“The listing rules will flex once the market gets comfortable with the risk/reward profile of start-ups,” Sydstart coordinator Pete Cooper. said. Photo: Peter BraigStart-ups have disrupted a slew of industries. Now the country’s up and coming tech entrepreneurs have the Australian Securities Exchange in their sights.
Listing as a way of raising growth capital will be the headline topic on Tuesday at one of Australia’s largest tech start-up conferences, Sydstart.
Co-ordinator Pete Cooper said he was championing the idea because he said start-ups colonising and disrupting the ASX would be good news for both parties, and was inevitable.
“The listing rules will flex once the market gets comfortable with the risk/reward profile of start-ups,” Mr Cooper said. “These companies typically have a unique disruptive advantage that is gold for investors if the company executes correctly. To be frank, a lot of incumbent industries that are being disrupted are more risky than the challengers.”
While he is bullish about the potential of the ASX to fill the gap created by sparse local later-stage capital, Mr Cooper concedes investing in tech start-ups is a little out of the comfort zone for many ASX investors and currently only available to larger start-ups.
The rallying call to list peaked in 2013, spurred on by Freelancer founder Matt Barrie, whose cash-strapped but rapidly growing outsourcing marketplace coupled with his previously poor experience with venture investors led him to list in November.
Other recently listed start-ups include foreign derivatives exchange platform OzForex, digital network Vocus Communication and customer loyalty program for cafes Rewardle.
Many more are planning to. Both rapid-trading platform Pepperstone Financial and not-yet profitable taxi-booking app and payment system Ingogo have announced plans to list this year.
Benefits of agility
Beyond the hefty costs of listing and compliance, the ongoing challenges of being a public company are considerable for companies that rely on their agility to get ahead. Many tech start-ups hope to fly under the radar of their competitors until it becomes too late for major companies to hit back.
Even more chase growth rather than profit for years. Both of these factors can make any investors nervous quickly.
Deloitte Private partner and start-up specialist Josh Tanchel said listing could bring much-needed capital and credibility to growing companies that were willing to risk taking on expensive and often cumbersome compliance schedules.
“There are better ways to raise funds for new companies than listing,” Mr Tanchel said. “I’m not convinced listing will work for companies seeking series A or B capital.” He added companies would be need to be similar to BigCommerce or Atlassian, which have graduated as start-ups and required tens of million in capital to get to the next level. Both are rumoured to be considering listing.
While listing for growth capital is working for sharemarket darlings such as Xero, start-up investor Alan Jones said it could put new companies at a disadvantage.
“The ASX is great at disclosure requirements. This is great for investors but sucks for start-ups facing stiff competition if they’re the only one who has to declare their growth metrics and margins,” Mr Jones said.
He adds the listing could deprive start-ups of the powerful advantage of close relationships with well connected and proactive investors.
While the listing and compliance costs can be intimidating for young companies, Mr Cooper is confident the ASX will smooth the route to listing in the coming years and is already putting his money where his mouth is.
“The ASX doesn’t want you using other capital sources, so it’s only a matter of time before barriers drop,” Mr Cooper said. “I want my superannuation invested in the start-ups, not the legacy industries.”
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