Taking stock of the Freelancer float

Freelancer.com's indefatigable founder Matt Barrie is never short of confidence and he’s going to need every ounce of it to make this IPO work.

Freelancer Ltd. has joined a growing contingent of Australian technology firms choosing to list on the ASX in an effort to raise capital. It’s a bold gamble by Freelancer’s indefatigable founder and CEO Matt Barrie, who is blessed with a surfeit of confidence, and he’s going to need every ounce of it to make this IPO work.

The prospectus suggests a market capitalisation of $218 million and it comes hot-on-the-heels of a private equity buyout offer of $400 million last month. Rather than succumb to the temptation of a big money play Barrie seemingly has a different game in mind.

Freelancer.com has timed the prospectus well, releasing it only a week after OzForex listed on the ASX with a 28 per cent premium to its listing price. This bodes well for the technology sector, and success for Freelancer.com could further bolster confidence about the prospects of fund raising through the use of IPO’s.

Technology Spectator spoke to Barrie last week and he rejected the notion that listing is too onerous for low-volume fund raising, “You can take an early stage mining company to the ASX with no drill holes in the ground, why can’t you take an early stage tech firm?”

Fact or fiction?

Barrie is both chief executive and chairman of the board and is excited not just at the prospects for Freelancer’s float, but also about the potential for tech firms following his lead. Barrie reckons Freelancer.com just might kickstart a process that until now had been on the too hard to do list for many tech companies.

“I can think of about two dozen really strong tech companies in Australia that are doing over $10 million in revenue that could potentially list in the next year or so,” Barrie says.

“The barrier is simply that they haven’t considered it. The drive has traditionally been towards venture capitalists. There’s a fiction that you can’t list in Australia, that there’s no deep pockets, in terms of investors, which is wrong.”

“There are people that say you won’t get the same premium that you’d get in the US, which is also rubbish. If you look at the Australian listed tech sector it’s listed at a premium to the US, just look at Xero,” he adds.

Barrie is determined to keep his company in Australia and to maintain control. He insists that the same funding models used to prospect for unproven minerals resources can be applied to tech startups.

“If you’ve got a fantastic company why would you want to share it with anyone? Why would you want to sell pieces off to people? The aim, surely, is to fund it here and grow it here,” says Barrie.

“We do this tremendously well in resources. More money’s been raised on the Australian stock exchange than on the NASDAQ; it’s just that it’s all in mining.”

Again, these are bold statements but they tie in well with Barrie’s narrative that the Australian tech sector needs its home grown heroes. To that affect, Barrie says that one of Australia’s biggest tech success story Atlassian’s decision to eschew a listing on the ASX was a missed opportunity.

“I think Atlassian should have listed on the ASX, I think they would have had tremendous home-ground advantage. They’re a global software tech firm but they would have got a huge premium here. They would have been home grown heroes.”

Punting in uncharted territory

As is the case with OzForex, Freelancer has few peers on the ASX. This may act as a competitive advantage in luring investors, but it may also have the opposite effect of tempering investor’s enthusiasm for taking a punt on an unproven industry.

It should be noted that OzForex floated with a much larger $480 million valuation, with founders who were selling off almost their entire stake and with private-equity firms taking the opportunity to cash-out; and yet they still managed to attract a premium on the listing price.

With only six per cent of Freelancer’s equity on offer, and with Barrie retaining his full stake, there are no signs that this is an attempt to cash-out. The prospectus explains that the offering aims to raise funds to fuel growth and international expansion. They have $25 million of cash on hand; net tangible assets of $11.9 million and zero debt after the float. Forecasts suggest that revenue will rise by 73 per cent to $18.3 million this calendar year while profit in the 2013 financial year will hit $500,000.

As a stalwart in the new breed of local tech start-ups, Barrie is convinced Freelancer is well positioned to maintain their momentum. One source of this conviction is the massive pool of people, some 4.5 billion strong, who are yet to be connected to the internet. According to Barry, this is in-line with Freelancer’s niche of connecting isolated workers in less developed countries to their immense market place that reaches all over the world.

But in the end, Barrie’s ambitions will live or die not solely on Freelancer’s optimistic revenue forecasts, or a growing customer base. It will all come down to the appetite of Australian investors for jumping back into the equities market and doing so with a company that is vastly different to the Aussie status-quo of mining, real estate and the big banks.

This distinction could be a blessing or it could be a curse, the only thing that’s certain is that if Barrie manages to pull this off, and Freelancer debuts at a premium, the Australian tech industry better gear up for a seismic shift.