an exchange dedicated to small caps, caught our attention.
As the investment managers for Creative IPO, we at Lexinta Group considered Hatena as the best candidate for our first try. Its stock was priced at 800 yen with a trading day set for February 24th. The IPO got off to a conspicuously intriguing start, with trading postponed until the next day due to imbalanced orders. It turns out there were too many people buying, and few sellers to be found. But 24 hours later, the stock opened at 278%, and we were able to make a profit of 200% on a small but significant allocation.
With so many challenges revolving around the slow starts to US and European IPO markets, we have turned our focus to Asian markets. In particular, our experience in Japan is a significant advantage for us. We have observed that monetary policy has been heavily influencing the markets in Japan for at least the last 2 decades. In a period of negative interest rates, Japanese investors are looking for alternatives on yields and profits, thus creating a rush to the markets.
Unfortunately for many international investors, not only is Japan a hermetical market and hard to reach, but also domestic IPOs are 80% to 90% reserved for Japanese investors. However, our presence in this market allows us to be on equal footing with other Japanese investors, permitting us to participate in the international allocation as well as the domestic one.
The smaller exchanges in Japan—Mothers and JASDAQ—are showing great returns. Japanese regulators have eased the rules for small to medium size companies wanting to have access to the financial markets, thus negating the necessity for these companies to approach banks for lending and financing.
In addition, the success of Japan Post has triggered a wave of filings encouraged by the good reception that the deal received, especially after being one of the largest IPOs in recent history. We expect great results in the coming months with our increasing involvement in this important market.