{"id":44518,"date":"2023-10-20T15:36:35","date_gmt":"2023-10-20T15:36:35","guid":{"rendered":"http:\/\/startupsmart.test\/2023\/10\/20\/xero-sum-game-list-early-to-avoid-blood-sucking-venture-capitalists-takor-founder-says-startupsmart\/"},"modified":"2023-10-20T15:36:35","modified_gmt":"2023-10-20T15:36:35","slug":"xero-sum-game-list-early-to-avoid-blood-sucking-venture-capitalists-takor-founder-says-startupsmart","status":"publish","type":"post","link":"https:\/\/www.startupsmart.com.au\/uncategorized\/xero-sum-game-list-early-to-avoid-blood-sucking-venture-capitalists-takor-founder-says-startupsmart\/","title":{"rendered":"Xero sum game: List early to avoid \u201cblood-sucking\u201d venture capitalists, Takor founder says – StartupSmart"},"content":{"rendered":"
\"\"<\/div>\n

Rob Drury knew he needed a \u201cshit-tonne of cash\u201d to get Xero off the ground, but he also wanted to maintain control.<\/p>\n

 <\/p>\n

The founder of the cloud-based accounting software company thought bringing on international venture capitalists would only lead to a quick sale.<\/p>\n

 <\/p>\n

\u201cWe probably could have raised money on the US west coast,\u201d Drury said at Innovation Bay\u2019s Melbourne launch on Tuesday night.<\/p>\n

 <\/p>\n

\u201cBut asking for $15 million, we\u2019d maybe look at a valuation of $25 million, and I knew the business would end up getting sold quite quickly.\u201d<\/p>\n

 <\/p>\n

So, Drury decided to reverse the process.<\/p>\n

 <\/p>\n

Xero went public and listed on the New Zealand stock exchange in 2007, with a $NZD15 million IPO. Shares grew by 15% after the first day. It listed on the ASX at the end of 2012, and went on to raise money from venture capital including US-based giant Accel Partners<\/a>.<\/p>\n

 <\/p>\n

Going public instead of staying private<\/b><\/h2>\n

Last year an increasing number of startups chose to raise money by listing on the ASX, more commonly through the \u201cbackdoor\u201d arguing it\u2019s cheaper, quicker and less risky.<\/p>\n

 <\/p>\n

This week Communications Minister Malcolm Turnbull told the Australian\u2019s Cracking the Code series that the ASX could be on the verge of playing a bigger role in funding emerging tech companies.<\/p>\n

 <\/p>\n

\u201cI think one thing we don\u2019t do a good enough job at, and I think the ASX can do better here, is promoting the stock exchange as a means of financing startups, or second, third round money for startups,\u201d Turnbull said.<\/p>\n

 <\/p>\n

\u201cAustralians are much more used to investing in listed entities than in unlisted entities. So now that people are used to the tech sector, the ASX should be an opportunity for greater access to capital.\u201d<\/p>\n

 <\/p>\n

If startups pursue that avenue, they\u2019d be taking a page from Xero\u2019s playbook.<\/p>\n

 <\/p>\n

\u201cOur first IPO was $15 million, and then we\u2019ve used strategic placements to bring in strategic investors and march up the value,\u201d Drury says.<\/p>\n

 <\/p>\n

\u201cYou don\u2019t have to do a VC round, and then private equity and some hedge funds, and then an IPO. We flipped it around. We did our IPO first and then added a hedge fund, and we just got venture capital. So we did it backwards.\u201d<\/p>\n

 <\/p>\n

While Drury does believe Xero was unique in some respects, he says going public sooner is a viable option for many Australian startups.<\/p>\n

 <\/p>\n

\u201cThis is what public markets should be: people investing in risk to build businesses and getting capital in to build businesses,\u201d he says.<\/p>\n

 <\/p>\n

\u201cWe have seen other early tech companies following what we\u2019re doing.\u201d<\/p>\n

 <\/p>\n

Following in Xero\u2019s public footsteps<\/b><\/h2>\n

Perth-based geospatial company Takor Group is one startup that turned to the ASX for funding.<\/p>\n

 <\/p>\n

CEO Amir Farhand completed a backdoor listing last month after being acquired by biotech company Bone Medical, receiving a $300,000 loan and aiming to raise $3 million with the help of GMP.<\/p>\n

 <\/p>\n

Now he\u2019s espousing the benefits of this style of public listing, rather than attempting to hunt down venture capital, arguing it adds credibility, creates a wide pool of public investors and grants automatic marketing.<\/p>\n

 <\/p>\n

The presence of shell companies, especially following the decline of the mining boom, has also presented an avenue for startups to quickly complete a backdoor listing, demonstrated by Takor\u2019s success with this method.<\/p>\n

 <\/p>\n

Farhand says trying to attract venture capital funding would\u2019ve taken too long, and this method has allowed him to retain control over more of the startup.<\/p>\n

 <\/p>\n

\u201cThe biggest reason is that venture capitalists are, for most intents and purposes, blood-sucking,\u201d Farhand says.<\/p>\n

 <\/p>\n

\u201cThey take most of it. Your first raise is the most expensive raise you\u2019ll ever do; they\u2019ll take most of your percentage quickly.\u201d<\/p>\n

 <\/p>\n

Becoming a public company inherently grants exposure and reduces the costs of marketing, he says.<\/p>\n

 <\/p>\n

\u201cOur product is all about democracy and disruption and you really can\u2019t do that in a private setting,\u201d he says.<\/p>\n

 <\/p>\n

\u201cYou want to get people to know more about you. What\u2019s a better way for people to talk about your company than saying, \u2018Hey, I just bought shares in Takor\u2019? That in itself is a marketing opportunity.\u201d<\/p>\n

 <\/p>\n

The virtues of private capital<\/b><\/h2>\n

Not all Australian entrepreneurs are convinced by the trend just yet though.<\/p>\n

 <\/p>\n

Dominic Bressan, the CEO of emerging mobile ordering startup AirService, says that while he came very close to going down the ASX route, venture capital was still the right way for them.<\/p>\n

 <\/p>\n

\u201cIt made sense to do a private VC round and enjoy the flexibility and privacy rather than having huge compliance costs and full transparency,\u201d Bressan says.<\/p>\n

 <\/p>\n

\u201cWe looked pretty closely at the possibility of a backdoor listing. There\u2019s a lot of that happening and a lot of great companies doing it, but there are also a lot doing it as a last resort after they couldn\u2019t raise private capital.\u201d<\/p>\n

 <\/p>\n

The main downsides with the ASX method, Bressan says, are the disclosure that comes with it and an early exposure to the whims of the market.<\/p>\n

 <\/p>\n

\u201cYou need full transparency, so then competitors can know what\u2019s going on, and there are a lot of compliance costs,\u201d he says.<\/p>\n

\u201cAs a public company, if things go against you, you can lose out. If the market turns and you\u2019re not performing, there\u2019s nowhere to go. It\u2019s really hard to go private again after going public.\u201d<\/p>\n

 <\/p>\n

Bressan admits that raising private funding can take a lot of time and effort, but if you do it with the right people, can ultimately be very rewarding.<\/p>\n

 <\/p>\n

\u201cIt\u2019s more than just money, it\u2019s the skill sets and new clients, and you get to keep a lot of your workflow,\u201d he says.<\/p>\n

 <\/p>\n

But Farhand says private equity funding can be just as risky, if not more so, than a public listing.<\/p>\n

 <\/p>\n

\u201cPrivate equity is very unforgiving \u2013 how do you know you\u2019re getting someone that\u2019s going to take you out for lunch?\u201d he says. \u201cIt\u2019s not a bad thing necessarily, but what if that person isn\u2019t that great?<\/p>\n

 <\/p>\n

\u201cWith private equity you leave yourself open to that happening if shit hits the fan.<\/p>\n

 <\/p>\n

\u201cFor a publicly listed company if share prices aren\u2019t going well you put out another offer, you dilute.\u201d<\/p>\n

 <\/p>\n

For Xero\u2019s Drury, whichever method a new startup takes to raise capital, it all comes down to one simple rule.<\/p>\n

 <\/p>\n

\u201cThe best way to raise money is to not need it,\u201d he says.<\/p>\n

 <\/p>\n

Raising your<\/i> first round of capital<\/i><\/a>? Starting a<\/i> crowdfunding campaign<\/i><\/a>? Want to grow your business<\/i> with Instagram?<\/i><\/a> StartupSmart School can help.<\/i><\/p>\n","protected":false},"excerpt":{"rendered":"

Rob Drury knew he needed a \u201cshit-tonne of cash\u201d to get Xero off the ground, but he also wanted to<\/p>\n","protected":false},"author":2,"featured_media":59209,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27,11,1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/44518"}],"collection":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/comments?post=44518"}],"version-history":[{"count":0,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/44518\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/media\/59209"}],"wp:attachment":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/media?parent=44518"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/categories?post=44518"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/tags?post=44518"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}