Don’t hold your breath waiting for the next 100-bagger

When Afterpay (ASX: APT) first hit the ASX boards, tapping the public market for capital was really the only way for an early-stage Australian company to scale up, says CEO Anthony Eisen.

And scale up it certainly has. Shares in the buy-now-pay-later firm blew past the $100 mark at yesterday’s open – 100-times above its May 2016 listing price of $1 – on the back of a newly-inked deal with Westpac.

Share price growth since IPO for Wisetech, Afterpay

Source: ASX

Speaking as part of the Australian Tech Leaders webinar hosted by BetaShares on the same day as hitting that milestone, Eisen recalled the fraught decision to take the company public more than four years ago. Before listing their firm, Eisen said he and Afterpay co-founder Nicholas Molnar carefully weighed the various challenges of the move: “to scale, to innovate and having to explain what you’re doing while you’re experimenting.”

“At the time we went public about four-and-a-half or five years ago, the level of venture capital in Australia wasn’t as great as it is today…it’s increased remarkably but we actually didn’t have the option, to be frank, like I think we would’ve had today,” Eisen said.

“In many ways, it might’ve been good to have had more choices at the time, but that’s where our path led us, and we have no regrets.”

Wisetech Global (ASX: WTC) founder Richard White took around 15 years before finally pushing the button to list his logistics software firm in 2016, despite urging from various parties beforehand. “This included probably about 10 years in earnest thinking about when it would be right to go,” he said.

White describes the current environment for Australian technology firms as a “heyday” where they fit within an “ecosystem” that includes several funding sources:

• private investment from friends and family
• private investors generally
• private equity
• venture capital
• listed markets.

“We had limited parts of that system in Australia 10 or 15 years ago, but today we have a very vibrant system,” White said, also referring to the S&P ASX All Tech index that launched in February.

But he emphasises that businesses must mature before they can fit into those ecosystems – which are “better than ever but can still be a lot better.”

“You can’t get the money and then invent something. You’ve got to build a business before you can get liquid investors,” White said.

The combination of more accessible private capital both on- and off-shore and tighter listing restrictions to ward off another tech wreck may see more early-stage Australian companies delay or even entirely forego IPOs.

"Shift toward the bad old days"

But that’s not a bad thing, explained Daniel Petre AO, founder of VC firm AirTree Ventures. He recalled a period in the late 1990s when the quality of Australian technology listings wasn’t great.

“That’s changed somewhat…but we are at a point where we don’t want to fall back into a situation where companies that are sub-scale list, or where they can’t raise any private money so then turn to less sophisticated investors on the ASX,” he says.

“It’s about when is your company ready to go public in terms of the ability to forecast future revenues, dealing with governance and reporting issues…we’re seeing probably too much of a shift toward the bad old days where a random idea gets listed on the ASX, which doesn’t seem particularly good.”

Compound growth of Aussie tech

And that’s not to say anyone is expecting the growth in new Australian technology company listings to stop.

“I think we’ve got all the right ingredients; the talent in Australia is awesome…and is going pound for pound against folks in Silicon Valley,” says Afterpay’s Eisen.

“There are new models proliferating all the time, technology is unlocking new businesses which is something you’re seeing in fintech and in a whole range of other industries.”

Though reluctant to predict the growth of locally listed technology, he believes it will compound from here. “Monetising entire value chains has been key – I see that continuing, and I see these new business models emerging, which should create that compounding effect – whether that’s 20% or 30% in however many years, I can’t say but it certainly will compound relative to other industries.”

Budding entrepeneurs on the future of Aussie tech

One early stage company ideally positioned for an IPO at some point in the future is mortgage originator Athena Home Loans, which launched last February. But CEO and co-founder Nathan Walsh is in no rush: “there’s plenty of money to support private investment, and good access to capital without going public.”

A $300 million deal signed last month with regional customer-owned bank Newcastle Permanent marked a change of trajectory from initial plans to issue residential mortgage-backed securities.

Gig economy company Airtasker – which edged into the black for the first time in late 2019 – has raised more than $55 million from private investors since it was founded by Sydneysider Tim Fung in 2012.

With backing from the likes of Seven West Media (ASX: SWM), Fung’s not rushing to list the company either – but doesn’t rule it out. “We’d want it to be in a way that would allow us to preserve our independence,” Fung said.

Airtasker’s latest funding round last June raised $22 million, and even without going public, the company already has a presence in Australia, the UK, Ireland and Singapore.

In the medtech space, HealthMatch is another startup with lofty global expansion aims. Founded in early 2019 by former medical student Manuri Gunawardena, the company provides a platform to match patients with clinical trials.

Having secured $6 million of funding from private sources including VC company Square Peg Capital in November, Gunawardena says finding the right talent far outstrips the problem of finding capital. As for her thoughts about an IPO: “It’s way too early."

Learn more

The BetaShares Australian Technology ETF invests in a diversified portfolio of Australia’s leading ASX-listed technology companies. You can find out more by visiting their website 

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