Mixed views as ASX tightens screws on backdoor listings
The ASX’s decision to tighten listing rules in a bid to stop very small companies, including tech outfits, from jumping too early on to the bourse has received a mixed response from the local innovation sector.
Under a range of proposals outlined last week, the ASX is aiming to raise the minimum net tangible assets test from $3 million to $5m; introduce new requirements for listed companies to have a 20 per cent minimum free float of their shares; and increased oversight of backdoor listings.
The market has seen a flood of backdoor listings as companies look to connect with sophisticated investors who are shifting their focus from junior miners to technology hopefuls and the trend has clearly raised eyebrows at the ASX.
According to Atlassian co-founder Mike Cannon Brookes, the increased scrutiny is fully justified. “By and large, backdoor listings are a horrible idea,” he told The Australian.
“They’re unsuccessful in tech and that’s because it’s a funding source of last resort. Most of these companies have been to all the venture funds and been turned down for capital or have wanted too high a valuation or haven’t had the team or need some more traction or something.”
John Dyson of Starfish Ventures is more circumspect about the ASX’s proposed rules, saying that reverse listings are … a symptom of the state of the local capital market. According to Mr Dyson, tech companies do need to get access to the right amount of capital and the right support.
“There’s a dearth of capital in Australia — especially for companies wanting to raise $3m-$10m — which forces them to look for alternate sources of capital and that’s why you’re seeing backdoor listings and the like,” Mr Dyson said.
“Whether it’s the best source of capital is the question I have in my mind, and whether the investors investing have a full understanding of risks and challenges associated with them.”
Quantify Technology CEO and founder Mark Lapins said that while there should be more scrutiny on listings, the ASX crackdown created a double-edged sword.
“Without an alternative to listing and the growth of a start-up funding culture like we see overseas, fledgling tech start-ups will either continue to flounder or relocate operations to a more amenable region,” he said.
Mr Lapin added that the tightening of financial requirements to discourage start-ups from listing too early did not address the bigger issue of being able to access capital, which would discourage entrepreneurship in Australia.
He was also confident that the proposed changes would not derail Quantify’s listing plans, saying that unlike other early stage start-ups the company had a number of milestones under its belt that unequivocally highlighted its prospects.
Another factor propelling the backdoor listing trend, according to Melbourne Accelerator Program director Rohan Workman, is that many tech start-ups are reluctant to cede too much control to any venture capital investors.
“While the ASX probably isn’t the best platform for early-stage tech companies, VCs tend to take a lot of equity in Australia,” Mr Workman said.