AirTree Ventures

1999 all over again for tech start-ups

SOURCE: Paul Smith and Edmund Tadros, BRW

When Matt Barrie floated his tech company Freelancer in November 2013, he rang the ASX’s commemorative bell so hard he broke the clapper right off the rope. It was a portent of what was to come.

Hitting the ASX’s boards at 50¢ each, within hours, shares in Freelancer doubled their value. Then they more than doubled again. After its first day as a listed company, Freelancer – an online marketplace for graphic designers and programmers to sell their wares – was worth $1 billion. The charismatic Barrie was soon to be confidently predicting growth to rival Facebook. His float was a smashing success.

One year later, the shares are back where they started at 52¢. Revenues for Freelancer’s first financial year were $12 million, the bottom line was a $600,000 operating loss. Extraordinarily, given the excitement that greeted Freelancer’s sharemarket debut, both figures were exactly in line with pre-IPO forecasts. “We’re actually in a better position than ever before,” says Barrie, with unwavering self-confidence.

It’s been a year of wild valuations for tech companies. In the United States in February, Facebook paid $US19 billion ($22 billion) for WhatsApp, a messaging company, with annual revenue of just $US10.2 million. That staggering number has since been eclipsed by Chinese e-commerce platform Alibaba’s $US168 billion post-listing valuation in September – the biggest IPO in history.

This week, controversial ride-sharing app Uber was reported to be raising capital at a level that would value the company between $US35 billion and $US40 billion.

A decade of reticence following the bursting of the dotcom bubble in 2000, when $US5 trillion was wiped off the market value of companies and the US was dragged into recession, has given way to buoyant projections, eye-popping investments and market-shaking IPOs.

Some are asking whether those milliennial days, when businesses struck it rich with little more than an idea and fancy presentation, have returned.

Adjustment needed

“Valuations definitely need an adjustment,” says Craig Blair, chairman at social TV start-up Beamly and former Expedia Australia managing director.

Blair is partnered with well-known tech investor Daniel Petre in the recently closed $60 million Airtree Ventures fund, which is targeting its investments on early growth-stage tech companies. He’s one of many to have a nagging sense of deja vu.

“I think we will see some sort of correction in Australia and those businesses with sustainable models will thrive, those that are growing by increasing marketing spend with high-cash burn will struggle,” he says.

There’s a perceived wisdom in technology circles that you look at what is happening in the US, then fast-forward a year and it will be happening in Australia. If that’s the case then the good times for companies with “e-” at the start of their names are set to roll throughout 2015.

Almost a year on from the WhatsApp purchase, it feels like time for local players to fill their boots. An increasingly vibrant industry is emerging purporting to support start-ups, and the financial pages are filling with prospective IPO