Freelancer.com CEO Matt Barrie . . . “My ultimate goal is to build Australia’s first big consumer internet company.”
Photo: Louie Douvis
It takes a lot of self-belief to walk away from a $US400 million ($424 million) offer to buy your business in favour of a public listing, as entrepreneur Matt Barrie has just done.
But the most interesting thing about Barrie’s decision is the choice of stock exchange: he is aiming for an initial public offering on the Australian Securities Exchange by the end of the year.
Most Australian technology entrepreneurs head straight for the US and Nasdaq. There is a widespread belief that Australian stock investors don’t know how to value a technology firm. But Barrie, who ranked seventh on this year’s BRW Young Rich list with an estimated net worth of $185 million, is having none of it.
“We should look at building up the Australian stockmarket in technology,” Barrie says. “We have a fantastic market where more money has been raised on the ASX than Nasdaq over the last five years; we’re number four globally for new raisings and Nasdaq is number six.
“I hope if we’re successful we can trailblaze a bit of a path for others to do it because the market is very hungry here for technology companies.”
Barrie owns 50 per cent of Sydney-based freelancer.com.au, which is an online marketplace for outsourcing work to freelancers around the world. Its customers are global and it competes with companies such as oDesk and Elance in the burgeoning online work space. Australian start-up 99Designs also plays in this niche, with a specialty focus on design work.
No quarry, there’s a query
Barrie says the ASX is dominated by mining companies, and financial services firms that are exposed to mining, so there are not a lot of options for investors outside that.
He believes there is capital waiting on the sidelines and points to the success of New Zealand-based accounting software company Xero and e-commerce companies such as SEEK, CarSales and REA Group on the ASX as evidence.
Xero is currently trading on the ASX at $16.86 a share – $10 a share higher than it was six months ago – implying a valuation of $2 billion. That’s despite the fact the company posted a loss for the year ended March 31, 2013.
Not all technology entrepeneurs feel the same way. In June Atlassian co-founder Scott Farquhar ruled out the ASX, telling BRW that: “Any future listing, if it were on the cards, would not be on the Australian Securities Exchange. We’d be [almost] the only software company . . . you wouldn’t get the valuation; they wouldn’t understand our story the way the US would.”
Farquhar and business partner Mike Cannon-Brookes, who again topped the Young Rich this year, took in $US60 million in venture capital funding from Accel Partners in 2010, and it was widely reported at the time that the long-term plan was a listing on Nasdaq.
Another who says Australian investors don’t understand technology businesses is the chief executive of Sydney-based venture capital firm BlackCitrus, Stephen Moss.
He questions whether ASX investors would understand a business like Freelancer.
“I don’t think they would, but I think they’ll speculate,” Moss says. “It’s probably a poor decision to IPO here because they’re going to get a higher price-earnings multiple in Hong Kong or the US.”
Moss agrees there is appetite for technology stocks on the ASX and thinks it would be “fantastic if the average mum and dad could have a little stake in [the sector] through their super fund”.
That said, BlackCitrus owns a 35 per cent stake in COZero, a company that sells technology to help businesses reduce their energy usage, and plans to take that to an ASX listing. Moss says he would hope COZero would be considered an energy company, rather than a technology business.
His colleague at BlackCitrus, Shannon Murray, says Australian investors have a much smaller appetite for risk, as demonstrated by the fact that MYOB was pulled back into private equity. He says the capital gains taxation regime favours companies that pay dividends rather than those that are geared for growth.
However, Morningstar analyst Tim Montague-Jones says the principles of how to value a company are the same regardless of the industry sector.
“I think Australian investors are quite good at valuing companies and they use a multiple of earnings, so as long as they’re making money then online businesses can be valued,” he says.
“If a business is doing well and has a product or service that people desire and want then you generate strong revenues and strong returns on capital and that’s the way you look at any business.”
Outsourcing is in
One company that is watching developments at Freelancer with interest is US-based competitor oDesk.
Its vice-president of business development and international, Matt Cooper, says the company was delighted by the fact that Japanese recruitment firm Recruitco offered $US400 million to buy Freelancer.
“It is a great sign for the sector – just the fact that there’s interest in the online work model is drawing attention to how far we’ve come so far and the long-term potential of the model,” he says. “Should a transaction go through at that kind of valuation we’d be ecstatic because oDesk is five to six times bigger.” (Cooper spoke to BRW just before the news that Barrie had rejected the offer in favour of an IPO, but says his comments still stand.)
Cooper says oDesk recently hit the $US1 billion threshold for the value of work completed through the website and the total market could ultimately be worth $US1000 billion.
Though oDesk is still privately owned and the company has not divulged the exit strategy for its founders and investors, Cooper says the market for technology funding and exits is buoyant in the US.
“It feels like things are picking up and back on the upswing; on the public markets there hasn’t been a whole lot of news until Twitter announced its filing but the funding markets are good and the general economy is picking up.”
Last year Australia saw its lowest level of merger and acquisition activity for five years, but Cooper says he gets the feeling that will change here too.
oDesk is keen to ride the wave of technology start-ups emerging from Australia and has launched a new start-up accelerator program here, offering mentoring and oDesk credits to start-ups that are members of AngelCube in Melbourne, or Pollenizer or Startmate in Sydney.
‘Do I like surfing?’
Freelancer’s Barrie says there is a great wave of start-up enthusiasm in Australia right now and companies like Campaign Monitor, Invato, Hipages, Hotels Combined, 99Designs, Kogan, BigCommerce and Atlassian are all a part of it. He says the venture capital scene in Australia is still “pretty terrible” but that many companies were achieving success by boot-strapping.
“Just about every second person I meet is doing a start-up right now, which is very different to when I started out,” Barrie says.
Ultimately there is an element of patriotism in Barrie’s decision to go with the ASX. Too often, Australian start-ups might raise the first round of capital locally but turn to the US as their demand for capital grows.
Along with that comes pressure for the company founders to move to the US or bring in US management.
“Ultimately you wind up with a US company with US shareholders and a US management team paying US tax and at that point the CEO goes ‘Do I like surfing?’” says Barrie. “If they like surfing, they’re willing to take a 14-hour flight to Sydney to visit the engineering team and if not, hiring gets frozen or it gets shut down.”
Barrie says Australia needs to diversify its economy beyond resources and he hopes to play a role in that.
“I’ve been saying for years I think that it’s a national imperative to build the technology industry up in this country and my ultimate goal for the company is to build Australia’s first big consumer internet company.
“This is the best chance to achieve this while staying masters of our own destiny.”