The secret backdoor to ASX listings
Tuesday, June 17, 2014/
Australians have come up with ideas that have laid the foundation for some of humanity’s biggest advances: Vegemite, the Hills Hoist, cardboard wine cask, the underwater PC and the all-important Super Sopper (the giant sponge used to soak up water on sports fields).
When you mix an unorthodox way of thinking with technology there is a truly special blend that can result in the Freelancers and Atlassians of the world. However, for every success story there are a thousand so-called ‘fund-starved ideas’ that are, in reality, wackier than what most sci-fi authors could possibly conjure.
Though I cannot guarantee you will run into the guy I met who’s start-up idea was ‘ShamWow-style clothing’, I can guarantee you will run into someone who will complain about the lack of options for start-up funding in Australia.
For start-ups with genuinely disruptive ideas, robust business models and proven profits, there is the potential to list on the Australian Stock Exchange through a ‘reverse take-over’.
The recent spate of ‘back-door’ reverse take-overs is similar to the ploys used by tech companies in the late 1990s and early 2000s to jump on the dot-com boom. These companies floated on the ASX through existing ASX listings of defunct junior mining companies, which acted as a ‘shell’.
The shell company generally has minimal assets from financial difficulties (generally from unsuccessful mineral exploration attempts) and limited or no current business operation. This method of listing can give start-ups access to financing to expand or to build capabilities, and many argue it is the cheaper, easier and faster way to list.
This differs from the traditional ‘front-door’ approach for companies to access the funding and business credibility advantages of the ASX by performing an initial public offering (this is how Freelancer listed).
This approach creates a new listed entity but requires a minimum amount of shareholders (generally 400-500) that must take up a minimum amount (generally $2000 each), a prospectus to be issued and asset/profit tests amongst other requirements. These requirements can be taxing, financially and resource-wise, for smaller tech startups.
The following are examples of companies that have recently taken the ‘back door’ to the ASX:
Shell: Mineral exploration company Aviva Corporation Limited
Decimal is a cloud-based financial planning/advisory software that provides practise management and real-time compliance. Paul Harapin (who launched VMWare) has recently been appointed CEO.
Shell: Mineral exploration company Spencer Resources
Bulletproof is a provider of managed cloud services to business, enterprise and government customers including Managed Amazon Web Services, Managed VMware Hosting and Professional Services.
Shell: Currently integrating with listed investment company Macro Energy
Digital CC is the first bitcoin-focused company worldwide to be listed on major exchange. The company mines and trades bitcoins with the aim of being a full service provider of bitcoin wallets and trading facilities.
Shell: Currently integrating with uranium exploration company Prime Minerals Limited
Data security company Cocoon Data has operations in Australia, United States and Europe. The company focuses on protecting cloud data with three main principles: data encryption, rights management and audit.
PRM Cloud Solutions
Shell: Currently integrating with mineral exploration company Minerals Corporation Limited
PRM Cloud Solutions builds scalable cloud applications for enterprise by utilising force.com, their landmark product Enverro monitors performance and compliance for workforce management.
Shell: Currently integrating with property development financier GRP Corporation
A question-and-answer-based social network which helps members meet new people. The social media site does not have a huge presence in Australia as yet but has millions of monthly users all over the world.
Shell: Currently integrating with mining exploration company InterMet Resources Limited
1-Page was founded in the Silicon Valley in 2011 with over $3 million invested to date to develop HR technology/software that drives innovation through next generation talent acquisition.
Shell: Currently integrating with wine company Dromana Estate Limited
CloudCentral is an Australian cloud platform provider focused on providing wholesale cloud services to Australian companies since 2010.
This trend seems to suggest an ASX small cap transition from the mining sector to the cloud/big data/mobilisation sector. I feel there is huge potential for ASX-listed tech companies to drive Australia through a period of intense innovation.
The hurdles to listed funding seem to stem from the time, cost, compliance and minimum requirements the ASX has in place, but this is a necessary evil put in place to ensure the ASX remains a transparent and trusted arena to invest money.
That being said, there are increasing initiatives from the ASX to remove barriers with the aim of capturing the start-up/small business market in its early stages. Many investors are not seeing the growth they anticipated from investments in the junior mining sector. If tech is where they look to next, there is true potential for the ASX and Australia to become the tech hub of the Asia-Pacific.
Andrew Sabo is a financial services professional with experience in creating and running a startup.