The Canny Investor Hits the Road for a Grasp of Technology
It’s 8:14am and reassuringly quiet in the lobby of the Grand Hyatt Hotel in the heart of Melbourne’s business district.
I have been reliably informed that 9am is when the action starts. I have also been told that here is where I can find some of Australia’s best and brightest tech ideas including an online video company founded by a 21 year old, smartphone-powered charitable giving, liberated phone calls with no SIM-card or roaming charges, a company that can help me become a ‘Shopping Ninja’ and even a smarter way of finding a hot date. And they’re all ASX listed.
With all that to look forward to, my thoughts turn to my smartphone and the myriad apps that require my attention.
The décor is lush yet minimalist, but I scarcely notice as I browse through my Timeline on Facebook.
The lighting is dimmed yet comfortable, with my high resolution screen adjusting automatically to low light.
The staff are well-dressed, seem very alert and no doubt aim to please. It’s a five star hotel after all. Again, I am unaware as I lift my head up from my smartphone just long enough to compose my train of thought; before submerging back into the digital rabbit hole otherwise known as the Internet.
Before I know it, it’s past 9am and I have yet to finish what I set out to do an hour ago despite being glued to my screen the entire time.
If there’s one thing my smartphone has taught me is that, you can do more. Always more.
After pinging off an email I probably should have re-read before sending, I scoop up my things and wander over to the escalator where sharply dressed executives are forming an orderly queue to ascend.
I’m ready for action.
I’m here to cover the TechKnow Investor Roadshow, showcasing Australia’s latest (and possibly greatest) tech companies. I’m keen to learn what they’re up to as well as what the tech sector has in store for the canny investor.
For one thing, they’re all here at the behest of ‘DJ Carmichael’ and ‘Foster Stockbroking’, so one would assume they’re raising capital. But without putting their feet on the pavement and meeting grassroots investors, how else is a tech company supposed to blossom?
Over the past 2 years, Foster Stockbroking has helped nurture Australia’s most successful tech ideas from sketch board to shelf; and they are here today working with a new batch of aspirational tech players.
Investing in tech is notoriously difficult. Yes, the barriers to entry are miniscule. Yes, there is blue sky everywhere you look. Yes, everything is scalable and yes, the whole globe is flocking to the Internet in smartphone-wielding droves.
But still, commercially successful tech companies are few and far between.
Why do so many tech companies fail and what do the tech companies here today know that I don’t? Even more importantly, assuming I’m convinced of the indomitable online revolution, is there a tech company here today I could invest in? And should I?
These questions are boggling the minds of all investors here today. Not just me.
In many respects, TechKnow bridges the gap between company operations and investors’ understanding of technology. Investors often get too excited and invest in a good idea without commercial viability. Conversely, tech companies often launch into offering great services with the aim of making money, rather than catering to end-users.
A balance must be struck for a tech company to become successful and sustainable. Upstart tech companies are great at floating, but which of them can stay afloat after the brokers and underwriters have sailed?
Putting the tech in technology
This year’s TechKnow conference brought forth a breath-taking range of tech applications already being commercialised. Of the 17 company presentations scheduled, 15 are already ASX-listed and actively marketing their respective ideas.
And when it comes to ideas, technology has been birthing them on an extraordinary scale. The famously coined term ‘The Internet of Things’ which espouses the inter-connectivity between devices is now going a step further to become ‘The Internet of Everything’ whereby not only are all electronic devices becoming more inter-connected, but this inter-connectivity will also induce real-time inter-functionality.
One example explained to me at TechKnow, is the following.
Imagine it’s a cold icy day and you are driving your car. The Internet of Things means your car can be connected to your phone which gives you the ability to talk hands-free. In this example, you would receive a hazard warning to alert you about the icy conditions.
The Internet of Everything goes a step further.
Can you imagine driving on the same icy road and electronic devices built into the road surface monitor the road conditions and feed that information to automated traffic signs, changing in real-time. Those same alerts can be integrated with your car to slow it down automatically.
Other devices installed across every aspect of modern society will be monitoring our every move, sending out information and responding in real-time. The Internet of Everything is already here in many respects with scores of devices now offering connectivity. Even fridges and microwaves can be connected to the Internet and order your shopping for you.
How often you use them, what you eat and where you shop are all valuable bits of information modern tech companies are using to drive marketing campaigns, sales and revenues.
From the presentations and conversations at TechKnow it seemed to me that monetising a tech idea is sometimes even more important than the idea itself. There are lots of quirky and exciting ideas, but commercialising them is a whole new different challenge.
Knowing tech is half the story
With over a dozen companies presenting novel ideas of all types and varieties, investors as well as end-users have a lot to look forward to from the Australian tech sector.
Just yesterday, in a piece written for the Huffington Post, Bill Shorten went on record to say he would like to see the next Uber come from Australia and that the power of the ‘Sharing Economy’ should be harnessed as soon as possible.
This kind of preamble most definitely got the TechKnow delegates talking because quite a few of them utilise peer-to-peer functionality in their businesses. One company in particular, Collaborate Corporation (ASX:CL8) is wholeheartedly focused on the sharing economy – offering brands such as ‘DriveMyCar’ (peer-to-peer car rental) and ‘MyCaravan’ (peer-to-peer caravan rental).
CL8 hopes to transform the Australian economy by allowing those with surplus assets to make extra income while those with no assets can rent pretty much anything they can imagine at a fraction of the existing cost. This type of business model is proving increasingly popular – especially among the younger generation.
Norwood Systems (ASX:NOR) is wholeheartedly shredding the bane of roaming charges and international call surcharges by over 80% for anyone with a smartphone. In the Information Age, NOR has made it possible for you to have multiple phone numbers, on one mobile handset and without a SIM card in sight.
Another good example of a company dragging small businesses into the digital age in their thousands is Big Un Limited (ASX:BIG). BIG offers SME’s an online community based solely on video, on track to generate over a million dollars in sales this year. Its founder, Brandon Evertz, is the youngest person to establish an ASX-listed company and continues to lead it at 21 years of age. Presenting to a TechKnow audience, the similarities with California’s tech wiz-kids was uncanny.
Although unlike Mr. Zuckerberg, Mr. Evertz wore a suit.
Other highlights included Spookfish (ASX:SFI). This company has developed a way to generate high-resolution mapping that makes Google Maps look like the battered A-Z route planner down the back of your car seat. SFI claims to be able to map the entire United States with just 4 aircraft – now THAT is spooky.
Shark Mitigation Systems (SAMS) is a private company that got into technology by trying to develop a shark-resistant swimsuit. The company has won awards left, right and centre but its most lucrative product could go further than protecting surfers.
Being the clever boys that they are, SAMS have developed patented ‘Clever Buoy’ technology which can detect and differentiate between different types of sea life, through the use of sophisticated sonar. Their system can automatically detect the type, size and direction of sea life hundreds of metres away. This breakthrough technology could potentially be deployed by every coastal community on the globe, not to mention fishermen that would just love to use it to find the best fishing grounds.
Peppermint Innovation wants to bring banking services to billions currently without access to a bank account. Developing countries like the Philippines still have a 75% unbanked population. That’s an opportunity to offer simple banking services via mobile and it’s working out pretty well after a back-door listing earlier this year (another common theme among tech companies over the past 18 months).
From the RTO crop, DateTix (ASX:ERR) is a dating business that bridges the gap between online chat and serious offline dating. Starting its business in Hong-Kong and moving into large metropolitan areas of China next, DateTix is commercialising romance, one date ticket at a time.
Taking its idea further than just dating, DateTix plans to allow people to find business contacts, activity partners and monetise all aspects of a vertical business model once ERR relists as DateTix later this year.
Another company that piqued interest was Activistic (ASX:ACU). Having completed its RTO earlier this year, ACU is disrupting how charities raise money. ACU has developed a fintech micro-payments platform that blesses donors with greater control and transparency over their donations while enabling charities to receive more money.
In the land of the giving, every donor is king.
ACU’s technology could potentially be ported into crowd-funding applications and beyond, but in the meantime, the company is leading the charge into the United States, the largest donor market in the world.
All these companies are offering incredibly innovative services, aimed at the growing customer base embracing the online revolution.
There’s even a company that has found a way to bring third world labour into the hands of first world employers. Freelancer (ASX:FLN) can help you obtain professional quality work from freelancers based abroad. In Australia you would typically pay $100-$500 per hour for services such as architecture, surveying, product design and engineering.
But in India or Pakistan, you can get the same work done for $25 per hour.
FLN can further drive revenue by setting up ‘contests’ where dozens of freelancers scramble to complete one piece of work with only one getting paid at the end. The person who tendered the work walks away with high value work done for cents on the dollar.
FLN is now looking at other ways to further maximise revenue and profits – one idea is to connect agencies like NASA directly with freelancers based in India, Pakistan, Bangladesh and the Philippines so that future designs for the International Space Station and NASA’s astronaut gear can be designed and produced by freelancers based in India and other parts of the developing world.
If large apparel and electronics manufacturers can access abundant cheap labour from the developing world, why should online tech companies miss out on all the margin?
Freelancer ensures they don’t.
TechKnow also featured companies solely focused on providing services to other businesses (B2B). Reffind Ltd (ASX:RFN) provide a range of services designed to improve corporate training, employer retention and education across large workforces. Here too, the common theme is collaboration, interactivity, convenience and lower costs for all involved.
Speaking with Michael Eidne, Senior Research Analyst at DJ Carmichael, he told me that, “Successful tech companies are all about solving problems.” For him, companies like 1-Page (ASX:1PG) are a true example of ‘disruption’ in the market with the word bandied around all too easily when in fact, innovation and disruption are different things.
“Tech is cool, but it needs a purpose,” he says.
Another heavy-hitting powerbroker I spoke to at TechKnow was Mark Hinsley from Foster Stockbroking.
Mr. Hinsley’s take on tech is that when new companies raise capital, they should do so to “accelerate rather than create” their operations. Concept-stage companies could be great investments, as long as you’re aware that concepts are the same as theories without practise.
In his view, being a successful tech company is all about hitting the ground running from the outset. He also believes good tech investing should be based on a “blueprint”.
When asked what such a blueprint looks like, he explained, “In addition to an attractive starting valuation, I consider it imperative that companies have existing revenue as part of a clearly defined revenue model”. Adding, “Preferably, addressable market opportunities for newly listing companies should be large multi-billion dollar markets”.
From knowing tech to doing commerce
In his introductory speech, Mr. Eidne did answer a burning question I had; “Are there any simple factors that can help investors differentiate between a future tech success and a future tech failure?”
The answer? The more revenues and sales derived from offshore markets, the better according to Mr. Eidne. Of course, there are Australian-only tech businesses that have been successful (CarSales.com.au) but overall, if a business is focusing solely on an addressable market of around 25 million people, there is limited room for blue sky expansion.
That’s the good news with tech – it’s all online and online is global.
Not so fast.
Technology crosses borders, but taxation, cultures, legislation and languages don’t. So for a tech company to truly be successful, they have to think global from day one.
Before attending TechKnow, I heard whispers that the enigmatically successful tech investor Dom Carosa would make an appearance. Famous for masterminding several high profile listings including Shoply (ASX:SHP) and his current project, Crowd Mobile (ASX:CM8), I thought he would be just the man to ask what to look for in upstart tech companies.
Alas, Mr. Carosa was as elusive as an Uber driver at a yellow cab convention. Better luck next time.
Trouble in paradise?
Taxi drivers hate Uber but Uber is making taxi journeys cheaper and more convenient – should Uber be punished or praised?
These are the types of questions on the lips of many tech end-users, company executives and now, Governments.
The Tech Sector rarely has issues with legislation or regulatory hurdles. But with several industries already disrupted by peer-to-peer services that streamline (and remove) existing inefficiencies, certain sections of society are now in cahoots about the evolutionary nature of technology.
Are today’s taxi drivers the equivalent of 19th Century Luddites? The answer is yes and the good news is that in the same vein the Industrial Revolution was not derailed by Luddites and brought positive change for society; so the tech revolution we’re experiencing today will not derail innovative businesses such as Uber, Collaborate and Norwood as they strive for positive change in society.
Rise of the machines
Technology is pencilling in an exciting tech-driven society built on many devices, all talking to each other and making our lives easier. However, the data that these devices are collectively generating will reach such astronomical proportions, that there isn’t enough storage space imaginable to store it all.
Can you imagine how much data 10 billion devices (phones, PCs, tablets) generate on a daily basis?
According to Covata’s (ASX:CVT) Nichola Parker, there will be around 12-15 petabytes of data created every single day from the 10 billion+ devices soon be circulating around the globe. That’s more devices than people, people.
One petabyte is roughly the equivalent of 10 billion photos or in other words, all the Facebook photos everyone has ever posted combined. And to think that back in the 1990s, floppy disks with a capacity of 1.44mb were still commonplace.
CVT is an online security company specialising in data security and privacy. Data security will become a huge future market considering the volume of data we’re all collectively creating and would like protecting. According to Ms. Parker and CISCO, the Internet of Everything is a $19 Trillion market while data security will inevitably become a huge concern following high-profile hacks of Sony, Ashley Madison and Ebay.
The “Internet of Things” has boosted inter-connectivity but by the same token, has been an absolute nightmare for security and privacy.
And as more data is synced to the cloud alongside cloud-computing taking up a larger share of corporate operations, the inevitable issue of securing all that data suddenly arises.
After watching 17 presentations and speaking to several ‘thought-leaders’ from the ASX Tech world, a few points were clarified and the answers to my initial questions were largely supplied.
Pretty much every single tech company at TechKnow has a few things in common that underpin their respective business models:
- Limited or non-existent inventories
- Low capital expenditure (capex)
- Low operational expenditure (opex)
- Highly scalable
- Limited or non-existent transportation or storage costs
The more successful entities are deriving a significant portion of revenues offshore or are actively moving operations abroad to supplement domestic operations.
Technology can only grow and improve, it can never falter or slow down. It’s just not in its nature.
Tech investors should be careful because from any hotbed of ideas, some will fail even if they are good. Technology attracts the imagination and inspires its users, but only when it strafes into commercial viability is when investors should take notice.
According to Foster Stockbroking, the Tech sector is the best performing IPO sector with average ‘since IPO performance’ of 70%. The only other sector to outperform Tech was Telcos. Given the understandable overlaps and synergies, it further underlines the potential of the sector as a whole.
Are we heading into a Wall-E style dystopia of digital content junkies that require digital assistance on every step? Possibly.
Is there money to be made from Technology and its applications? Undoubtedly.
The good news for me personally was that TechKnow answered all my questions with aplomb.
By the time the clock struck five, my investor mind was most definitely overloaded. So many ideas and so much potential I felt like a kid in a sweet shop.
As I left the Hyatt, the Sun was still shining with blue sky abound. The TechKnow Roadshow left me in good spirits and high hopes that I would soon own my very own little piece of the ASX tech sector.
The Canny Investor was invited by Finfeed to attend and review the TechKnow Roadshow in Melbourne on October 23rd 2015