From little things, big things grow

In 2016, Afterpay was introduced to the ASX with an IPO price of $1.00. The share price has since risen over 11,000%. If you invested in Afterpay during its IPO and held the stock until today, you would have made 110x the amount you initially invested. Seems too good to be true. But what investors don't know is that if you invested in Afterpay prior to it listing on the share market, you would have got the stock for 80c, allowing for a return of just under 14,000%. 

The pre-IPO market is slowly gaining attention, and with more companies letting investors in early, the opportunity to invest early is opening up. 

In the second instalment of this collection, three of Australia's most experienced pre-IPO fund managers select one stock in its pre-IPO phase that they think have exciting futures in the listed market. 

Responses come from: 

• Jamie Odell, Ellerston JAADE Australian Private Assets Fund 
• Andrew Smith, Perennial Value Management 
• Jessica Farr-Jones, Regal Funds Management 

A company growing 100% year after year 

Jamie Odell, Ellerston JAADE Australian Private Assets Fund 

Mable is one of the most exciting unlisted investments in the JAADE portfolio. Mable is a marketplace that has been created to connect people with a disability or aged care needs, to suitable home care workers. On one side of the marketplace, there are thousands of carers and on the other side, there are families or individuals, often with NDIS or Aged home care packages, who are looking for people to support their individual needs. 

In the six years Mable has existed it has achieved significant scale, providing services to  thousands of clients each week. The Australian market opportunity is large, and even at its current scale, the business is growing at 100% p.a. The company has a long runway of growth, with market share less than 2% of its addressable market. In time, we think an ASX listing will be an attractive option for Mable, but we recognise the company needs to remain focused on building their platform and developing scalable processes so it can leverage its market-leading position.

Not only is Mable a high-growth business with attractive economics, it's also has a strong purpose that provides people with home care needs, either disability and aged care, with a range of choices and better value for money than any traditional service providers can offer.  

Two high-growth performers 

Andrew Smith, Perennial Value Management 

One early stage company we like is Spire, a nanosatellite business. They sit in the lower edge of the atmosphere and are used for monitoring weather data and ships. NASA and the UK's is  Bureau of Meteorology are both clients. Despite being based in the US and Europe, the company is looking to list on the ASX. We invested 18 months ago, and the growth has been fantastic. They're doing another pre-IPO round at the moment and is a candidate to list at the end of this year.

Another company we like, which would be familiar to most, is Koala, the online mattress company. Koala was founded by millennials who wondered, "Why have people put up with waiting weeks for a mattress and paying a lot for it when it's a very simple product?" Much simpler than a sofa or chairs. It's a great product that gets to customers within 3-4 hours of the order. And that's what they were trying to disrupt. The fact that the old system was to go into a store, pick it out, wait six weeks and pay a fortune. That's the competitive advantage they've got.

We've been invested in Koala for two years, and it's just completed a pre-IPO round. We initially purchased vanilla equity because we saw so much upside. We expect quite a significant return for our investors when that comes to IPO, which should be at the end of 2021. They're currently launching in South Korea and are already very big in Japan. They're also busy putting out a new mattress range for Japan. Those two items will be a good catalyst for the IPO.

Another AI player in the game 

Jessica Farr-Jones, Regal Funds Management 

One company that we are particularly excited about is a software company called Metigy.

Since its founding in 2016, Metigy has built a world-leading, AI-powered, digital marketing software solution. The product is aimed at small and medium businesses that wouldn’t typically have internal marketing departments, or the capacity to outsource digital marketing to an agency.

The company assists with the creation and curation of digital advertisements, and the simultaneous deployment of these ads across all relevant digital marketing channels. It's differentiated from competitors such as Hootsuite and Sprout Social by utilising AI-powered data from over 20 million+ sources to provide decision support, insights and recommendations to guide real-time online marketing.

There were many things that we were attracted to, such as:

• A talented, passionate founder and CEO, David Fairfull, who has a strong track record of execution, having already delivered two successful exits, previous IPOs, and deep marketing domain expertise from previous roles;
• The fact that Metigy is already a global business, currently delivering a complete digital marketing solution to over 30,000 businesses across 92 countries;
• An array of impressive partnerships with blue-chip channel partners such as Optus, Google and Intuit Quickbooks;
• A rapid organic growth story, highlighted by top-line revenue increasing by over 300% in FY20, with growth anticipated to continue accelerating as a result of deploying capital from its recent pre-IPO raise; and,
• An attractive transaction structure through a convertible note with a coupon, downside protection and an attractive equity valuation cap.

Despite originally setting out to raise $10m, the company received very strong investor support and subsequently upsized the round to $20m. As a result, the company is well-funded and the increased runway means the business is likely to consider a public listing in 2022. We don’t typically look for IPO events to be the exit strategy for our pre-IPO investments and we frequently take the opportunity to increase our positions at IPO.

Given the terrific success to date, we look forward to being able to further participate in Metigy’s growth in future.

Conclusion 

They may not be listed yet, but in ten years from now, could be household names. Growing at a rapid pace, these companies have long runways to continue to perform. 

Liked this wire? To be updated when I publish the final instalment of this collection, click the FOLLOW button on my profile. If you haven't already, make sure you check out the first wire of this collection 'Why pre-IPO investing is back in vogue'.