San Francisco-based instant messaging startup Frankly Inc. is making a break from traditional Silicon Valley financing practices. It intends to publicly list its stock north of the border, via a reverse takeover listing on Canada's TSX Venture Exchange next month.
Founded in 2013, Frankly owns the messaging app Frankly Chat, which has been downloaded two million times. Messages sent on Frankly Chat self-destruct seconds after being read. "Gossip with your best friends without getting caught" is one of the company's tag lines.
Frankly has no revenue now, but over the next 12 months the company is rolling out a number of strategies to "monetize" its app, including introducing a premium paid version of its messaging app (it's currently a free download). Frankly will also be introducing targeted advertising. As well, it hopes to get some traction by licensing its messaging technology to companies and then co-sharing on revenue.
The company has sold $23 million (U.S.) of subscription receipts to Canadian and U.S. investors. These securities are due to be converted into common shares once Frankly starts trading on the TSX Venture Exchange through a reverse takeover of a shell company owned by Toronto-based merchant bank JJR Private Capital.
In a telephone interview, Ron Schmeichel, JJR's chief executive, said he expected Frankly to begin trading in December. JJR owns about a 10-per-cent stake in Frankly.
SK Planet, a subsidiary of SK Telecom, South Korea's third biggest telecom company, is a founding shareholder and currently owns the biggest stake at around 50 per cent.The Stanford-StartX Fund, which is affiliated with Stanford University, has also invested $1.5-million.
Frankly's CEO, Steve Chung, said in a telephone interview that when the company was considering its options for raising venture capital over the summer, it met with Mr. Schmeichel in Toronto. Mr. Schmeichel said he was prepared to invest $5-million but then he proposed that Frankly do something novel: Forget about slogging it out in the private U.S. venture capital market and consider going public in Canada on the Venture Exchange instead.
While Mr. Chung said he had "a dose of skepticism" initially, he weighed the pros and cons over the course of a few weeks. There was a risk in going public at an early stage in the company's development. It would also be an adjustment to have to disclose quarterly financial statements and be answerable to a broad shareholder base.
But the advantage of going public in Canada would allow Frankly to access more capital than was on offer in the U.S., and raise funds quicker than the private venture capital route. He also realized that, should the company need to raise more capital, having a public listing would make it much easier.
Another positive for Mr. Chung was being able to protect his singular vision for Frankly. If he brought additional venture capital investors on board, he knew the company would be answerable to "another strong voice," which wasn't always welcome.
Canada also offered a fast track to a public listing that the U.S. doesn't provide to companies of similar size. Frankly's market capitalization is expected to be in the $60-million range, too small to list on Nasdaq. Finally, Canada also has considerably less red tape than the U.S. when it comes to listing public companies.
Mr. Chung admitted that when he tells people he is taking Frankly public in Canada, he gets some "raised eyebrows."
"For all of the innovation that we have in Silicon Valley, the way we fund-raise hasn't transformed in 30 years. It's still a very venture capital-driven industry," he said. But he believes the TSX Venture Exchange is a "perfect platform for growth companies, like technology companies, who in some ways, have similar risk profiles as mining companies."
Mr. Chung acknowledged that going public will be an adjustment and he is under no illusions of the fierce competition Frankly faces. Messaging is "a crowded field," he said. WhatsApp is the 800-pound gorilla with about 600 million users. In February, Facebook Inc. acquired it for $18-billion. And within the niche "ephemeral" messaging category, Frankly is duking it out with privately-held Snapchat, which was reportedly recently valued at $10-billion.
Frankly also plans to funnel some of its newly raised funds into hiring engineers. "There is a war for talent here that you would not believe" said Mr. Chung said. One extra benefit of having a publicly traded company, he added, is it will be easier for him to hire and retain people, as he will have the option of offering stock options to suitable candidates.
"We work on big dreams and solving big problems. Startups are really hard. You're rolling the rock up the hill for most of the time. But once you hit that mark, we want [our employees] to be rewarded for that."