Could Australia’s tech stock frenzy ignite the next Silicon Valley?

Could Australia’s tech stock frenzy ignite the next Silicon Valley?

PUBLISHED: 14 NOV 2013 20:32:00 | UPDATED: 15 NOV 2013 08:16:02

BIANCA HARTGE-HAZELMAN

Australia may not have a thriving technology epicentre like Silicon Valley, but if it is willing to take a little more risk, it may not be too far off. A frenzy of investor activity surrounds the initial public offering of online job-outsourcing company Freelancer.com, which debuts on the Australian stock exchange on Friday. The global company issued shares to 619 institutional and retail investors in the float, which will value Freelancer.com at $218 million, or a multiple of 463 times its forecast calendar 2013 revenues.The listing comes just a week after the successful US listing of social-media giant Twitter and also at a time when global sharemarkets are going gangbusters. But the Australian tech story could be also holding itself back, at least where it all begins – at the start-up phase.

Unlike the United States, Australia has a lack of venture capital investors and the skills of talented tech-heads have a tendency of being lured offshore for golden opportunities.

One company fighting the lure of Silicon Valley money is Australian social web technology and analytics company Digivizer, which lists Telstra and Australia Post as its clients, but is in the process of finding the right investor balance to expand its business offering to the local man in the street.

The company’s co-founder and chief executive Emma Lo Russo said it’s still easier for smaller companies to head to the US for expansion rather than grow locally.

“I have seen businesses that give up equity and head over too early to the US, but then had difficulty managing their growth,” said Ms LoRusso.

“There is a skills shortage and funding shortage holding back tech entrepreneurs in Australia, which forces them to accept the money more easily available in the US. You can have a great idea but the ability to nurture that through its growth stage is very limited, largely because of that funding gap of $1 million to $10 million and a skills shortage. So picking the time to expand is critical.”

GLOBAL SUCCESS FROM SYDNEY

Ms Lo Russo admires local software developer Atlassian, which has indicated that if it lists in the future, it will only do so in the US and not Australia. “Atlassian have proven that Australian intellectual property can be a global success even from their headquarters in Sydney,” said Ms Lo Russo.

While Australia has a much smaller tech sector than the US with a fraction of the thousands of companies listed on the tech heavy NASDAQ, the local scene is building across online classifieds, social media marketing and software development.

“The tech sector is by nature highly speculative and requires solid amounts of venture capital. This is not something the Australian market is good at providing. The small scale nature of many tech startups also limits the number of institutional investors that are likely to get behind even a good prospect, because of the [at least initial] small scale,” said Urbis chief economist Nicki Hutley.

There has been a number of listed companies perform very well over the past six months. NearMap shares are up 100 per cent, REA Group up 26 per cent and SEEK is up 19 per cent.

By comparison the Australian share market is up 15-plus per cent this year, while the local tech sector is up 25 per cent over the same period – underpinned by the confidence of central bank stimulus and ultra-low interest rates.

“Why are they doing well? It comes back to a business model that has a technology which is commercially scalable,” said Wilson Asset Management chairman and portfolio manager Geoff Wilson, who is taking a stake in Freelancer.com.

‘GOING BALLISTIC’

Tech companies doing well in Australia tend to be online classified type companies, social media players and software developers. Nigel Lamb, director of online social marketing company New Media, said lead generation in the social media sector is also “going ballistic at the moment” as companies are finally realising how much cheaper it is to take on a global market place without the need for traditional media and marketing.

As for Freelancer.com, Mr Wilson said the reason he is “excited” about the tech company is because the current valuation doesn’t reflect the scalability of the business.

Other institutional investors also keen to back Freelancer.com include Caledonia Investments, Cadence Capital, LHC Capital and Milford Asset Management. Freelancer has also attracted prominent business figures including SEEK founders Andrew Bassat and Paul Bassat, Caledonia Investments chief investment officer Will Vicars, and US investor Joel Sng. Not likely to participate is small cap fund manager Smallco investment manager Rob Hopkins, who knows the local tech space well, and it’s limitations.

“We like software and internet companies. We tend to look at many below $100 million market capitalisation,” he said.

“We really look for something with recurrent earnings that is already making profits.”

Indeed Hopkins counts Iress market technology and Altium as standouts in the local software space. Iress is now one of the largest financial planning software providers in the United Kingdom after acquiring Avelo FS Holdings in August.

 

Freelancer soars to $2.50 on ASX debut

PUBLISHED: 3 HOURS 21 MINUTES AGO | UPDATE: 0 HOUR 19 MINUTES AGO

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JAMES HUTCHINSON

Job outsourcing website Freelancer.com opened trading at $2.50 on Friday, five times its initial public offering of 50¢, as it floated on the Australian Securities Exchange on Friday.

Shares traded between a low of $1.42 and high of $2.60 in the first two hours of trade, beating initial conservative estimates of $1.21 and causing Freelancer’s market capitalisation to increase from an initial $218 million at IPO, to a high of $1.13 billion.

Freelancer, going by the ticker ‘FLN’, offered 30 million shares or roughly 6.9 per cent for public trading as part of its float on Friday, which was quickly snapped by a range of institutional, retail and sophisticated shareholders.

Pre-opening offers for the stock varied between $2.19 to buy and $4.00 to sell.

It comes just months after Freelancer chief executive Matt Barrie knocked back a more than $400 million takeover offer from Japanese employment giant Recruit Co.

Canaccord Genuity analyst Owen Humphries, who maintained a buy rating on the stock, said investors were trading on the potential for the company to dominate the outsourcing industry against competitors oDesk and Elance globally.

“You’ve got eBay and Amazon, they globalised the product market, these guys are globalising the services industry, connecting small business and entrepreneurs in developed countries with cheap labour in developing countries. They’re taking advantage of that labour wage arbitrage between those countries,” he said.

“The key risk is that the quality of the projects supplied by freelancers in these less-developed countries could be an issue and cause employers to shy away. But the reality is there’s a lot of IP in the business, via its reputation system, that ensures the quality of work improves over time.”

Some investors have voiced concerns about the lack of independent directors and women on Freelancer’s board.

The company, which had positive earnings for the first time last year, forecast $18.3 million in revenues for the year to December and $1.6 million earnings before interest, tax, depreciation and amortisation.

Canaccord estimated Freelancer could reach $33.7 million in revenues and $2.5 million EBITDA by 2015.

It told clients in a note released a day before the float that the company was about scale, which is yet to transform into revenue or earnings.

Though Freelancer.com chief executive Matt Barrie has maintained the company will use the more than $15 million it raised through the float on funding organic growth, Mr Humphries said the listing would allow the company to more easily acquire smaller competitors to grow its user base.

Much of the company remains held by Mr Barrie and two executives. Freelancer’s 300 employees were also offered to take a part of 1.1 per cent of the company under a share plan, now worth nearly three times as much.

Among the 619 retail, institutional and sophisticated shareholders which gained initial shares in Freelancer were local funds Caledonia (Private) Investments, LHC Capital, Wilson Asset Management and Cadence Capital, along with Seek’s founders, Xero investor Brad Shofer and prominent US investor Joel Sng.