Forget the Valley, tech firms like ASX

05/10/2015 - 09:21

The surge in backdoor listings on the ASX hit new highs in the September quarter and is attracting more entrepreneurs with Silicon Valley experience.

Forget the Valley, tech firms like ASX
RAISING: Russell Francis says a listing on the stock exchange offered the best source of capital. Photos: Attila Csaszar

The surge in backdoor listings on the ASX hit new highs in the September quarter and is attracting more entrepreneurs with Silicon Valley experience.

Self-confessed computing buff Russell Francis rode the boom of the 1990s all the way to Silicon Valley.

He built a software business in London with 120 staff, sold it to a bigger US company and worked in the Valley for three years.

Like many others who left Perth at a young age, the reverse ‘brain-drain’ eventually brought him home.

Mr Francis now leads another fledgling tech company, Velpic, which is pursuing a listing on the ASX – a path it chose after carefully evaluating its options for raising capital.

“I don’t want to go and spend two years in Silicon Valley again,” he told Business News.

“You need to spend that time there to create awareness of your product; I’ve already been there and done that.

“There are VCs (venture capitalists) in Perth, but they weren’t capable of raising the money we were looking for.

“There was private equity, but it was pretty expensive; we had to give up too much of what we already had for the valuations they were going to give us.

“We’re not big enough to do a full IPO; we’d need to bring on some more clients and have another couple of years of operations, so it would have been slower growth. “We’d seen a few companies go through this backdoor listing and we thought; hang on, maybe that’s worth investigating.”


More than a few

It’s more than a few companies that have undertaken backdoor listings, which typically involve a tech business completing a reverse takeover of a listed exploration company.

Over the past two years, 36 businesses have completed backdoor listings and another 26 deals are under way, according to Business News research.

Another 14 deals were announced but later cancelled.

The 36 companies to have completed backdoor listings raised a total of $186 million.

That’s an average of $5.2 million per deal – not a huge sum, but the kind of money that can make all the difference to an early-stage tech venture.

The momentum in the market was highlighted by the completion of 11 deals in the September quarter alone.

The trend is centred on WA because of the large number of cash-strapped exploration companies in the state, but has attracted tech businesses from far and wide.

Silicon Valley-based 1-Page, which has delivered spectacular gains for early investors, is one of eight international businesses to have listed through WA shell companies over the past two years.

Twelve interstate businesses have gone down the same path, along with 16 Perth-based businesses, including the likes of Norwood Systems, and Cirrus Networks.


Tech entrepreneur

Perth tech entrepreneur Rob Newman is one of the most recent, and most unlikely, additions to the backdoor listing wave.

He has twice taken technology developed in Perth to the international market, and like Mr Francis, his career has taken him to Silicon Valley.

Dr Newman was also a co-founder of Stone Ridge Ventures, one of Perth’s few venture capital funds.

But when it came time to raise money for his new business, Pointerra, it was the ASX that emerged as the best option.

“It’s quite rare to see new venture capital funds being raised,” Dr Newman said.

“The sector has struggled in Australia since the GFC.”

Instead, he sees encouraging opportunities in the stock market.

“I think it’s positive because it’s demonstrating that people can make money from technology investments,” Dr Newman said.

As an experienced venture capital investor, he knows that tech companies need more than just money.

“You need people that have built high-growth technology ventures combined with the risk capital,” he said.

Dr Newman is chairman-elect of Pointerra, which is planning to commercialise what it calls massive point cloud data sets.

It is building a data-as-a-service solution to process, manage and share these data sets, which are created by organisations undertaking geospatial surveys but are often hard to access and manage.


Broad demand

DJ Carmichael managing director and head of corporate Davide Bosio said the demand for new tech stocks was broadly spread, and not just from local investors who have turned away from mining stocks.

“A lot of the demand has come out of the east coast,” Mr Bosio said.

“There is a consistent level of institutional interest.”

Mr Bosio has worked on several reverse takeovers, including 1-Page, Crowd Mobile, DigitalCC and a live deal for Peppermint Innovation.

He said international firms like 1-Page had been able to get better valuations when they raised capital through the ASX.

“Compared to the offers on the table from VCs, it was much less dilutive for existing investors,” he said.

“They could also maintain more strategic and managerial control.”

Mr Bosio said the hardest part in backdoor listings was often the initial capital raising; once that was completed, further raisings were easier.

Sydney-based Crowd Mobile, for instance, has appointed DJ Carmichael as lead manager for a $12.8 million rights issue.

Ziptel, migme and 1-Page are other tech companies to have completed substantial secondary raisings after their backdoor listing.


East coast interest

Mr Francis has already attracted strong investor interest in Velpic, with lead manager Baillieu Holst lining up $3.9 million last week – with a large chunk coming from east coast investors.

He believes the relative simplicity of Velpic’s service is a good selling point.

“We’re not building a complex, algorithm that’s trying to do something completely strange, we’re just building the best possible way to train people online,” he said.

“People understand how it applies to them, how it applies to all industries.”

Velpic has combined Mr Francis’ Reignite software business with design agency Dash Digital, which some years ago developed multi-media presentations for staff inductions.

“The lightbulb moment for the whole idea of Velpic was when Monadelphous asked the team if they could build an editor so they could edit the content themselves,” Mr Francis said.

The digital team built that product as a desktop tool and sold it to several businesses.

“They needed to turn it into something bigger and more robust and that’s where our paths crossed.”

Over two years, Velpic was developed as a cloud-based software service, and it has now been live for 12 months, with some 20 clients.

Mr Francis said the Velpic listing would give the company access to capital to accelerate its growth.

He said several groups had supported Velpic, including boutique advisory firm Subiaco Capital, which helped evaluate shell companies.

The Velpic listing is via International Coal, which counts dealmaker Harry Karelis as one of its directors.

Mr Francis said International Coal had several attractions.

“It hadn’t been several shells in a row, this was its first change.

“It has a tight shareholding and one of the major shareholders, the guys at Merchant Capital Markets, were behind the deal.

“It had some funds in the bank so it didn’t have to do an initial raising to get the deal done.

“And I liked the people.

“The whole process has been efficiently expedited and I’ve been thoroughly pleased with the outcome.”

Mr Francis said an important step in the Velpic journey was recruiting experienced IT executive Leanne Graham, who plans to join the board as a non-executive director after the listing.

“She was the lady that took Xero from zero to 120,000 clients in three years,” he said.

He has similar ambitions for Velpic.

“All the stars have lined up for us to disrupt an industry,” he said.

The company’ potential was highlighted last month when Velpic won the Most Disruptive CIO/CTO category at the Talent Unleashed awards, which were judged by a panel that included Virgin Group founder Richard Branson, Apple co-founder Steve Wozniak and SEEK chief executive Andrew Bassatt.

With an endorsement like that behind him, Mr Francis is aiming high.

“I want to be the first billion dollar software business out of Perth,” he said.


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