Tech firms renew bid for blue-sky investors

By GILES PARKINSON

Australian firms that floated this year are struggling as their cash dries up, but the rate of new floats is almost as strong as it was before the tech market cleanout.


One of the biggest consequences of the rout in technology stocks that began in April was the sudden freeze on initial public offerings.

The greed factor had been raging in the months leading up to the rout as the proverbial lift boys leaped into the market and punted their money on companies that had not been in existence six months earlier and had not a cent to show for revenue.

Finding a company name, a board, a business plan, a sponsoring broker, commissioning an independent expert's report and an audit does not leave much time for selling products.

That, though, came to a screaming halt after the tech rout demolished the share prices of even the "blue chip" tech hopefuls and investors realised that earnings, or at least revenue, were important for a company's future.

Many of the companies that floated this year in a blaze of publicity and investor bravery are now struggling to continue as their cash dries up and underwriters and sponsors shake their heads in response to requests for more funds.

But their problems have not deterred the quest for investor money. The rate of new floats being proposed and enacted now is nearly as strong as it was in the six months leading up to the market cleanout, and while the premiums and stags are not quite so spectacular, some of the numbers to be found in various prospectuses are no less optimistic.

It is the return of the blue-sky investment.

Once it was for a miner who thought he had struck gold or nickel after borrowing a drilling rig and the opinion of a geologist. Now it is the "communication company" which is trying to stake a claim in a technology that few understand and even fewer can ascribe a decent business model to.

Take for instance, SkyNetGlobal, a fledgling internet provider that launched its second attempt to go to market last week.

SkyNetGlobal is seeking to raise $6 million so it can pursue its plans to deliver a wireless network supplying high-speed internet access to business travellers.

Its first attempt to raise $5.6 million in April would have valued the company at $114 million. It attracted just $776,000.

The second attempt values the company at $18 million, but the prospectus and its managing director, Jonathan Soon, are no less ambitious.

The company is just 12 months old and until June had revenue of $1580.

That, it says, is about to change, and under various scenarios it says its revenue in the next two years could jump to between $31 million and $62 million.

Or not. The directors caution that these projections are not reliable and that projecting growth for a company with no business to date is difficult. The company, though, has a few big-name shareholders on its register. Qantas Airways, Ernst & Young and advertising group Leo Burnett Connaghan & May are there, because they are all being paid in kind in return for accountancy and marketing work and, in the case of Qantas, allowing the company to use its airport lounges.

Investors keen for a punt will be able to buy shares at 50c in a minimum block of 4000 shares. No hedging their bets here.

There are 12 million such shares on offer, but the prospectus also reveals management has its hands on 30 million options, which can be transferred into shares - some at an exercise price of 28c each. Investors might well ask if there is a flaw in the logic of a company asking the public to subscribe for shares at 50c each, but reserving the right of its management to exercise options at just over half the price.

Still, the floats are coming thick and fast, and even the Australian Securities and Investment Commission has had to intervene in some instances. It halted the issue of a prospectus for a company called Women's Health Biotechnologies on Friday following investigations by the Victorian fraud squad into the company named as its corporate adviser.

An internet service provider, GoConnect, has been forced to issue a supplementary prospectus after providing revenue and earnings forecast to brokers and investors that it said were not reliable enough to be included in its original prospectus.

The salesman is back in the market.