When Matt Barrie made the decision to list his Freelancer.com business locally on the ASX, many were surprised. Despite Freelancer being founded in Australia, its ambitions are global in nature and Australia and the ASX aren’t generally considered desirable places to launch a publicly listed technology company.
But Barrie felt it was the right move. He described Australia as “the valley of death” for mid-sized start-ups seeking capital raises between the $1 million - $5 million mark, and wanted with Freelancer’s relatively small IPO raising to provide a template for others looking to follow the same path.
The strategy paid off for Freelancer - it listed at 50 cents a share, popped on day one to a high of $2.50 and right now is sitting at $1.37 with a market cap of $597 million. The results of Freelancer so far have definitely piqued the interests of large-scale investors and there are numerous reports many of the big players are looking around for opportunities in the digital and technology sector.
Over the past two months, we have seen some notable investments. UBS and various private equity investors pumped $3.4 million into taxi disrupter Ingogo; James Packer, Seek founder Paul Bassat and other investors put $3m into similar service gocatch. Telstra invested $10 million into US cloud storage service Box and $43 million into video service Ooyala.
At the same time, most of the major media and telco players are in some way or another looking to support the start-up community - Optus with Innova8, Telstra with Muru-D, Newscorp supporting Fishburners and mi9/Nine Entertainment Co supporting Pollenizer. The strong share price performance of US technology companies has also played a role - with an almost insatiable investor appetite for digital IPO’s and funding rounds for seemingly anything with a disruption mandate, regardless of profitability.
However, while Freelancer made a successful debut on the ASX, there are not a lot of natural domestic candidates for going public in 2014. If you look at Freelancer, it satisfied three key elements – large-scale user base, demonstrated revenue and opportunity beyond Australia’s borders. Not all digital/technology plays aiming for a listing need to have global ambitions, but if they plan on being local in focus they need to demonstrate respectable revenue growth and increases in user numbers at the very least.
The idea of buying up a collection of entities in a similar space and creating a listed roll-up is one that will definitely be looked at by some over 2014. The concept - buy a bunch of companies in the digital/technology space, work out a way to position them into an innovative stack of interrelated components, and seek to list at a premium. US event promoter SFX pursued the same strategy when gobbling up event companies around the world for around $250 million and using these assets to generate a $1 billion IPO on the NASDAQ.
Far from being purely an opportunistic ploy, a roll-up of strong, complementary assets with the digital/technology space should help the individual companies realise efficiencies in operations, business development, technology development and finance. Companies focusing on either data and analytics and/or paid products and e-commerce in either the b2b or b2c area, with growing revenues and a realistic profitability path (or current profit) will be considered appealing.
It is worth touching on an example of this approach from just six years ago. It was Blue Freeway, positioned as a collection of leading digital marketing and technology firms that was going to create a single brand model that could provide large-scale corporations one digital marketing partner. It bought a stack of companies in the space - some successful, others not so successful - and effectively tried to jam them together.
Blue Freeway generated initial interest on the relatively general premise of the growth of digital marketing and an assertion that from 2010 ‘digital natives’ would start to control marketing expenditure and they would rapidly move money away from broadcast channels. Both of these were true but the largest mistake investors made was assuming BlueFreeway’s management and board knew how to capitalise on the opportunities they would present.
They didn’t. Their centralised approach of one sales team and ‘Blu’ being the dominant customer-facing brand did not work. Blue Freeway hit a share price high of $2.50 in 2007, yet was down below 25 cents within months. This thread from NZ forum Share Trader illustrates the whole ordeal accurately. Ultimately, Blue Freeway’s assets were acquired by IPMG for 4 cents a share in 2009. By the time the company realised the value was in the portfolio companies and not the holding company and its ‘Blu’ platform, it was all too late.
The “blood on the freeway” (as some have called it) created by the Blue Freeway disaster has lingered in the minds of both investors and acquisition targets since. The trials and tribulations of similar entity Enero (formerly known as Photon) have only added to the caution. However the idea is sound if - and it’s a big if - the execution is sound. US company MDC Partners is an example - with strong growth achieved over the past five years. Don’t be surprised if locally the idea of rolling-up a bunch of complimentary companies in the digital/technology space gathers more momentum in 2014.
This is a corrected version of the article that was published on 24 December, 2013. It previously stated that gocatch and Ingogo had received investment from different parties.