List, Borrow, or Deal? Exploring Funding Alternatives to VC, for Emerging, High Growth Tech Posted at 0:00, Wed, 22 July 2015 in Industry Insights
The overcast skies didn’t dampen the event – or the view – for our most recent event, an intimate lunch for CEOs and founders to discuss fundraising alternatives for tech companies. Held in Norton Rose’s finest boardrooms – complete with sweeping views across Sydney Harbour – the event was a collaboration between myself, Nick Abrahams – Legal Futurist, Tech and M&A Lawyer at Norton Rose, Jason Georgatos – Partner at Partners for Growth (PFG), Stuart Foster – CEO Foster Stockbroking and Phil Alexander – Director at Overture Capital.
Twenty-six founders, CEOs and chairs attended the lunch representing some of the leading companies across Sydney’s growth tech market including; Employment Innovations, I Quit Sugar, Bulletproof, ReadiNow Corporation, Carsguide, OneShift, ParcelPoint, Audinate, Oneflare, BridgeLane Group, Reffind, Deputy.com, BrickX, LawPath, Movideo and Equity Ventures to name a few.
Jason of PFG and Stuart of Foster Stockbroking shared their insights on debt funding and listing, respectively. PFG specialise in providing a debt solution for funding revenue-stage tech companies. Having completed 14 deals in Australia, Jason is spending time in the country to educate Australian tech founders in this option. PFG recently provided Employment Innovations with $4mill, having previously provided debt funding to Viocorp amongst others.
Foster Stockbroking won ‘Best Corporate Deal for 1-Page’ this year, and have completed listing for Reffind, 1-Page, Jayride, x-TV and are currently completing the listing for Yatango.
It was a pleasure to hear Jason and Stuart talk openly about their experience, and hugely beneficial for the audience to be able to ask questions of our speakers. Key takeaways from the event were:
1. Businesses should have a run rate of at least $5million and a growth story to fit PFG assessment criteria, although profitability is not required.
2. PFG require the loan to be paid back over an agreed period of time, typically 2-5 years.
3. The average interest rate of PFG deals in Australia has typically been between 12–14%.
4. PFG take a small equity stake in the business as part of the deal, however PFG are entirely passive and don’t act like a VC, nor, take a seat on the board.
5. Typical PFG loan size is $3-5mill although they will lend between $1MM and $15MM.
6. PFG provide funding for both public and private tech companies.
7. PFG have provided over $80mill of historical loan commitments in Australia.
Listing for growth
1. Clean listing with no debt.
2. Good board composition and exec management team.
3. 50% of stock to list i.e need a decent free float.
4. Management & board stock to be in escrow for 24 months.
5. List at a reasonable valuation so everyone wins.
6. $1mill worth of trades a day is normally a good indicator that there is interest in the company. All investors like liquidity.
7. Listing gives the business the opportunity to make significant investments that they would not be able to make without the funds.
8. Front door listing is the way to go. Whilst it is more expensive at roughly $1mill all in, it’s a clean way to list and you avoid disgruntled investors looking for a quick win. ASIC are more vigilant on back door deals.
9. Any business thinking of listing should hire a consultant to look after this process. Re-find hired an ex-PWS consultant at the cost of $80k. It allowed management to get on with running the business.
To expand on point 7, 1-page (1PG) listed in November with Foster broking at 20c and is currently trading at $2.53. It was the best performing tech stock on any listed market last year. With a market cap of $30mill when it listed, 1-Page now has a market cap of $340mill. 1-page was able to acquire another business shortly after listing with the funds it raised from the list. This acquisition has totally transformed 1-Page’s offering to market and has facilitated the growth of the stock by 1200% (12*). Read about it in full here.
Testament to the volume of questions asked in this session, there is certainly a healthy amount of interest in both debt financing and listing, as a way to raise capital for early stage high growth Australian tech companies.
Thanks to Nick Abrahams at Norton Rose for providing the wonderful setting.
Kevin Griffiths leads MitchelLake Executive for the ANZ Practice. Based in Sydney, he is focused on supporting startups, NewCo’s, scale-ups, and established tech companies with C-suite and board requirements, in addition to working with Australian SME’s and enterprises undergoing digital/technology transformations.
Since joining MLE in 2012, Kevin has led over 100 searches. His time has been divided into three key areas – CEO searches for scale-ups or tech companies going through transformation; CTO/CPO searches for tech companies with a global requirement to bring talent to Australia with technology and/or product leadership at scale; and consulting to and leading searches with clients looking to innovate, who are seeking advice from the MLE practice on the question of build, buy, or partner.
Prior to joining MLE, Kevin was a Partner at BMS where he built and led the Midlands commercial practice in the UK, before moving to Australia to help scale the business in Sydney and Melbourne.