What if an SPP only took 24 hours?

One of my long term goals is to enable listed companies to run an SPP alongside a placement.

Having helped facilitate over 2,000 raises, I have often asked the question, “why do SPPs take so long?” From where I sit, the main reason we stick to two-week exposure periods is redundant: post. It is 2024, we are all online, do we really need such a long exposure period? What is stopping us from running 24 hour SPPs?

Whilst I understand that there are advantages to longer exposure periods, I am not sure that they outweigh the disadvantages. To explore, I’m going to take a “first principles” approach to this problem, so bear with whilst I take you through my thinking:

Principle 1: Investing in a raise is just as risky as investing on-market.

s708 of the corporations act is a fun read. If you’re into that kind of thing, then add on s708A, s761G and s761GA. These four areas will give you the required reading to know who classifies as a retail, wholesale, sophisticated, professional, and experienced investor and, importantly, what that means for them and you.

The gist of these regulations is as-follows: if you are not a retail investor, you can participate in any type of raise without a disclosure document. If you are a retail investor, then you need a disclosure document, which presents an additional hurdle to the placement process that is typically not worth the cost for most companies to go through.

It is important to remember that these disclosure documents are from ASIC, and apply to all types of investments - schemes, debt, private and listed equities, and more. Essentially, if you have lots of money, you can take “riskier” bets.

But a listed stock is a lot less risky than alternatives. You have a market price, you have (typically) a discount, you have a fully disclosed entity, and you have an environment with clear rules and regulations.

With that in mind, investors should be able to invest at any time, especially existing shareholders.

Principle 2: Is exclusion from a placement a protection, or a cost, for the investor?

So you own shares in ASX:AAA and they are raising capital.

You know the story - you bought $20k of stock yesterday at $0.50 - and today they are raising at $0.44.

Why can’t you participate? You want another $20k!

The legislation is made to protect vulnerable people, but here we see a likely unintended consequence: high conviction shareholders with a comprehensive understanding of the investment opportunity who cannot participate.

At InvestorHub, we believe that an existing investor who wants to buy more stock is (a) fully informed and (b) making a risk weighted decision.

After all, those same investors who are denied access to your raise could take that $20k and gamble it or invest it into the cryptocurrency market. I’m not trying to judge either option, but I think it is fair to say that between investing in an ASX company, gambling, or investing in crypto, one of these activities is far less risky than the others!

Principle 3: Ok - so just do an SPP the ‘usual way’?

SPP’s are a great tool to allow companies to raise from existing shareholders. Up to $30k per person can add up if you have thousands of shareholders on your register.

The ‘usual way’ to run an SPP is as-follows: do a placement, then one week later, kick off an SPP that requires and additional 2-3 weeks of exposure, uncertainty, and price movements. During this period, you are at the mercy of the market, and can simply hope it comes in OK and that the board isn’t left looking silly.

Over that time, there is downward pressure on your share price: you have either (a) placement participants selling out (on average, 44% of placement-issued shares are sold quickly) or (b) existing shareholders selling on-market to buy into the SPP.

So, what should be a good thing (raising from shareholders) turns into a time-consuming chore that is laden with risk.

So, can we run an SPP in a 24 hour period?

If an SPP could be done in a day, then it could be done alongside a placement. Meaning all shareholders could get access to the same deal on the same timeline. Retail would be limited to $30k whilst other types of investors could apply for more. Hell, existing holders could apply for both - who better to reward with a great deal than the shareholders who have gotten you to where you are today?!

To work, it would need to be done digitally and the company would need to be very well-organised beforehand.

But the upside? A “chef’s kiss” of effective market engagement that would result in better capital outcomes for you and your shareholders.

What would need to be changed to do it in a day?

My initial thoughts were that the effort that would be required to make this change was, “it’s going to take a lot”.

But having a look through the ASX’s Regulatory Guide 125, ASIC’s Instrument 2019/547 and more, I could see a minimum exposure period.

So I asked a CoSec about it - they told me to speak to a lawyer.

So I spoke to a lawyer about it, and they said that, whilst there doesn’t appear to be much precedent for it, it it 100% possible to run an SPP in 24 hours.

So, and I must stress that this is not advice, but this does appear possible. It is just a matter of (a) better organisation and (b) digital distribution.

One question I do have is around fairness to all shareholders: if you do not have 100% of your shareholders’ emails, then would it be considered unfair to exclusively invite that group? Of course, I have a reputation of recommending that every company invests in collecting shareholder emails because of the world of opportunities that this opens up, but the question remains.

Is the upside of a 24 hour SPP worth it?

This is the last question that I imagine you might have, and a very important one at that. Below is what I think are the upsides of a 24 hour SPP:

• Everyone gets to participate.
• You can raise more money from high conviction shareholders.
• It is all done intra-week, rather than taking a month.
• No post-raise sell down into a crummy SPP.
• It builds a reputation in the market that you take care of your existing shareholders.

Take your pick as to which of these you think makes it worth it.