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syzygy

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21/03/16

00:48

Post #: 17323671
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Originally posted by coppertop01 ↑

One of the queries that keep coming, goes along the lines: "If this is so good, why list here."

Below is a Syntonic relevant article from a couple of days ago, in which Greenbaum spells out why he's listed here. It also puts more light on the relationship between Syntonic and Buddy.
Note - I've added some bold and italics.

Silicon Nation: Seattle
March 18, 2016, 11:00am EDT
Ashley Stewart
Staff Writer
Puget Sound Business Journal

How two Seattle startups are trying to turn defunct Australian mines into gold mines

Buddy Platform CEO Dave McLauchlan at the
Australian Stock Exchange. Buddy Platform

PUGET SOUND—Dave McLauchlan needed growth capital for his Seattle-based software startup. He found a gold mine in an inactive Australian minerals company.

McLauchlan’s company, Buddy Platform, creates a system for manufacturers to run connected devices. Though he raised a small amount from Seattle-area investors, he wasn’t impressed with the term sheets he received later on from venture capitalists in Seattle and Silicon Valley, who told him they were wary of so-called “Internet of Things” businesses.

So McLauchlan took his company through an uncommon route: A back-door listing.

Buddy Platform was acquired by a publicly traded Australian mining shell company called Potash Minerals through an all-stock deal. On Dec. 30, Buddy assumed control of the company and filed a change of business from a minerals company to a technology organization.

Now, Buddy Platform is publicly traded through the Australian Stock Exchange (ASX) at a much higher valuation than the startup fetched in the U.S. private market. It trades under the symbol “BUD.”

“The terms we got down there were in the order of 10 times better than what VCs in the U.S. were offering,” said McLauchlan, a native of Adelaide, Australia.

It’s too early to tell, but this creative fundraising strategy could become a big deal for Seattle startups if it proves a viable long-term strategy. It could become another way to raise needed cash as stock market volatility continues to delay public offerings and firms struggle to raise money in the cooling private markets.

Despite the risks, another Seattle startup, Syntonic, also plans to go public on the ASX in the next few months.

How it works
The downturn of Australia’s mining boom and the country’s appetite for high-risk, high-reward investments has created an opportunity for U.S. technology companies to list publicly in what’s called a “reverse takeover.” In the past year, nine U.S. technology companies listed on the Australia exchange this way.

Buddy is so far the only Pacific Northwest company to do so, but the move has already paid off big for Seattle-area investors. The startup raised nearly $4 million through seed rounds from Seattle venture firms, including the first-ever investment from Microsoft Ventures. Those investments are now worth in excess of $60 million in U.S. currency, even though one Australian dollar equals 71 U.S. cents.

Since the early-1990s, Australians have devoted 9 percent of their income to the equivalent of a U.S. retirement plan under the country’s mandatory “superannuation” plan. The fund, according to ASX’s general listings manager Max Cunningham, has become the cornerstone for growth in Australian capital markets and is now worth about $1.6 trillion.

The pool of capital is the third largest in the world and growing at a rate of around $100 billion per year.

“The mining sector is in probably the biggest downturn in living memory and, while capital moves out of those sectors, there’s been favor toward technology startups and a very, very strong appetite for the U.S. dollar,” Cunningham said.

Historically, large mining operations would start a new company for each mineral exploration and float it on the Australian exchange. The smaller company would raise tens of millions through the stock market, use the funds to explore for minerals and, if they weren’t successful, the funding would roll into a new company and new exploration.

As a result, investors across the world — particularly in Asia and Australia — allocated a portion of their investments to the speculative end of the market. As Australia’s resources boom died down, there was still an appetite for high-risk, high-reward investments.

A few years ago, technology companies started rolling into the mining shells that had become inactive on the exchange. The startups did well because they typically needed less capital to get started than mining companies and had a better chance of success.

Now, Australia ranks fifth in the world in the amount of capital raised through technology IPOs.

Complexity

Not every U.S. startup is a candidate for an Australian IPO, said Rick Borenstein, chairman of Vancouver, B.C.-based investment banking firm Sequoia Partners Inc. Borenstein is also chairman of Buddy Platform’s board.

Borenstein isn’t exactly an impartial observer, but he did recognize the challenges of accomplishing a reverse merger. Startups must still meet the same benchmarks regardless of where their money comes from, including a solid business plan and a good management team.

Even if they qualify, listing on the ASX can be a long, complicated process and cost a lot of money.

“An (Australian) banker has to have a shell company or a company that failed for some reason,” he said. “Normally, it’s a mining company in which they’ve gone in and cleaned out and left some money in it, but that’s about all. Then, you have to go through the process of a reverse merger.”

The option offers an alternative for startups as the U.S. venture market begins to cool. Sky-high valuations have left many investors wary.

Meanwhile, most startups and U.S. investors aren’t even aware the reverse merger process is an option.

Several prominent investment experts declined comment because they said they knew little or nothing about the practice.

“Every market has its ups and downs,” he said. “We all work in this world in which the pendulum swings back and forth. The venture community is moving back now and so the pendulum is going the other way. Maybe it’s short term and things will equalize. It’s impossible to tell, but it’s a really good opportunity now.”

Seattle startup turns to Pacific Ore Co.

The Australian government has assumed an active role in recruiting U.S. technology companies to assume the void left by mining companies. Officials from the country’s exchange visit Silicon Valley and New York to lure technology companies with economic incentives and host conferences in the states to meet candidates. Seattle startup Syntonic is one of those.

Syntonic aims to save its customers money by accurately reimbursing employees for their mobile phone usage when they travel internationally. But the company’s reliance on wireless carriers has U.S. private investors hesitant to take the plunge.

“For the last six months or so the level of risk aversion for investing in companies that have a relationship with mobile carriers is pretty much at an all-time high,” Syntonic CEO Gary Greenbaum said. “A lot of venture capitalists have done investments in the past with these sort of companies and they did not play out so well.”

As a result, he said, a backdoor listing would provide a better funding option.

Syntonic has since turned to the Australian Exchange with encouragement from McLauchlan. The company will receive incentives and have more access to Asian markets, which already have money flowing into the stock market after investments in the country’s minerals industry.

The region, Greenbaum said, is a hotbed for mobile investments. His startup wouldn’t have the same access to potential Asian investors through the U.S. private equity market.

The Seattle startup has started the acquisition process with Australian mining shell company Pacific Ore Co. in an all-stock deal. The companies are still in the due diligence phase, but expect to complete the reverse takeover in May.

Turning pennies to dollars

IPOs aren’t typically a funding route for early-stage technology startups, but the Australian exchange is structured differently than the New York Stock Exchange or Nasdaq. Companies don’t have to meet profit milestones, and penny stocks — which have a negative connotation in the U.S. — are listed on the same exchange as major Australian companies.

Buddy Platform, which lists on the ASX for the equivalent of 11 U.S. cents, has told investors it would not seek profits for several years.

“We made it very clear we were not aiming to deliver profitability until the 2019 financial year,” McLauchlan said.

The arrangement has allowed the company to raise more capital at a higher valuation. While the Australian stock market doesn’t present the same administrative burden to public companies as the U.S. public markets, Buddy still has reporting obligations and publicly audited records.

“We had several terms sheets from investors here in Seattle and down in the Bay Area,” he said. “But we discovered the option out of Australia was going to be a whole lot better, so we pulled the trigger."

Source

Expand

This article certainly settles the question, 'why the ASX.'

It is a fair question considering the heavy weights behind Syntonic, not to mention their product potential. When asked it during the webinar, the CEO said this, "Australia has demonstrated great interest and leadership in mobile investment." When I heard that, it sounded very genuine, but I felt there was more to it than he was prepared to say. Regardless, I was put at ease, and hence my response to the same question raised by one of our own heavy weights here on HC. The article certainly fills in more blanks, and even though the BUD connection had previously been made, there has been little evidence of Australian government involvement; not that the article provides much, but certainly points to it. But I feel now that the CEO's comments regarding Australian leadership has now been revealed.

Goodluck to all.

SYT Price at posting: 3.1¢ Sentiment: Buy Disclosure: Held
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