For thousands of our home-grown Aussie businesses that are ready to go global, and just need the funding to take them to that next level, there is an untapped source of investment sitting under their noses: the Australian Stock Exchange.
This is something I’ve long believed. And I was prepared to put my money behind my mouth when I offered Stan Kruss, founder of Expo Centric, a $2 million dollar investment on last weekend’s episode of Shark Tank Australia on TEN – if he was willing to IPO his company.
Stan had a cracking business: an in-demand product, rapid growth, and a turnover in excess of $5 million that he expected to almost treble over the coming year. He had also identified the opening of the re-developed Sydney’s Exposition Centre in 2016 as a gold-plated opportunity to take his business global. He was looking for a flat $2 million dollars for 10 per cent of his business.
Anybody involved with Australia’s VC industry will be aware of the challenges faced by high-growth businesses such as Stan’s. With our growing start-up ecosystem it is becoming increasingly possible for entrepreneurs to access early-stage funding. However, once you start to look for in excess of $1 million, it is far more difficult to find investment. It’s a huge hurdle for most start-ups. You’re too big for angel investment, and too small for traditional VC firms. The time wasted and attention lost by many founders pitching for investment is debilitating for the growth of the company – you want the company selling its products and services, not doing a constant pitch for VC capital.
The Australian start-up capital cliff is almost impossible to scale, so I’m not surprised that Stan was willing to dive into the Shark Tank to try and lock down the funds his business needed to grow.
What Stan and his entrepreneurial peers don’t seem to realise is that there is an untapped source of start-up growth funds right at our feet here in Australia. The ASX.
The ASX is the world’s eighth largest stock exchange. It has a long tradition of supporting early-stage mining and resource ventures, and an increasing appetite for “high-risk” ventures in other sectors such as technology. It also provides a mechanism for follow-on fund raising – invaluable for companies wanting to continue their rapid expansion.
In 2013, I helped one of my investee companies, Indoor Skydive Australia Group (ASX:IDZ) list on the ASX. An Australian first indoor skydiving experience based on proven overseas technology and systems, the group needed to raise $12 million to construct its first location. Listing on the ASX provided it with the capital to build its first location in Sydney, and it was the best performing float of the year with the share price jumping from 20c to 82c, before stabilizing at around 50c with the company’s market cap increasing from $18 million to $62 million today. A follow on fund raising round on the ASX enabled it to raise the investment needed to expand again in 2014, and it has just broken ground on a second location in the Gold Coast, and announced plans to expand to Adelaide and Perth. As a way to raise money for growth, the ASX is hard to beat for value.
The benefits of listing on the ASX are something that far too few Australian entrepreneurs understand. That was probably why Stan turned down my offer of $500,000 to help his company float, and a further $1,500,000 once Expo Centric did list on the stock exchange. Seeing the exercise as too onerous and time consuming, Stan walked away without the investment he wanted to turn his business into a global leader.
But not all entrepreneurs share Stan’s fear. Increasingly, Australian early-stage start-ups are looking to the ASX as an alternative to local or overseas VC funding.
A listing on the ASX not only gives a well-governed company access to future capital raisings but the added benefit of access to the announcement platform (a way to communicate your message in an otherwise noisy world of competing press releases), reassurance to customers and suppliers that you are governed well (can your competitors say that?) and the distinct brand recognition that comes with the ASX stock code.
A great example of this is another business I’ve backed since its inception, OtherLevels. Having flipped from Brisbane to become a US-headquartered business, it has gained huge traction in the emerging mobile marketing sector, and reached a point where significant funding will enable it to rapidly accelerate its business. Rather than take on funding from a Silicon Valley VC firm, it’s chosen to list on the ASX.
Stan was right to understand that listing on a stock exchange takes time, money and effort from the CEO. For me, it’s no pain no gain. It’s true that a listing is not for all companies. You need to have a goal and a plan to reach that goal, your company needs to be stocked with good technically bright people, and have a product that customer’s desire. You do not raise money for any other reason other than to grow based off of a solid plan and a public raising of capital is no different – it all starts with a plan.
The process of building this plan is a hugely beneficial one for a high-growth business that wants to be a global player. It requires robust management and accountability systems to be put in place. It helps you build a platform for a lasting business – all things you will need to do to ultimately take your business forward anyway. In the short-term it takes more effort than taking on VC investment, but the long-term gains are well worth it. That’s why I was disappointed to see Stan walk away from my offer.
I think Stan has a great business and I look forward to receiving Expo Centric’s ASX prospectus one day, in the not too distant future.
This article first appeared on Business Review Weekly. View the original here.