Key takeaway
Contact the author Matthew Jay
While the US market is still the go-to market for major tech IPOs, the Australian tech ecosystem is maturing rapidly with a greater amount of capital available for innovative tech businesses. Local investors are eager for quality assets that are scalable with attractive growth runways. We believe that tech companies should be focused on getting their track record, strategies and governance systems right in the private domain in order to build a better platform for a successful listing on the ASX.
The US market remains strong
Despite a volatile 2018 for IPOs in the technology sector, expectations of market corrections and other risks, the tech IPO race shows little signs of slowing down. According to research recently conducted by Bloomberg, a record US$80 billion is expected to be raised by U.S. public markets alone in 2019, with high profile tech companies at the forefront. This is double the annual average since 1990. It’s largely expected that this flurry of IPOs will be dominated by restless unicorns seeking to take advantage of valuations at high multiples, usually only seen towards the tail end of a cycle. The rise of these billion-dollar tech IPOs is forcing investors to think carefully whether these new generation of tech unicorns will keep soaring or if their valuations are a fantasy.
In 2018, the technology sector in the U.S experienced a strong pipeline of unicorns and growth stage companies launching IPOs, while there were some serious economic and political headwinds towards the end of the year. This caused uncertainty across the market resulting in a major sell-down, impacting the performance of the some of the most exciting tech IPOs.
Notably, Dropbox whose performance started well (ranging above its initial asking price) was by 6 February 2019 down a cumulative 11.38%. Music streaming giant Spotify experienced similar challenges falling 9.10%. The biggest losers were GreenSky, point of sale technology company and SurveyMonkey, both down a staggering 52% and 20.53% respectively. In contrast DocuSign has performed well taking its share price up 29.12% since its listing in April 2018.
Despite some uncertainty in the US markets, it does not appear to have slowed down the IPO momentum heading into 2019, which is already stacking up to be a record-breaking year.
US companies to watch:
Uber – at a recent valuation of $120 billion, an Uber IPO at that level would be the biggest public offering ever. Uber has already been publishing financial statements for several quarters that show increasing revenue but still substantial losses.
Lyft – Ubers smaller rival is racing to beat the giant to the table. Lyft was last valued at $15.1billion in June 2018, when it raised $600 million.
Pinterest – the company has reportedly managed to double its ad revenue over the past 12 months, reaching $1 billion according to CNBC. Pinterest was privately valued at $12.3 billion during its last round of funding in 2017.
Slack – the workspace messaging platform may be the first off, the block in 2019 planning an early direct listing at $7 billion.
Cloudflare – the website performance and security services provider are seeking an IPO that could value the firm at $3.6 billion.
The Australian tech market is maturing with a growing pipeline of promising IPO’s
Looking locally, the Australian tech IPO market was underwhelming in 2018 with tech listings mainly led by smaller, more speculative, early stage technology businesses who didn’t manage to excite investors or show signs of major performance. In addition to this, the volatility in the U.S markets towards the end of 2018 forced PEXA to pull its $2.2 billion float, instead selling to Link Holdings for $1.6 billion. Prospa was another notable tech player to pull their listing at the final hour.
Unlike the US markets, large technology IPOs in Australia are rare, but this may change in 2019 and beyond. We are seeing the local technology eco-system starting to mature with a growing pipeline of promising businesses reaching critical scale. There is a lot more time and effort being spent by tech businesses in the private space (prior to listing) getting their strategies and governance systems right in order to build a better platform for a successful listing on the ASX.
Some exciting Australian tech companies to watch in 2019 include:
Lionbridge Technologies, a multinational software and professional services company which is rumoured to be seeking to raise $400 million to generate a market cap of $700 million.
Canva, the online design and publishing platform has become the first Australian start-up since Atlassian to join the rans of Silicon Valley unicorns with a valuation in excess of US$1 billion.
Culture AMP, an employee engagement tech start up raised US$40 million in 2018 with the businesses aiming to hit $100 million in revenue by 2020.
At Venture Advisory, we believe in Australian entrepreneurs and believe that those with compelling business ideas should receive the funding to achieve their outcomes.
This is good news for the growing number of sophisticated Aussie investors who have an increased appetite for opportunities in the space and are starting to warm to the US-style approach to technology investing.
We have partnered with many small and large businesses and enterprises to help them achieve their growth objectives and raise capital in both public and private markets. We have also helped companies in launching their businesses into other jurisdictions.