Is the ASX becoming the new NASDAQ? How growth-stage tech companies are finding a warm welcome down under
02 October 2019
With a market heavily weighted towards financial services and mining companies, the Australian Securities Exchange (ASX) has traditionally been light on technology stock, meaning that investors wanting tech exposure have had to look to other markets or exchange traded funds.
Now, however, as the benefits of an Australian platform are becoming increasingly understood across the world, the ASX’s mission to actively target overseas technology companies looking to raise capital is starting to come to fruition.
With numerous growth-stage tech companies from Australia, the Asia-Pacific, the US, Europe and Israel successfully listing on the ASX with good valuations and traction for scale, a clear trend has emerged – the ASX is increasingly being used by tech companies as either a stepping stone to a future dual listing on other exchanges or as a long-term listing venue.
In August 2019, WiseTech (one of the top five ASX tech companies) was the first to cross over the A$10 billion market cap threshold. Other recent high profile raisings include those by Silicon Valley growth story Life360, which launched its IPO in May 2019 and raised A$145 million, and Minneapolis-based payment platform Sezzle, which launched its IPO in July 2019 and raised A$43 million. Most recently, Irish insurance software company Fineos launched the largest 2019 initial public offering on the ASX with an A$211 million dollar listing.
Over the last five years, the ASX-listed tech sector has triumphed as the fastest-growing sector in respect of new listings, with its growth rate more than doubling. So why is it that the ASX is increasingly being seen as the new NASDAQ?
- A super pool of capital
A listing on the ASX exposes tech companies outside the US or UK to a much broader network of investors, both in Australia and around the globe. Australia’s funds management industry is the largest in the Asia-Pacific region, in part due to Australia’s compulsory superannuation system. By 2035, its pool of superannuation assets is expected to reach A$9.5 trillion. While resources and financial stocks will continue to draw the lion's share of that cash, tech is undoubtedly the fastest growing sector on the ASX.
- Valuation requirements ideal for start-ups
Starting a technology company has never been easier. The digital revolution has allowed technology entrepreneurs and their investors to go from an idea to reaching millions of customers at a speed never seen before.
While Silicon Valley is largely considered the home of tech start-ups, listing in the US is onerous to the point that it is not accessible to growth stage companies. In particular, companies trying to go public in the US are prone to litigation and enormous expense. Floats are fewer but larger, because by the time the company reaches a stage where it can afford to list, it is mature. For a tech company to list on NASDAQ, it needs to be circa-US$1 billion to get any traction. For a tech company to get a float worth less than US$3 billiion or US$4 billion underway is almost impossible.
Conversely, the ASX presents itself as the ideal market for tech companies valued under US$1 billion. Provided they have a minimum number of 300 non-affiliated investors (totalling $2,000), a free float of 20% and can satisfy either the profit test (having A$1 million) or the asset test (having A$4 million net tangible assets or A$15 million market capitalisation), companies can list on the ASX.
- High ranking in the world’s top equity markets
The ASX is consistently ranked in the world’s top ten global securities exchanges by value, and is a world leader in capital raising, ranked within the top five exchanges globally. In 2018, Australia found itself within the global top five for IPOs, coming in at A$8.5 billion with 132 new listings. In particular, the ASX recorded A$4 billion in tech-focused IPO capital raised between 2013 and 2018. This figure provides clear incentive for growth-stage companies who are looking to raise capital to fund future growth.
- Well-regulated with a stable economy
A listing on a well-regulated exchange helps to build a company’s reputation and profile as it shows they are focused on strict business and accounting procedures and professional management. It can also bring additional credibility when dealing with large multinational customers, which is important for a tech company in the growth stage.
Another great attraction of Australia is its resilient economy and impressive growth record. Over the past 28 years, Australia’s economy has grown by an average rate of 3.2% in real terms. This is well above that of all other major developed economies, including the US (2.5%). Further, Australia’s tech industries specifically have grown at a yearly average rate of approximately 5.0% over the past 28 years. This high and steady economic growth gives foreign companies confidence and incentive to list.
- Access to a global market
Australia’s local market is global, which brings global exposure – each day, approximately 45% of the ASX’s trading volume and capital comes from outside Australia. For tech companies who don’t want to be limited to investors from a single market, this is a great attraction. With a market cap of A$1.9 trillion, the ASX has a significant capacity to fund local and global companies, meaning it can be used by tech companies at growth stage as either a stepping stone to a future dual listing on the NASDAQ or as a long-term listing venue.
Following the downturn of the Australian mining boom and recent regulatory scrutiny of the financial services industry, the ASX has looked to redress the majority of the value of its market being tied up in the mining and financial services industries. It has done this by courting US, European and Israeli tech companies and industry bodies and actively encouraging a less concentrated spread with a focus on the tech companies of the future.
- An epicentre of technological innovation
Australia has always prized innovation and punched above its weight for technological advancement – this is the country that brought the world WiFi, ultrasound, the pacemaker, the bionic ear, the underwater torpedo and, most importantly, Vegemite! With Australian technology companies such as Atlassian, Xero and Canva having global success and a supportive ecosystem, the ASX is open for business to ambitious tech companies, regardless of jurisdiction.
While technology stocks currently only make up 2.4%, or approximately A$50 billion, of the A$1.9 trillion worth of companies listed on the ASX, the exchange wants that to grow.
ASX executive general manager of listings and issuer services Max Cunningham has recently commented “ASX is trying to position ourselves as a late-stage VC [venture capital] funding market with companies that have de-risked their model, have proven their revenue and are looking to scale their businesses and potentially go public to provide liquidity for their shareholders and acquisition currency”.
The ASX’s clear appetite for these stocks means that tech companies desperate for much needed capital to scale will find a warm welcome down under.
Head of Technology, Media and Telecommunications
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