“Somebody is going to get hurt,” a reader warned in December when Small Talk urged Iofina, the iodine producer beloved of chattering online traders, to bring investor expectations down to earth.
He was right. Shares in Iofina, despite the breakthroughs in extracting iodine from the waste brine thrown off by US oil producers, have fallen from £1 to 40p since January. They had already taken a pounding in previous months.
Iofina’s woes illustrate how quickly technological innovations, however sure they seem to make money, can be derailed.
The first sign of crisis emerged at the end of March when Chris Fay, Iofina’s chairman, quit and Iofina’s board stopped expansion plans and initiated a review of operations, costs and cash flow.
In mid-April, Lance Baller, the co-founder, was parachuted in after a year’s absence to take the chair. Two weeks later he told shareholders that production would miss market expectations by a country mile and the company would have to slash costs and staff to conserve cash. The company’s pre-tax losses widened from $1.2m last year to $3.8m.
Last week, the chief executive and finance director quit and Jeffrey Ploen, also co-founder, stepped in as interim chief executive for a salary of just £1. Midweek, Iofina issued a convertible bond to a US investor to give it headroom.
Mr Baller and Mr Ploen, self-styled “go-getting guys who get things done”, argue that some of Iofina’s troubles are out of its control and, they hope, temporary. The company’s main supplier unexpectedly chose to use its brine in fracking rather than push it Iofina’s way.
But the founders are frank about the previous management team’s mistaken strategy of “growth at any price”. “While small companies are given a period of grace at the start, even for them, the only things that matter are earnings and free cash flow,” says Mr Baller.
He and Mr Ploen have already identified $150,000 a month in costs that can be cut without affecting operations. They have also identified the next chief executive, but would rather let him get on with the urgent task of rescuing Iofina without the distraction of dealing with shareholders.
That may or may not be a salve for investors’ wounds. But Iofina’s plight illustrates how big the burdens of disclosure and maintaining relations with shareholders are for early-stage technology companies struggling to turn good ideas into commercial successes.
From tech to turtles
Nasdaq can rest easy. This week, Just Eat, the online takeaway market, announced it was quitting the London Stock Exchange’s High Growth Segment– the closest thing that the London market has to New York’s tech hub – after just a month. It was the High Growth Segment’s only member.
Whether or not Just Eat – a 13-year-old Danish company that lists local pizza and curry restaurants online – truly represents the best of Britain’s technological savvy is moot. But it is so far the only market debutant attracted to the HGS and able to meet its requirements for three years of revenue growth, a market capitalisation of £300m and a minimum free float of 10 per cent of shares. That is somewhat less onerous for founders than the premium market requirement that more than a quarter of shares should be in public hands.
There are plenty of tech start-ups on Aim. But, like turtles, many never make it to maturity. Just Eat was one of the very few hatchlings to grow to any size and stay in British waters. King Digital, London-based creator of Candy Crush, the smartphone game played by millions, chose to float in New York not London in February, seemingly spurred on by the higher valuations across the Atlantic. It was disappointing for those hoping that London would become the stock market of choice for the UK’s Silicon Roundabout.
The timing of Just Eat’s defection is also unlucky, coming in the same week that Wolfson Microelectronics, the Edinburgh university spin-off and maker of audio chips, has thrown itself into the arms of US rival Cirrus Logic.
The LSE put on a brave face on Just Eat’s move, pointing out that it requires any company joining the HGS to aspire to a premium listing and what boss wouldn’t rather be part of the FTSE indices and have index funds as investors? It just happened faster than expected.
Nonetheless, it is hard to be Panglossian about the apparent paucity of proven British tech businesses prepared to float shares on London’s main market despite the bait thrown their way.
Kate Burgess is the FT’s small companies correspondent
Get alerts on Iofina PLC when a new story is published