The ASX has taken another tech scalp, blocking the proposed $1.3 billion IPO of music streaming service Guvera. This comes not long after the ASX also rejected the $20 million IPO of Bitcoin Group earlier this year.
Let’s get the obvious out of the road first. Guvera, which earned only $1.2 million in revenue, recorded a $81 million loss and burnt through almost $40 million cash in 2015, is not a great company.
Its 16 million registered (not active) users pale in comparison to the $2 billion Pandora (NYSE:P), which has more than 81.5 million active users. Guvera earns revenue through advertising rather than subscriptions but has to pay millions to acquire licences from record companies up front.
Guvera does claim to be the first global streaming provider to enter the Indian market and is considered the only owner of Bollywood music titles in a market that will soon be home to 500 million smartphones. First mover advantage in a nation of 1.3 billion people is worth something, but that something is not a price to sales multiple of over a 1000 times.
Does this mean the company should have been blocked from raising capital? Well, AISC had no objections and whilst it’s tempting to roll out the old Latin saying ‘caveat emptor’, the issue is complex.
The addition of new tech businesses would grow the reputation of the ASX as a home for other tech companies seeking capital. It would also help diversify the market away from the banking and mining sector, assuming start ups in other areas were successful.
The contrary argument is that allowing companies like Guvera and Bitcoin Group to list on the ASX erodes the public’s confidence in future IPOs, especially if they quickly went out of business.
Whilst the ASX is right to protect itself and its listed businesses as well as its investors from such risky listings, if Australia wants to try and keep emerging tech businesses at home rather than losing them to Silicon Valley, it needs an avenue for emerging start-ups to raise capital.
Venture capital can be illiquid and confined to a small group of wealthy investors. A public market would be a better alternative.
New Zealand offers a better blueprint. The New Zealand Alternative Market has far lower listing hurdles than the New Zealand Stock Exchange, as does National Stock Exchange, based in Newcastle, NSW.
With accelerators and incubators all working with Australia’s budding entrepreneurs to develop the next Facebook (NASDAQ:FB) or Atlassian (NASDAQ:TEAM), the demand for capital will only increase.
Whilst the ASX might be our version of the NYSE, there is nothing stopping someone else from becoming our NASDAQ. With some successful marketing to attract investors, some of our country’s biggest emerging businesses might work out they don’t necessarily need the ASX and create a more suitable, attractive market for investors’ capital.