Episode 18: What Exactly is a Backdoor Listing?



Chris: Welcome to The Tech Lowdown show, where each episode will be discussing opportunities in the tech space with entrepreneurs from the US and around the world. I’m your host, Chris Jones.


Any entrepreneur knows that raising funds to start and grow business can be extremely difficult. Despite all the stories we read about businesses raising millions of dollars from VCs, a recent study that I read found that to be in the top 50 per cent of start-ups who raise capital, the start-up will have to raise about 1.75 million Dollars. That’s definitely a fair bit of money, but in the grand scheme of building a business, trying to deliver a 10x return for investors, it’s really just a drop in the bucket.


Today we’re going to hear from an entrepreneur who went a different route to raise capital for his venture – accessing the public markets in Australia, via a reverse takeover. Dave Whitaker is the co-founder and larger shareholder of Thred Limited, a publicly listed company on the Australian Stock Exchange, which is built on messaging app. It brings all your contacts together in a single place making it easier for you to share stories, photos and videos with the people important to you. Originally from Australia, Dave spent a decade in Hong Kong, starting and building tech businesses. Dave is an entrepreneur, several times over and brought me in to co-found Thred with him, almost two and a half years ago. Dave I’ve been looking forward to this conversation; welcome to the show, my man. What’s the lowdown?


Dave: Thanks, Jonesy, great; glad to be talking to you about Thred at last.


Chris: Awesome; so first, congratulations on the launch of Thred this week. It’s an exciting time for the company.


Dave: Whoo, yes, tell me about it. I’m mean you were there along with us. It’s been an amazing journey. It’s taken us across a couple of different continents, three actually, and we’ve been you know, we’ve been really fortunate just to have some great people with us, and just to get such a great result.


Chris:  Great, so we’re going to dive into the details around how a back-door listing or a reverse takeover takes place. But first, I want the listeners to learn a bit about your background, what took you to Hong Kong and what brought you into the crazy world of entrepreneurship?


Dave: No problems, so I mean I think every entrepreneur out there knows you know, right from the time to start grade school, but that’s probably what they are. It’s a way of looking at the world and so no matter what you do is a job or profession or when you go to college and so forth, you just always seem to be pushing yourself to try and do new things, and to start things from a business context. My background originally was trained as a systems analyst, so I understand tech and architecture and they’re not got into IT recruitment back in the late 90s, and that gave me a fantastic you know broad view of the IT industry. I just realized immediately, how much I didn’t know about IT. So it’s fantastic here you know, it’s just one of those things. Everybody thinks they know everything until late they have that Mike Tyson moment. So that was great, and that was a career that I stayed with for a long time and ultimately I was managing and starting recruiting businesses all around Australia and [unclear 03:44] region. And how I got to Hong Kong was that I was headhunted, believe it or not, headhunted by company to go out there and run their IT business in 2005.

Chris: Awesome, really interesting. I want to get into the backdoor listing because this is one of those areas that frankly a lot of people just don’t know about or even understand. Most of us have heard the term, but let’s start off with the basics. At least for me, I didn’t know what it was. So what exactly is a reverse takeover?


Dave: Right, so there’s several different levels and some of it little technical steps to keep with. I’ll start with the straight-up version. Basically when a company that is already listed on a stock exchange has decided to either change direction or they’re winding down, then they put the company into a particular situation that allows them to go and seek another project. And they go out and look for what they call a vendor. And that vendor is usually a private company that has a project that would suit to go into that listed vehicle. So once they identify the right project and the right people to come in, then a transaction takes place. And because the listed company is looking for a project, and the project is looking usually to raise capital, and it’s much easier in some instances to raise capital into a company that’s already on the stock exchange because it gives investors liquidity, which means that they have shares that they could trade in, it’s a bit easier to value. So you strike an arrangement between the company and the listed company and the exchange takes place where the project goes into the listed vehicle and they basically handover shares. That is usually the controlling interest of their company, and that’s the reverse part. So it’s called reverse takeover because even though the listed company is purchasing the project into themselves, they’re doing it by giving control to that company.


Chris: That’s a great way, that’s an excellent explanation. What does control mean in a publicly held company?


Dave:  51%.


Chris:  So by doing this backdoor listing, these tech companies come in or any company comes in; they take over a publicly listed shell and then they’re able to go out and raise capital at this new public entity.


Dave: Yeah just like your earlier point. I mean it’s not always if you won 60 or 70 percent. Sometimes it’s less than that because you can have effective control of a listed company with less than 51%. But if you want to get things done, you need to automate decisions, you need to have 51% of the shares voting your way. But yeah, it’s a really interesting way to raise capital. It means that you can then go to the market, do road shows and increase you remember, you know we’ve done a lot of meet and greets going around Australia and up to Hong Kong and other places and you know just meeting some really interesting folks in the capital markets again. And telling them what we did.


Chris: Great and what are the benefits for an entrepreneur of this particular process for raising capital and funding your business?


Dave:  Well first things first. Listing a company is not that easy; it depends on the stock exchange that you go to in the listing rules. For example to list a company on the Hong Kong exchange on the secondary board; not the main board; with the secondary board. You have to have all positive accounts showing 20 million Hong Kong Dollar profit over three years. And for start-ups, I mean most start-ups are in earning a near profit territory and if they are, it’s certainly not anywhere near there. So going into an already listed company, that company has already complied with the listing regulations and rules. And this also means that they have existing shareholders that meet the compliance regulations for whichever brought that on. So all of that is done. Also it means that when you’re going out and raising money in the capital markets, you’re able to show people that if they invest at a particular price then the shares can be traded and they have the opportunities, the same opportunities that share market offers to everybody.


Chris:  Wonderful. And then when you’re going through this process of a reverse takeover, who are the key parties that are involved in this process and what are the important things for an entrepreneur to be aware of if they’re going to go into this process?


Dave: Get your own lawyer. Absolutely, start with your own lawyer and make sure that they’ve got experience doing this, particularly for the exchange that you’re going to list in. Secondly, go out there and talk to some different brokers you know. Don’t just speak to one person; don’t think that they are the only source of income, or only good road. You know, there’s a competitive market; there are a lot of people out there. Try and find the people that are a good fit for your business, who understand it, who see the potential and who are going to stick by you because it’s a longer road than you think. So no matter how long people tell you in the first instance, it’s going to take you three months; it’s going to take you six months; my friends, it will not. I assure you, it always takes longer. And you know, it’s bumpy. There’s a lot of compliance. There are a lot of things that you know first time, second time, third time entrepreneurs may not have ever come across before. So you know if you’re keen to learn then this is a great thing to do, because there’s a lot of learning. And get good advice; make sure you surrounded by good people and you know stick to your guns. If you got a good project and you believe in it, then don’t let people shake that belief because they’re trying to get you for a better price. You know stick the things that you believe in and you’ll see it through.


Chris: Great, so I want to go a little bit  inside baseball issue, a little bit deeper in the understanding the process. So I know you mentioned the brokers, you mentioned the lawyers; you mentioned actually filing some paperwork. What I know, you’ve got to deal with a prospectus. You’ve got to deal with audits; you’ve got to deal with the Securities Investment Commission of whatever market that you’re in. Can you just talk a little bit about how that all comes together?


Dave: Yep, well, comes together, that’s great optimistic. It all arrives at the same time, hopefully. There’s, look, it’s a regulated market, so there’s very strict guidelines that you have to follow and you know those regulations are there for a very good reason. To understand how it works, you know really, there’s a lot of different moving parts, so you’ve got the existing company, you’ve got the board, the controls, the management of the company, we’ve got the shareholders that the board answer to; so that’s just in that listed vehicle. Then you’ve got your legal counsel, then you have your brokers and the brokers exist on many levels. They could be small firms, they can be large global firms and they are basically the people who make the investment decisions on behalf of their clients. So they’re a very important piece to this whole back to listing experience, because they have to go out and help you sell your story out to the market. So once you’ve got all of those pieces in place and you’ve got your team, so you like in managing all of this. You’ve got to pull together a prospectus that describes and fits the compliance rules for the listing, and that can take a lot of work because every single statement in a prospectus has to be checked and verified and fact checked. So you’ve got to have a team of lawyers and by the way make this sound                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           super hard. You know if this gets done every day by companies out there doing it all the time. So you don’t let this scare you off. This is just you sort of making sure everybody knows what goes on right.


Chris: This is what we want.


Dave: This is yeah, so you’ve got to have every single statement in the prospectus and the perspectives typically for a listing could be a hundred and twenty pages, maybe more. You’ve got to have all of the audited financials done and there every quarter up until the listing time takes place. You have to have submitted notice of meeting for the shareholders so that the shareholders can come and vote on the transaction, and that’s got to get through. And then you submit it all to the Regulatory Commission wherever you are in Australia. It’s classic and it has to comply with the existing regulations, and it has to go to the ASX or the NSX which is the secondary board depending on which way you’re going, and it has to be approved there. So that’s the easy part, getting all right done.


Chris: And tell us what the road show is like. You’re meeting with potential investors, who are these people? What’s it like presenting to those folks?


Dave:  Well you know that’s the fun part, depending whether or not you as an entrepreneur like getting up and speaking to people. If again like I said before, if you really believe in your product and you came and got that enthusiasm; as long as you can temper that with sufficient business understanding of how your idea is going to turn into a real business, then you know you get the opportunity to stand in front of the room for the people and tell them how you’re going to change the world, or how you’re going to disrupt a particular area. So road shows are usually held in boardrooms, although I’ve done road shows and you have to’ in coffee shops, restaurants around lunches, it can it can really vary. I’ve seen road shows done in pubs that were quite effective. At the end of the day, it’s a gathering of people who are influential and able to make investment decisions either on behalf of themselves on behalf of their clients. And so you get up and you have to have a depth that describes the business and describes what your Road-show is, and what your vision is and you’ve got to be able to communicate that. And I really suggest that your entrepreneurs out there, if you don’t have co-founders, get them, because doing road shows by yourself, I mean I could not imagine doing what we did as a one-man band. It was gruelling enough.


Chris:  It was brutal absolutely, so then after the lifting takes place, funds are raised. What are the requirements as a public company that is different from those as a private start-up, that an entrepreneur should be aware of?


Dave:  Have you ever seen one of those shows you know where they have somebody who I know either for a bit or for you know to raise money for charity. They put them in a glass box and make them live in that glass box; you know 20 feet off the ground for a week. Yes, that’s public company life because every single thing has to be disclosed the minute that it becomes known to you. So that’s called continuous disclosure. You have to make announcements constantly. There are on-going regulatory reporting requirements and again as I said those regulations are there. A very good reason to protect shareholders and to make sure that everybody behaves themselves. And so it’s quite different from being you know say a typical bootstrap entrepreneur who then picks up private equity or obviously in funding, because it’s almost impossible to maintain some works style development. You know we need to be telling people what we’re doing, why we’re doing it, what the money’s been spent on and all the rest of it. Now there are carve out rules that give you exceptions, particularly if there are things that are patentable or that are considered to be trade secrets. So it’s not that bad, but yes I mean it’s just basically you’re always public facing, you’re always talking to shareholders and you’re constantly speaking to the brokerage community so that they can explain, so that they can do an analysis actually of your company and help to value your stock. Because your product is no longer your product; is also your stock.


Chris: That’s a great description. So first of, that was phenomenon, explaining the whole backdoor

listing and RTO process. So I want to move now to the real lowdown segment of show when normally here we get into the nitty-gritty behind ins and outs and some of the more interesting details. But what I want to do is, I want to give you a chance to talk about Thred. I want to hear your thoughts on Thred. So if you can start by just telling the audience; tell us about the product, tell us about the original vision and what you like about the newly released version of Thred.


Dave: Absolutely well, I mean how long would we go? Because you know this is, has been such a fantastic journey, from some start to where we are now. You know, the original concepts like a lot of innovative ideas, came about because of environmental reason in tech that had just developed organically. So in other words, with the rise of social media and Facebook and Twitter and LinkedIn you know, and all of the other ways of communicating, it just became very obvious that each of those very fine companies was trying very hard to silo themselves or to know to create a walled garden, to provide everything that everybody needed within their properties. But the reality is that, that’s not really how people are, is not how to communicate. So what was becoming evident is that you know, I’m speaking to my family on Skype, I’m doing Whatsapp. I’ve got contacts in Facebook, I’ve got business contacts in LinkedIn and you know, then of course I’ve got my Microsoft Office 365. I’ve got a Google account. I mean it’s just like everybody would register all over the place. And this was becoming really unwieldy, and so we sat around the door. Well there must be a way to actually you know, to share content in a more unified or a more logical fashion. So that was the genesis of Thred.. It was actually about how we could share content more easily. And so we prototyped originally, joining together your LinkedIn, Facebook accounts and a couple of others, and doing a button in a browser. So that if you’re on a particular webpage, you wanted to share that, then you would click on the sharing button. It would open up with your contacts from your different social accounts. You could choose who you’re going to share it with and it’s in. So that evolved as you know from a simple browser button to a full messaging app and then a messaging platform and we realize as the journey continued, and as our thinking evolved, and as the whole space evolved, that it just made sense not only to aggregate contacts, but to aggregate content and news feeds. So we’ve got you know more than 75 channels that we’ve launched. We’ve just in the channel section for written media and every single thing that you connect, you can start a Thred about. So the idea is that communication is constant. It’s contextual and you just want to be able to do things the way that we would do things if we were sitting around a coffee shop table talking. So you know, you and I talking about football, sorry soccer and that’s because that’s how you talk about. And then when you talk about soccer, you’re talking about Arsenal, because that’s what you talk about. And then you say hey, the guns match is on do you want to go see it? You know we want to go see it. So yeah, let’s organize some tickets, and so that’s a natural conversation. But if you put that in the context of a chat app, there’s no way that you could order a coffee, you know order transport, buy a ticket and have that conversation back and forth in one place. That would take four or five or six different apps and a phone call. So raise their thinking, oh yes so that was our thinking, is like well how do we communicate naturally as best friends, as people? Let’s get all of that information in one place, let’s bring some third party services. So we deep link input, we deep integrate into Ticketmaster as well. And as a heat, more of those that are coming down the pipe and just make it easy for folks.


Chris: Makes a lot of sense. So obviously, the next few months are important. I was checking the Play Store today and so far it’s at a four point six dollars in the Play Store. Amen. Where do you see the product going from here?


Dave: Well, you know we we’ve had a lot of organic growth, really quickly affirming dates of the actual launch. We’ve got some new release stuff coming out. We’ve got a very solid tech team behind us, so our delivery cadence is very quick. You know we’re looking at weekly updates and you know adding additional features and functionality. But you know, because the most important thing per se, and I talk about this all the time. The most important thing is that we sort of be patient and open, and listen to our users because we built you know the platform because we thought it was a good idea. But how that platform evolves is now going to be a collaborative process between us and all of the good folks that are using it. So we’ve got a lot more stuff in the pipe that’s coming. We’re going to be bringing music, we’re going to be bringing streaming video. You know the heap of other things that we’ll bring to the platform. But yeah, it’s really going to come down to you know ultimately the users telling us how they use Thred and you know what they get the most out of.


Chris: Great, makes a lot of sense. I’ve got two more questions for you and then I will let you go, because I know it’s an extremely busy time for you. The Thred is not, was not a simple product to build and the funds raised enabled you to create a much better infrastructure, leveraging our partners Lateral in order to do that, than you would have been able to do if we’d been bootstrapping this. Tell us about that underlying infrastructure and architecture that we’re building Thred on top of.


Dave: Yeah that’s a really good point. One of the questions we get asked a lot of is you know, can other people build Thred? And of course, of course they can absolutely. But it hasn’t taken us two years for no reason, it’s incredibly complex. There’s you know, we’ve got a large development team of really skilled people who come from all sorts of backgrounds. You know, one champ ran, you know, one of our systems for one of the police departments here. You know someone else has come from London through the financial tech industry. It’s a really complex architecture because anything that might look simple as you know, has just got so much work and so many hours that have gone into it. Fortunately as you said, we have been able to raise the money and that’s why I would encourage any entrepreneurs listening to this; get out there if you can. If you really believe in your idea, then go raise the money. If the idea is that good, the money will come eventually. You know this did not happen overnight, there’s no such thing as overnight. And so the remaining thing is that we’ve been fortunate to raise the money and be able to build the platform out. So we haven’t just built an app, we’ve built a full platform and we’ll be opening that up to developers to build, you know widgets and other things against that platform. Because we now provide what we’re calling messaging as a service and multi app, where if you think about the Thred identity because you’ve already connected your other identity systems to it, a single thread identity is potentially more powerful, more accurate than any of any other one out there. So there are a lot of places that Thred can go, but you know we wouldn’t have been able to do it without lateral and without the great team that we’ve got behind us.


Chris: Great and last question for you. There’ve only been a handful of consumer apps, global consumer apps launched from Australia. What does Thred launch mean for the Aussie tech scene?


Dave: You know, I’ve always been a great believer in every local tech scene. When I was in Hong Kong, I was you know, really supportive of the of the start-up scene there, which is just boomed in the last few years and good friends of mine who is in Singapore, and I saw the same thing there. When I left Australia 11 years ago, It was quieter and you know there wasn’t the availability of capital that there is today. Hopefully, what the successive Thred will do though is, it will champion the tech industry, and that’s what every local tech seem needs. It needs standout systems or standout successes that raise the awareness in the investment community and just in the community in general, that there is a lot of innovation in your local scene, in the local tech scenes, because Australian innovation is incredible considering the size of the population and where we are in the world and so on. The innovation that’s come out of Australia is absolutely incredible, and it’s very sad to see it go overseas because it’s got to raise money there. So what I’m hoping is that Thred will stand out as an example, and that it will attract capital into the wider market.


Chris: Great! Dave, thanks for your time during this extremely busy period. Tell our listeners how they can find out more about you and more about Thred.


Dave: Well, you can go to LinkedIn, David Whitaker, 1 “t”, and you can find my profile there; or our website which is www.thred.im.


Chris: Wonderful. I’ll have links to Thred in the show notes, folks. And as always if you like the show, please download all the episodes and leave us a 5-star rating on iTunes. You can find show notes at Techlowdownshow.com and of course follow me on Twitter @cjones2002.




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