In the U.S., large luminary technology firms tend to take their time getting to their initial public offerings (IPOs).
Square had been around for six years before its IPO, Facebook was around for eight, and Uber held off for a decade. While it’s certainly not the case with every firm, for many, years of venture funding and building size and scale are considered favorable to an early entrance into the public markets with the vicissitudes of public investors.
But in Australia, Afterpay Co-Founder and U.S. CEO Nick Molnar told Karen Webster, the landscape was not quite the same. Afterpay went for its IPO about nine months after its first-ever capital raise.
“Our decision to go public wasn’t necessarily that we had a burning desire to,” he said. “We went public when we had about 100 retailers signed on and 30,000 customers, so really early in the process. And we know it was a high-risk move to go public that early, but we saw it as a great path to gaining sufficient liquidity to be able to really keep us in the game and able to grow.”
It helped tremendously, Molnar told Webster, that he came from a retail background and actually didn’t know all that much about the IPO process, although his co-founder, Anthony Eisen, did. The fact that he didn’t know what a roadshow was or understand just how important it was to his future gave him just the naiveté to get through the process without becoming overly focused on worry.
That didn’t mean the process wasn’t incredibly stressful, he noted, because in 2016, the buy now, pay later (BNPL) concept Afterpay was selling was still very new, and the millennial demographic the firm was anticipating to carry it forward weren’t quite into their significant spending years yet.
“For us, it was always about being clear on where we are today, and being real about where we were trying to get to,” he said, a process that often involved an awful lot of explaining in Afterpay’s early pre-IPO days.
Answering the Big Questions
The question potential investors kept asking in Afterpay’s roadshow days was why wouldn’t a customer just pull out their credit card and use that if they wanted to buy now, and pay later? And the first big challenge was explaining that Afterpay isn’t a credit card and does not aspire to be one because millennial consumers don’t want the kind of revolving debt that goes along with one.
“The first challenge was articulating why we believed millennials had shifted their behavior in a way that wasn’t noticeable yet but would be in a year or two years’ time because naturally people want to compare your product to something that is familiar because that is human nature,” Molnar said.
Part of the solution there, he said, was likening Afterpay to a product that it was actually far more similar to than a credit card account — layaway (or laybuy as it is called in Australia). There is a reason, he noted, that when working with retailers and investors early on, Afterpay referred to its product as layaway 2.0 — it gave them a concept that was incredibly familiar to “anchor on to.”
And once they managed to offer that articulation, he said, the next most common line of questions focused on growth. How was an Australian business with 100 merchant partners and fewer than 10,000 users going to scale?
“They wanted to know how we could go global from Australia because, at the time, there were almost no consumer-facing tech firms in Australia — they were all American,” Molnar noted.
Afterpay, of course, did manage to go global, launching in the U.S. 18 months ago, in the U.K. in 2019, and with more countries on the agenda for 2020. But how did they manage to persuade those early IPO investors that was even possible?
With a little help from their friends, Molnar said.
The Two Big Bumps
As an up-and-coming payments platform, Afterpay managed something very early in its life that is quite difficult to generate intentionally, he said — virality on both sides of its platform.
On the consumer side, he said, the cut-through event was the millennial consumer who began actively promoting and pushing for the product with their baby boomer parents and with retailers. The flexibility of payments matched with Afterpay’s aligned incentives with their customer base took off faster than they’d expected.
On the retailer side, he said, when their retail partners started noticing the sharp increase in their basket sizes and increased conversions that went along with turning on Afterpay, they were good about promoting it to both investors they were associated with and to other retail players.
“Retailers try a lot of things to bring leads to their business; many of them just don’t work,” he said. “When they find something that does, they are open to sharing it.”
And as their investors were ringing up retail partners and learning that at the time Afterpay was driving 25 percent of sales with its retail partners (figures that have since increased to 35 and 40 percent with some partners), they had an illustration of the simple fact that consumers respond to the offer of an easy way to pay in installments without risk of interest charges, late fees or running up unpayable debt.
That meant Afterpay managed to stick its IPO landing, despite the early move to the public markets and challenges in going public with a concept very few had heard of at the time. The team celebrated, Molnar said, by eating lunch and then going back to the office to get back to work.
“Because once the IPO is over, the work isn’t,” he said. “For us it was just starting — now we had to go back and deliver on all the goals we laid out for our investors.”