SPECIAL REPORT: Two years on, the surge in ASX backdoor listings shows little sign of slowing, helping innovative technology businesses in Perth, interstate and overseas to raise capital.
SPECIAL REPORT: Two years on, the surge in ASX backdoor listings shows little sign of slowing, helping innovative technology businesses in Perth, interstate and overseas to raise capital.
Justin Miller is a tech entrepreneur whose experience provides a telling insight into the changing state of the capital markets.
In 2006, when he established Sensear, the mining boom was in full flight and the prospect of listing a tech startup on the stock market was virtually non-existent.
Instead, Mr Miller tapped private investors, moved to Silicon Valley and oversaw a period of rapid growth, before stepping down from Sensear and moving back to Perth with his young family.
Mr Miller and his Silicon Valley-based business partner, David Cannington, have since established another tech startup in the rapidly emerging ‘wearables’ sector; but this time his plans are very different.
“I got back and everyone was asking how Perth could become the next Silicon Valley,” Mr Miller told Business News.
“I, for one, am saying we shouldn’t, the valley evolved in its own way.
“The interesting thing for me is the opportunity that came from the slowdown in the mining sector.
“The risk capital here is looking for a place and it’s not going to junior explorers any more; you’re seeing it with technology coming into mining shells.
“I’m not going to try and fight that; there is an appetite for risk capital at that level and it provides an opportunity for technology companies to enter the market.”
Mr Miller’s company, Nuheara, is planning to raise $3.5 million as part of a reverse takeover (RTO) of cash-strapped explorer Wild Acre Metals.
It is aiming to join about 30 other technology companies that have completed RTOs, or backdoor listings, on to the ASX over the past two years, with a similar number in progress.
High flyers
Among all these deals, the most outstanding success story, at least in terms of investor returns, has been software company 1-Page.
Interestingly, 1-Page is based in Silicon Valley but chose an RTO, through Perth company Intermet Resources, as the best way to raise capital last year.
Early investors were able to buy shares at 16 cents (post consolidation), as part of a $400,000 capital raising, managed by broking firm DJ Carmichael.
1-Page subsequently raised $8.5 million at 20 cents a share.
Those shares are now trading around $3.40, valuing the company at more than $250 million.
Another big success has been migme, which was established by Perth-raised chief executive Steven Goh in Australia but moved to Silicon Valley after raising funds from US-based venture capital investors.
Lack of success in the US prompted migme to shift to Singapore, where it is developing social networking apps and other digital media products for Asian markets.
The company listed on the ASX last year through an RTO of Latin Gold, and since then has delivered strong returns for investors, with its shares rising five-fold to just above $1.
Investors in Subiaco-based ZipTel have enjoyed similar gains as the company develops new mobile calling apps.
The keen investor support for these companies means they have been able to go back to the market for secondary capital raisings.
That’s a critical success factor for businesses developing new products and penetrating new markets, all at substantial cost.
Opportunities
The geographic diversity of these companies is reflective of the 30 or so tech businesses that have competed RTOs over the past two years.
NewZulu, for instance, is run from Paris, iSignThis is based in Melbourne, Tomizone is from Auckland, while Covata is run from Melbourne but is currently setting up in Silicon Valley.
The surge in RTOs has also been great news for tech entrepreneurs in Perth, with iWebGate, Spookfish, Cirrus Networks, Norwood Systems and rent.com.au just some of the local businesses to complete listings on the ASX.
The ability of Perth entrepreneurs to harness the capital markets in unlikely ways is illustrated by the example of Peppermint Innovation.
Led by chief executive Chris Kain, Peppermint is commercialising a mobile payments technology in the Philippines.
A US-listed company developed the product in the early stages, with $US9.5 million invested over four years.
It’s now the property of Peppermint, which has appointed DJ Carmichael to raise $3.5 million ahead of a backdoor listing through Chrysalis Resources.
DJ Carmichael’s head of corporate finance, Davide Bosio, said while the tech sector was challenging, there was still plenty of interest.
“I think it’s become a lot more discerning now,” Mr Bosio said.
“There have been some deals that haven’t got away, lots of supplementary prospectuses are going out, and people are asking more questions about how the money will be used.”
Wearables market
It seems those ‘discerning’ investors have been quick to recognise opportunities in cutting-edge products such as those being developed for the wearable technology, or wearables, market.
It’s in this market, led by Fitbit activity trackers and the Apple watch, that Nuheara is pursuing opportunities.
“The wearables space has exploded in the past 12 months,” Mr Miller told Business News.
“We’re at the start of the wave, that makes it exciting.”
Nuheara’s lead product is a type of ‘ear bud’, which will work in tandem with its smartphone app to enable wearers to control what they want to hear.
“Effectively you’re putting a computer on each ear.
“It providers a user with the ability to take phone calls, listen to music, boost hearing when you need to, like in a cafe, and allow the user to maintain control of what they hear.”
Mr Miller cites the examples of someone at a football game, who would be able to block out background crowd noise while tuning into the radio commentary or receiving phone calls.
Nuheara’s $3.5 million capital raising is designed to take it to commercial production of the ‘ear bud’ by the end of 2016.
Its business plan also involves funding post-doctoral research at Curtin University, which the company can utilise in future products.
