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Is your tech company IPO ready?
Neale Java, CFO/COO, thedocyard
The road to IPO can feel like running a miracle mile. It’s high stakes, expensive, and fraught with regulatory hurdles. However, the upside is significant. Accessing the ASX has long been a popular option for tech companies looking to unlock the largest pool of investable funds in Asia, often at less cost of dilution than the limited VC options in the region. Indeed, growth-hungry investors are rotating out of blue chips in favour of tech, sparking a predicted $10 billion rush of ASX floats before Christmas.
Why choose the ASX?
“Listing on the ASX was absolutely the right path for thedocyard, given our size and potential for global growth,” said CFO/COO of thedocyard Neale Java. Neale was instrumental in lining up the finances and operationally readying thedocyard to list. Doing so in early 2020, just before COVID forced markets to close, made the listing even more of an achievement.
“The ASX trades $5.6 billion in equities daily, across 2,200 companies drawn from diverse sectors. Emerging technologies are strongly represented, which made the ‘Nasdaq of the Pacific’ an ideal fit for us,” explained Neale. “Throw in the fact that we can access the pre-eminent pool of investable funds in Asia - set to hit $9 trillion by 2035 - and you have the rocket fuel to power next generation tech faster, cheaper, and better than other capital injection options.”
Indeed, Australia is bucking global downward investment trends, reflecting its strong COVID recovery. The region’s clear and consistent response to the global pandemic has delivered a stability global investors are less able to find elsewhere.
“Compared to the same time in 2019, funding in China is down 33%, while Spain’s venture capital investment has fallen 55%,” said Neale. “By contrast, combined funding in Australia and New Zealand are in fact up by 50%, compared to the first half of 2019. Our health response has signalled underlying stability in public and corporate governance, which has boosted investor confidence. Tech in our region is well placed for success in the post-COVID economy.”
By the people, for the people: VC vs ASX
Beyond the reputational uplift listing provides, the ASX allows promising tech companies to join the ranks of blue chip resources and finance, world class health care and biotech, and 220 fellow tech companies.
“By listing on the ASX, thedocyard has joined a powerful peer group of SaaS, enterprise technology, online marketplaces, and FinTech,” said Neale. “Indeed, 2016 saw the ASX attract the highest number of tech listings since the 1999/2000 dotcom boom - 26 technology IPOs with a total market cap of $2.6 billion.”
Having cut his teeth in Singapore and further afield, Neale has seen many foreign tech companies call the ASX home.
“More than 40 foreign tech companies have listed with the ASX,” said Neale.
By contrast, the local VC market is relatively undeveloped compared to other economies.
“The US saw more money raised for single funds in 2016 than the entire Australian venture capital industry,” said Neale. “While the market has rebounded since its 2017 low of $450 million, it’s still a far cry from what tech companies can attract abroad. Foreign funds can afford to take more of a portfolio approach, but Australian VCs with limited funds need to take a larger stake in local companies, rather than spread risk across a range of investments.”
This all contributes to what makes the ASX so unique and appealing for tech companies looking to list.
Is your tech company IPO ready?
“Undertaking a successful IPO often comes down to telling a compelling story backed by metrics. These metrics prove you have already mapped a winning game plan,” explained Neale.
“Investors look for proof points such as, ‘Who are the people behind the story? Do you have a clear go to market strategy? Is there a repeatable sales process with a very good win rate and payback period? Do customers endorse the product?’”
Having convinced the market to back the business with growth capital, it’s time to get to work.
“The next twelve months are crucial,” said Neale. “An IPO is not a destination. You go to the market for growth. An IPO is simply a capital infusion to help your company grow.”
To capitalise on the opportunities an IPO affords, Neale believes in honing the fundamentals.
“This involves constant assessment of four key areas in your business: the team, technical excellence, capital efficiency, and your system for sales and marketing” said Neale. “Your end goal is a team that delivers on the game plan you set forth for investors, rewarding their faith in your IPO story.”
How thedocyard played a role in its own IPO
As a premier dealtech platform, thedocyard proved to be the ideal tool to facilitate its own ASX listing.
“thedocyard is an online platform to help global participants push through and list on the ASX,” said Neale. “We couldn’t have done our listing so quickly without it, especially in the midst of COVID.”
While the road to listing can be expensive, and it’s worth keeping in mind ongoing regulatory requirements, Neale thinks the benefits of an ASX IPO far outweigh the challenges.
“Going public allows for better corporate governance, and better access to capital markets - both equity and debt. It’s a great vehicle for a cash infusion, and can provide fuel for M&A,” said Neale.
Indeed, this has been thedocyard’s post-IPO experience. Halfway through 2020, thedocyard acquired Athena Board, followed by a proposed merger with long time competitor Ansarada.
“An IPO delivers heightened credibility and brand image in the marketplace,” observed Neale. “This can mean you can push and pull many levers to excite other parties to ‘join the party’, so to speak. It also provides a liquidity event for investors, people who have believed in the business, or offer VC and PE firms an opportunity to exit.”
However, being traded on the open market can mean exposure to a more quarterly outlook, rather than a long term view.
“This comes with its own pressures to make money in the short term rather than build for the long term,” noted Neale.
On balance, however, an ASX listing can provide a viable fundraising option for tech companies, particularly those keen to establish credibility and attract support from its deep pool of institutional investors.
“In the right circumstances, an IPO provides the perfect opportunity to capitalise on a tech company’s success to date and fuel its growth through acquisitions and access to new markets,” said Neale.”Done well, an IPO can elevate a tech company to heights few others could equal.”