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If Slack follows Spotify with a direct listing, it could upturn IPOs

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The avalanche of money that’s piled into Silicon Valley lately may be starting to disrupt more than just the taxi business and commercial real estate — it might upend one of the most celebrated and time-honored traditions of tech startups: the IPO.

The Wall Street Journal reported Friday that Slack, the popular corporate messaging provider, plans to hit the public markets later this year through a direct listing. That’s the unusual process that subscription music service Spotify used last year to go public. Should Slack’s listing prove as successful as Spotify’s, expect the floodgates to open for more of these listings.

Read this:Slack is reportedly following Spotify in going public through a direct listing. Here’s how a direct listing works.

In a direct listing, a company’s private shareholders sell some of their stakes more or less to investors at large on the open market. That differs from a traditional initial public offering, where investment banks typically line up institutional investors to purchase shares at a set price from the company and its early shareholders.

A big reason why companies hold IPOs is to raise additional funds. In a direct offering, the point is to allow insiders and early backers to freely sell some or all of their stakes; the company typically doesn’t raise any funds from the listing event.

Slack and Spotify didn’t need money from the public markets

The reason a company such as Slack and Spotify can go public and not worry about raising any funds in the process is that their coffers are already overflowing with funds. Before it went public last year, Spotify, for example, had raised $2.1 billion, according to PitchBook. It still had about $1.5 billion of that left and, because its operations were already generating cash, it was adding to that stash.

Stewart Butterfield, CEO of Slack, which is well capitalized even before going public.
Cindy Ord/Stringer

Slack is in a similar position. It’s raised $1.2 billion to date, according to PitchBook. Even after CEO Stewart Butterfield said it had more than enough cash, he stuffed the company’s treasury with hundreds of millions of more dollars. In fact, Slack had so much money in the bank that it started using some of it to invest in other startups.

Those companies certainly aren’t alone in having a healthy surplus of funds. Over the last five years, some $445 billion was invested in venture-backed deals, including a whopping $130.9 billion last year alone, a new record, PitchBook and the National Venture Capital Association said in a new report this week. More than a third of that total is going into software companies and large amounts are also flowing into other parts of the tech industry.

And more money could be flowing in. Traditional VC firms — which represent just one of several sources of capital for startups — raised $55.5 billion last year, a new high, according to PitchBook and the NVCA. SoftBank’s enormous $100 billion VisionFund is helping to push traditional VC’s to create larger and larger funds; last year 11 VC funds topped $1 billion in funding, another new high.

With so much money flowing into startups in the private markets, many companies don’t feel much need to tap the public markets for cash. One result has been that on the whole, startups are waiting longer to go public.

For the last five years, the median age of technology firms that went public was at least 10 years old, and it hit 12 years old last year, according to data from Jay Ritter, a finance professor at the University of Florida who closely tracks the public offerings market. By contrast, before the Great Recession, the median age never hit 10 years, and during the dot-com boom, it got down to as low as 4 years old.

IPOs are expensive and time-consuming

But the next place the effects of all that money may be felt is in how companies go public when they decide to do so.

Daniel Ek, right, CEO of Spotify, which used a direct-listing process to go public last year.
Greg Sandoval/Business Insider

Startup have good reasons for rejecting the traditional IPO model. It’s expensive, for starters. The median gross spread — essentially the fee investment banks charge for taking companies public — has been stuck at 7% for the last 30 years, according to Ritter’s data. What that means is that if a company raises $100 million in an IPO, it only sees $93 million of that; the other $7 million goes to its investment banks rather than to its bank account.

By contrast, when Spotify went public, its insiders and early shareholders registered to sell as much as $9.2 billion worth of stock. The company paid about $45.7 million in fees, including about $35 million to its bankers, according to documents it filed with the Securities and Exchange Commission. That works out to less than 0.5% of the potential proceeds, or a huge bargain.

And that’s not the only savings. Investment bankers typically price an IPO significantly below what the market will actually pay for them, thus guaranteeing that the stock will get a press-worthy “pop” when it debuts. But the difference between the actual market price and the IPO price represents an opportunity cost to the company and its early shareholders. Instead of them gaining from what the market will actually pay for the company’s shares, that gain goes to the institutional investors who buy at the IPO price and turn around and sell stock to other investors when the stock begins trading.

In a direct listing, by contrast, the early shareholders receive more or less the full market price for the shares they sell.

The regular IPO process can also be a big time suck for corporate managers. Typically, executives have to tour around the country, meeting with and giving formal presentations to potential investors, hoping to sell them on the offering.

But a direct listing can be much more informal and take far less time. Instead of going on a roadshow Spotify, for example, simply streamed a live webcast of its presentation to potential investors all at once.

Direct listings might succeed where Dutch auctions didn’t

Companies have tried to buck the IPO system before. In the late 1990s and early 2000s, a handful of companies — most notably Google — went public through a Dutch auction process pioneered by investment bank WR Hambrecht. That process attempted to maximize the amount that companies could raise in an IPO by allowing a wide range of investors to place blind binds that stated how many shares they wanted to buy at a particular price. The company would go public at the highest price at which it could sell all the shares it placed to sell.

Eric Schmidt was CEO of Google in 2004 when it went public through a Dutch auction process.
Richard Brian/Reuters

That process never gained much traction. The other investment banks and institutional investors — both of which lost out in the process as compared to a traditional IPO — never really supported it. And companies eager to raise funds in an IPO were generally willing to go along with the traditional process.

The direct listing process represents one of the first big efforts to reform the system since the Dutch auction effort. Spotify’s IPO was novel. If Slack follows in Spotify’s footsteps and its debut goes similarly well, it will likely embolden other companies to give the process a whirl.

And because of all the funding that startups have on their hands, many could feel freer this time around to spur the traditional process. If the company itself doesn’t really need any cash and early shareholders can get a better price in a direct offering, why put up with the headaches and expense of an IPO?

To be sure, there are still going to be companies that go the traditional route, even if direct offerings catch on. Several of the biggest unicorns, such as Uber, Lyft, and WeWork, are still hemorrhaging money and almost certainly won’t pass up the opportunity for an infusion of new cash from the public markets. And many smaller companies that aren’t as well known as Spotify or Slack may feel they need the investment banks to get their names out and market them to investors.

But for startups looking to showcase another facet of an innovative spirit, the best way to buck the trend could be to go direct.

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The 3 Best Canadian Tech Stocks I Would Buy With $3,000 for 2021

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The majority of the Canadian tech stocks went through the roof in 2020 and delivered outsized returns. However, tech stocks witnessed sharp selling in the past 10 days, reflecting valuation concerns and expected normalization in demand. 

As these high-growth tech stocks shed some of their gains, I believe it’s time to accumulate them at current price levels to outperform the broader markets by a significant margin in 2021. Let’s dive into three tech stocks that have witnessed a pullback and are looking attractive bets. 

Lightspeed POS

Lightspeed POS (TSX:LSPD)(NYSE:LSPD) stock witnessed strong selling and is down about 33% in the last 10 days. I believe the selloff in Lightspeed presents an excellent opportunity for investors to invest in a high-growth and fundamentally strong company. 

Lightspeed witnessed an acceleration in demand for its digital products and services amid the pandemic. However, with the easing of lockdown measures and economic reopening, the demand for its products and services could normalize. Further, it faces tough year-over-year comparisons. 

Despite the normalization in demand, I believe the ongoing shift toward the omnichannel payment platform could continue to drive Lightspeed’s revenues and customer base. Besides, its accretive acquisitions, growing scale, and geographic expansion are likely to accelerate its growth and support the uptrend in its stock. Lightspeed stock is also expected to benefit from its growing average revenue per user, innovation, and up-selling initiatives.     

Shopify 

Like Lightspeed, Shopify (TSX:SHOP)(NYSE:SHOP) stock has also witnessed increased selling and has corrected by about 22% in the past 10 days. Notably, during the most recent quarter, Shopify said that it expects the vaccination and reopening of the economy to drive some of the consumer spending back to offline retail and services. Further, Shopify expects the pace of shift toward the e-commerce platform to return to the normal levels in 2021, which accelerated in 2020.

Despite the normalization in the pace of growth, a strong secular shift towards online commerce could continue to bring ample growth opportunities for Shopify, and the recent correction in its stock can be seen as a good buying opportunity. 

Shopify’s initiatives to ramp up its fulfillment network, international expansion and growing adoption of its payment platform are likely to drive strong growth in revenues and GMVs. Moreover, its strong new sales and marketing channels bode well for future growth. I remain upbeat on Shopify’s growth prospects and expect the company to continue to multiply investors’ wealth with each passing year. 

Docebo 

Docebo (TSX:DCBO)(NASDAQ:DCBO) stock is down about 21% in the last 10 days despite sustained momentum in its base business. The enterprise learning platform provider’s key performance metrics remain strong, implying that investors should capitalize on its low stock price and start accumulating its stock at the current levels. 

Docebo’s annual recurring revenue or ARR (a measure of future revenues) continues to grow at a brisk pace. Its ARR is expected to mark 55-57% growth in Q4. Meanwhile, its top line could increase by 48-52% during the same period. The company’s average contract value is growing at a healthy rate and is likely to increase by 22-24% during Q4. 

With the continued expansion of its customer base, geographical expansion, innovation, and opportunistic acquisitions, Docebo could deliver strong returns in 2021 and beyond.

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Manitoba to invest $6.5 million in new systems

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WINNIPEG – The province of Manitoba is investing $6.5 million over three years to replace technical systems used in healthcare facilities, including replacing current voice dictation and transcription services with more modern systems and upgrading the Provincial Health Contact Centre (PHCC)’s triage, call-recording and telephone systems, Health and Seniors Care Minister Heather Stefanson (pictured) announced.

“Our government is investing in the proper maintenance of information and communications technology to ensure digital health information can be safely stored and shared as needed,” said Stefanson. “These systems will ensure healthcare facilities can continue to provide high-quality services and allow Manitobans to get faster access to healthcare resources and information.”

Dictation, transcription and voice-recognition services are used by healthcare providers to write reports. There are currently approximately 80 healthcare sites across Manitoba using some combination of dictation, transcription and voice-recognition services. Many of these systems are nearing the end of their usable lifespans.

“Across our health system, radiologists and nuclear medicine physicians use voice-dictation services to help create diagnostic reports when reading imaging studies like ultrasound, nuclear medicine studies, X-rays, angiography, MRI and CT scans,” said Dr. Marco Essig, provincial specialty lead, diagnostic imaging, Shared Health. “Enhanced dictation and voice-recognition services will enable us to work more efficiently and provide healthcare providers with quicker access to these reports that support the diagnoses and treatment of Manitobans every day.”

The project will replace telephone-based dictation and transcription with voice-recognition functions, upgrade voice-recognition services for diagnostic imaging and enhance voice-recognition tools for mobile devices.

“Investing in more modern voice-transcription services will help our health-care workers do the administrative part of their jobs more quickly and effectively so they can get back to the most important part of their work – providing top-level healthcare and protecting Manitobans,” said Stefanson. “The transition to the new system will be made seamlessly so that services disruptions, which can lead to patient care safety risks, will not occur.”

The new systems will be compatible with other existing systems, will decrease turnaround times to improve patient care and will be standardized across the province to reduce ongoing costs and allow regional facilities to share resources as needed, Stefanson added.

The PHCC is a one-stop shop for incoming and outgoing citizen contact and supports programs such as Health Links–Info Santé, TeleCARE TeleSOINS and After-Hours Physician Access, as well as after-hours support services to public health, medical officers of health, home care and Manitoba Families.

The current vendor that supplies communications support to the PHCC is no longer providing service, making it an opportune time to invest in an upgraded system that will provide better service to Manitobans, the minister said, adding the project will provide the required systems and network infrastructure to continue providing essential services now and for the near future.

“The PHCC makes more than 650,000 customer service calls to Manitobans per year to a broad spectrum of clients with varied health issues. This reduces the need for people to visit a physician, urgent care or emergency departments,” said Stefanson. “The upgrade will also allow Manitobans in many communities to continue accessing the support they need from their home or local health centre, reducing the need for unnecessary travel.”

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Telus and UHN deliver services to the marginalized

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Telus’s Health for Good program has launched the latest of its specially equipped vans to provide medical services to the homeless and underserved, this time to the population of Toronto’s west end. The project relies not only on the hardware and software – the vans and technology – but on the care delivered by trained and socially sensitive medical professionals.

For the Toronto project, those professionals are working at the University Health Network’s Social Medicine program and the Parkdale Queen West Community Health Centre. The city’s Parkdale community, in the west end, has a high concentration of homeless and marginalized people.

First launched in 2014, Telus’s Health for Good program has delivered mobile clinics to 13 Canadian cities, from Victoria to Halifax. Originally designed to deliver primary care, the program pivoted to meet the needs of patients in the COVID-19 pandemic, said Nimtaz Kanji, Calgary-based director of Telus Social Purpose Programs.

Angela Robertson of the Parkdale Queen West Community Health Centre (CHC) asserted that marginalized people are particularly susceptible to the spread of COVID-19, as they don’t have access to the basic precautions that prevent its spread.

The clinic is located near a Pizza Pizza franchise; homeless people shelter under its overhang on the weekends, she said. Some have encampments under nearby bridges.

“The public health guidelines and requirements call for things that individuals who are homeless don’t have,” Robertson said. “If the response calls for isolation, that suggests people have places to isolate in.”

And in the shelter system, pre-COVID, the environment was very congregate, with many people in the same physical space, said Robertson. Some homeless persons, in order to keep themselves safe, have created encampments, and the city has opened up some hotel rooms across the city to create spaces for physical distancing.

Even proper hand-washing and hygiene becomes a challenge for the homeless.

“COVID calls for individuals to practice constant hand-washing. Oftentimes, individuals who are homeless use public washroom facilities that may be in restaurants or coffee shops, and many of those spaces are now closed. So there are limitations to accessing those facilities. It’s not like they’re in a community where there are public hand-washing facilities for people who are homeless.”

The mobile health clinic allows the CHC to take “pop-up testing” into communities where there is high positivity and where additional COVID testing is needed. The CHC can take testing into congregate sites and congregate housing to provide more testing, Robertson said.

“The other piece that we will use the van to do is, when the vaccine supply gets back online, and when the health system gets to doing community vaccinations … we hope that we can be part of that effort.”

COVID has contributed to a spike in cases of Toronto’s other pandemic: opioid overdoses. Some community members are reluctant to seek care because of the stigma attached to substance abuse; and COVID has a one-two punch for users.

The first rule of substance abuse is, don’t use alone; always be with someone who can respond to a potential overdose, ideally someone who can administer Nalaxone to reverse the effects of the overdose, Robertson said. “It’s substance abuse 101,” and the need for social distancing makes this impossible.

Secondly, COVID has affected the supply chain of street drugs. As a result, they’re being mixed increasingly with “toxic” impurities like Fentanyl that can be deadly.

The van itself is a Mercedes Sprinter, modified by architectural firm éKM architecture et aménagement and builder Zone Technologie, both based in Montréal. According to Car and Driver magazine, the Sprinter line – with 21 cargo models and 10 passenger versions – is “considered by many to be the king of cargo and passenger vans.”

Kanji said the platform was chosen for its reputation for reliability and robustness.

While the configuration is customized for each mobile clinic, it generally consists of two sections: A practitioner’s workstation and a more spacious and private examination room, so patients can receive treatment with privacy and dignity, Kanji said. The Parkdale clinic is 92 square feet.

“While the layouts vary across regions, they typically include an examination table and health practitioners’ workstation, including equipment necessary to provide primary healthcare,” the Telus vice-president of provider solutions wrote in an e-mail interview. The Parkdale Queen West mobile clinic is designed for primary medical services, including wound care, mobile COVID-19 testing and vaccination efforts, harm reduction services, mental healthcare and counseling.

The clinic equipped with an electronic medical record (EMR) from TELUS Health and TELUS LTE Wi-Fi network technology.

Practitioners will be able to collect and store patient data, examine a patient’s results over time, and provide better continuity of care to those marginalized citizens who often would have had undocumented medical histories.

The EMR system is Telus Health’s PS Suite (formerly Practice Solutions). It is an easy-to-use, customizable solution for general and specialty practices that captures, organizes, and displays patient information in a user-friendly way. The solution allows for the electronic management of patient charts and scheduling, receipt of labs and hospital reports directly into the EMR, and personalization of workflows with customizable templates, toolbars, and encounter assistants.

But like others tested for COVID, it’s a 24-48 hour wait for results. Pop-up or not, how does the mobile team get results to patients who have no fixed address?

The CHC set up a centre for testing in a tent at the Waterfront Community Centre. Swabs are sent to the lab. “We are responsible for connecting back with community members and their results,” Robertson said.

“This is the value of having Parkdale Queen West being in front of the testing, because many of the community members who are homeless we know through our other services, and there is some trust in folks either coming to us to make arrangements to collect their results, or we know where they are.”

This is a key element of the program, said Kanji – leveraging community trust. In Vancouver downtown east side, for example, where there is a high concentration of marginalized members of the indigenous community, nurse practitioners are accompanied by native elders in a partnership with the Kilala Lelum Health Centre.

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