Four reasons why a reverse listing isn’t so backward
Sunday, April 12, 2015/
A year ago I was approached to join a small Australian company Rision, founded extraordinarily by a retired recruitment executive with a vision of reimagining the HR and recruitment process. As a technologist working in the innovation ecosystem I was naturally enticed by his vision but also the fact the company was in an unusual position – it had access to significant capital.
This is an increasingly rare story in the Australian startup community, especially if like Rision you’re looking to really make waves and disrupt an entire industry, large injections of cash just don’t come easily.
Rision’s capital was being provided through a reverse listing – the company signed a heads of agreement with shell company Reclaim Industries (RCM) and through this we were able to build a comprehensive mobile platform that is set to disrupt the recruitment and HR process by solving the challenges of hiring and managing shift-workers in industries like retail, property services, hospitality, healthcare, franchising and construction.
The reverse listing was new to me. I had been around companies who gained a small piece of venture capital and watched fellow innovators get their dreams off the ground with a drip feed of angel funding. Worse, I had watched talented friends leave Australia to pursue their startup dreams in Silicon Valley. Reverse listing offered a new path – one I was keen to learn about, albeit with trepidation. When I mentioned the process to peers I got a series of red flags and warnings. What had I let myself in for?
The red flags
I took the plunge joining Rision as managing director last September and have since been steering the company through the complexities of the listing process. The process has been long – far longer than anticipated at the start – with many additional complexities and costs for a small company to face in addition to already burdensome task of building a new business.
Then there is the fund-raising itself. Many people warned me against the reverse listing process as a vehicle to raise funds, arguing that the general public are not well placed to judge risky investments in startup companies and that this in turn provides a risk to the company. This may be true for some but my experience is different. We have built strong relationships with our brokerage firm, who have taken the time to understand our business and have introduced us to experienced investors with an appetite for
investing in companies like ours – many of whom have successfully invested in mining ‘start-ups’ and who are diversifying into technology.
In return for our investors’ support, and with guidance from advisors, we have been realistic in valuing our company and refrained from over inflating the offer price for short-term gain prior to the fund-raising. In our upcoming transaction the shares on offer will be priced at 2c, subject to ASX approval, enabling investors to benefit from our growth as we on-board more customers.
Putting the piles of paperwork and the challenge of the pricing strategy aside, there are four big benefits I’ve seen from the reverse listing process:
- Strong governance: As we move towards becoming a listed entity we’ve had to do all the necessary due diligence and have a sound corporate governance in place – something that a lot of startups lack and an issue that can come home to roost later.
- Significant capital: Rision’s listing will come on the back of strong investor interest and a total $2.6 million of initial funding raised since late 2014. In the upcoming raise we anticipate raising a further $4 million that will help Rision drive a strong sales and marketing campaign.
- Product development: The initial injection of funds at the start of this process helped us build a comprehensive and innovative enterprise platform from the start – something many Australian startups have to do over time with numerous product iterations.
- Opening doors to the US: Most interestingly, the listing process is helping Rision enter the US market – a path that can be notoriously difficult for Australian startups with great technology. We found the listing transaction comes with a great level of respect and trust in the brand and as a result it’s opening doors for Rision across the Pacific.
A month out from listing, the product is fully formed with customers already on board, the company is set up with a solid governance structure and the capital injection we’re getting is way beyond what most early stage startups could ever hope from the Australian market. Would I do it all again? Yes. It may not be right for every startup, but I can honestly say that so far, the rewards are outweighing the red flags for Rision.