Start-ups look elsewhere for cash as ASX ignores London’s start-up lead

The Australian Securities Exchange says it won’t be copying the London Stock Exchange, which has launched a new platform for start-ups, but a start-up financing business says Australian start-ups don’t care.

From next month, high-growth companies will be able to list on a niche stock exchange, the LSE announced last week.

The LSE’s “high growth segment” will allow companies to list by making just 10% of their company public. On the traditional LSE, companies have to put up 25%.

In order to qualify, companies will have to be growing by 20% over a three-year period, be willing to float more than £30 million, and be in line with European Economic Area regulations.

The US has a similar system, which has been hailed as a huge success. However, the Australian Securities Exchange has no plans to follow suit.

An ASX spokeswoman told The Australian Financial Review the local exchange has made changes to encourage smaller businesses to list, insisting the ASX “has worked hard to ensure Australia remains globally competitive and attractive to companies and investors”.

Changes include lowering the spread test to levels similar to those at the LSE.

Under the ASX’s spread test rule, no minimum percentage of issued ­capital is required to be held by a non-related party, so start-ups can retain a meaningful share in the ­business.

But Paul Niederer, chief executive of the Australian Small Scale Offerings Board, says he doubts many Australian start-ups will care whether or not the ASX follows in the footsteps of the LSE.

ASSOB matches entrepreneurs seeking growth capital with investors keen to invest in high-growth opportunities.

“Things have changed such a lot. Four or five years ago, companies that wanted to raise money wanted to raise between $2 million and $5 million,” Niederer told StartupSmart.

“Now with outsourcing and cloud computing, a lot of people are raising between $200,000 and $1 million. At that stage, they can usually get money.

“Really, the next step for them is to attract VC investment here or in America. I think the listing side of things is becoming less and less important.”

Niederer believes IPOs are losing their appeal among fast-growing firms.

“The IPO path… is not really going to be the chosen way for tech companies,” he says.

“Some want to keep the business to themselves, they don’t want to be too public, they don’t want to… have hundreds of shareholders.

“It’s a bit of a mismatch. It’s an older model that doesn’t really match [the priorities of smaller firms].”

For those companies that do want to list, Niederer says there’s nothing to stop them doing so on the LSE or the New York Stock Exchange, particularly if they have already expanded overseas.

“There may well be overseas exchanges that are more attractive to them,” he says.

Niederer also believes more companies would prefer to be acquired than undertake a listing.

“[Companies filling out an ASSOB form] always used to tick a listing on an exchange [as a goal for their business] but that seldom happens now,” he says.

“They have a trade sale or an acquirer in mind. They want to have a really good business and grow it, and then sell it to somebody – they’d rather sell it to Google [than list on an exchange].”

This article first appeared on StartupSmart.