While the ASX has tightened the rules for back door listings, tech companies are still wriggling through, because access to other sources of capital remain scarce.
Decision support software company Veriluma, on Friday issued a prospectus via the ASX, and will be listed through the mining company shell Parmelia Resources. The company expects to secure $3.5 million in pre-committed funds by the end of the week, and to re-list as Veriluma in September.
According to CEO Elizabeth Whitelock the backdoor listing wasn’t the company’s first choice to raise funds but; “Australia’s a hard country to get capital. We knocked on a number of doors – probably every door in Australia to raise cash to do all the things that we wanted to do.
“People talk about innovation and venture capital but really it is so small here – people don’t want to take a risk. They’d rather back something that is up and running and making a profit.”
She added that; “Australians when it comes to investment don’t really get technology, they don’t get a female CEO and you’re not digging stuff out of the ground. If I was digging stuff out of the ground they’d get it,” which injects a certain irony to Veriluma’s decision to list via a mining company shell.
It wasn’t the only option explored. “We have been down the path of thinking about flogging ourselves to an IBM – it is on our radar – but you have to do an awful lot of work with SAS or IBM to make them aware of who you are. We started that with IBM and SAS, but to do that successfully we are in the wrong country,” she said.
Ms Whitelock also believes that the funding challenge has been compounded by her gender.
“It doesn’t help being female,” she said, adding that this was a global issue, and that the very existence of organisations such as Springboard, which specifically seeks to invest in women-led enterprise “tells you that there is a problem.”
Whether gender has had much impact or not is moot – but the Prospectus issued last week indicates that Veriluma is still very much a startup – and despite some high profile customers, such as the Department of Defence, the company’s revenues remain slender.
Between July 2013 and last December revenues amounted to just over $463,000. The Defence Department deal made up 80 per cent of the company’s sales since 2012 – but Defence is no longer paying Veriluma and has a perpetual licence to use the software. Veriluma is however hopeful of extending its relationship with Defence and is negotiating to that end.
The revenue figure indicates that there is no way that Veriluma could have floated on the ASX through the front door, as the Exchange currently requires a would-be IPO to demonstrate $400,000 profit in the previous 12 months. It’s also seeking to lift that figure – which has been unchanged since 1994 – to at least $500,000.
The Exchange has taken swift action when it’s unconvinced about a proposed listing; it kyboshed music streaming business Guvera’s IPO plans in June.
The ASX further signalled a tightening of the rules around backdoor listings in May. As a result trading in the securities of an entity are suspended when a backdoor listing is announced and continues until the entity satisfies the ASX’s expectations.
Veteran technology investor and Veriluma chairman, Rick Anstey, said that once the company is across the line and listed, the fact that it emerged onto the share market via a backdoor listing will have no consequence. He is however clearly frustrated that this was the only avenue available to the company.
“Had we been a light hearted dot com we’d have found the money,” he said, but instead after a lengthy search for alternatives to fund the next phase of development the company agreed to a reverse takeover.
But this is no light hearted dot com, it sells serious software.
Veriluma’s heritage traces back to a Queensland based Cooperative Research Centre which in the early 2000s developed a problem centric software engine for the Department of Defence’s intelligence operations.
“Our software was designed to allow the intelligence analysts to deal with a question very quickly. Rather than weeks and months of research to focus on the problem,” Ms Whitelock said.
Unlike data-centric systems such as IBM’s Watson or SAS solutions (and Ms Whitelock has worked for both companies in the past) she said Veriluma; “Can very quickly model the problem and as they gather data or intelligence they can plug it into the model and very quickly map and track what is likely to happen” with the system output featuring the likelihood of an event and a certainty rating.
“So if you are the on streets in Ankara with a few others the night before the coup and saying there is all this military action and tanks on the street, we can put it into the system and very quickly get a view that says it looks like the likelihood of a coup is 80 per cent but we have 100 per cent certainty.”
She said that the underlying problem engine is “like a large calculator or big adding machine,” able to tackle any problem. “Just like a calculator can deal with my tax and also help track mileage or scientific algorithms, the engine is the engine and we have patented that.
“The engine takes input – whether it’s an M&A model or a coup in Ankara because what is important is how we tackle the problem – we don’t come it form a data perspective but from a problem perspective.”
The company is currently working on applications to support DIY divorce applicants, to determine the likely success of merger and acquisition plans, and has supplied the decision engine for Marketlend’s peer to peer lending system.
Veriluma itself was formed in 2010 to take to market the intellectual property that Mr Anstey and his business partner Dr Laurie Hammond had secured in 2006 when they successfully bid for the no-longer-funded CRC’s intellectual property.
According to Ms Whitelock when they were successful they walked away with; “A cardboard box, there were two disks in it and some pieces of paper and that was the sum total of the projects they had acquired. They then had to figure out what had they bought.”
Potential investors in Veriluma are probably doing something similar now – reading the company’s prospectus and working out what they could be buying, and whether it might be worth the risk.
According to Ms Whitelock the clincher for a reverse takeover rather than a direct investment of venture capital is clear; “You can invest in our company and if at sometime you want to get out you can trade your shares and get out.”
Do you know more? Contact James Riley via Email.