Cloud-based human resources platform ELMO delivered the year’s biggest tech IPO last month, raising $25 million at $2 a share, with its share price rising 25% on its first day of trading.
Elmo offers an end-to-end cloud-based SaaS solution targeting mid-market firms. It provides its clients with a unified platform for recruitment, onboarding, learning and performance management.
StartupSmart spoke to co-founder Danny Lessem about the journey from bootstrapping an early tech startup to knowing when it was time to list on the stock market.
When to list
ELMO co-founder and chief executive Danny Lessem has come a long way since bootstrapping the startup in a North-Sydney basement in the early 2000s. His advice for entrepreneurs looking to list on the ASX is to be sure of your motivations.
“The important thing in terms of listing is to see the rationale underpinning this,” he advises.
“In our case we were looking to accelerate growth in the company and increase our R&D spend and sales spend: We had a very good reason to raise capital and justify the dilution of equity.”
“Make sure you have the infrastructure and capability to handle the rigors of the compliance regime. You need to justify the effort of going through the process.”
Be true to your initial ideas
When ELMO started out 15 years ago, the internet was still in its infancy and cloud-based solutions were few and far between. Lessem concedes there have been “a lot of obstacles” but advises budding entrepreneurs to “be tenacious” and “true to your initial ideas”.
“We stuck with it and slowly the delivery technologies and internet gathered speed: Keeping with our pure SaaS DNA and delivery model instead of compromising with on-premises solutions paid off,” Lessem says.
“Stick with your idea – don’t dilute it,” he says.
“Make reference points to the market, get as much feedback as possible, surround yourself with good people.”
ELMO has reported annual SaaS revenue growth of 40% for the last three years, and is looking to further accelerate that growth. Its subscription-based revenue model boasts 93 per cent recurring revenue, and it has forecast a $1.45 million net loss for the 2016/17 financial year on revenue of $16.06 million.
Lessem says it’s a great time for similar cloud-based SaaS solutions in the market.
“There is, particularly in Australia, a growing appetite amongst the investor community for the SaaS business modeling,” he says.
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He notes that investors are looking at “high quality businesses that are providing real solutions to solve pain points in Australian businesses”.
Longer term, Lessem believes SaaS startups with a “great solution and proven business model” will be “sure to resonate with the Australian investor”.