Start-up funding still frozen solid

Anyone who thought that the listing of micro-projector maker Digislide Holdings on the ASX would signal a slight thawing of the market for tech stocks, forget it.

A call around of technology entrepreneurs and investors in Australia suggests the market for tech IPOs is still frozen over.

The performance of Adelaide-based Digislide itself as a listed stock has done little to prompt a thaw. The company had a shocking debut, even having delayed listing by seven months from its original date. Its $1.25 stock came onto the market at 80 cents and plunged to under 40 cents through the week. It has now regained some ground, sitting at 47 cents.

Chief executive Luceille Outhred says that she is not overly concerned with the poor debut, believing that it reflects a number of long-term shareholders — some of whom invested in the company 10 years ago — liquidating part of their investment at any price.

"That will settle down, because there aren't that many shareholders who bought in 10 years ago," she says.

Outhred, however, says the current share price is valuing the company's past, not its future. Of course that's little comfort to the folk who spent around $4.5 million buying stock at $1.25 a piece.

The listing has had many pundits scratching their heads, in terms of exposing itself to the market for such a small raising. According to Dean McEvoy, founder of the online books service Booking Angel: "It's terrible that an Australian company had to list to raise $3 million (sic). All that paperwork and reporting for something about the size of an angel deal in the US."

Outhred says being listed provides benefits when working with foreign partners, and gives it another option for making acquisitions.

It's unlikely that too many more tech markets will go to the public market this year — if any. Listing a company is an expensive exercise on an ongoing basis, and if the company fails to raise the capital it needs to become profitable, it is in danger of being punished later by shareholders.

The investment principal at venture capital company Starfish Ventures, Michael Panaccio, says the Digislide listing gives little indication as to whether the market is interested in other tech stocks.

"There's no doubt that because we've gone through a sustained run that there is a possibility that the IPO markets have opened up, but until there is a significant raising, we won't know," Panaccio says.

A lack of money in the public market would not be such a problem if there were funds available in the private market. But unfortunately the venture capital industry is hardly handing out cash at the moment either. Only a handful of companies, including Starfish, are investing in new companies now, and those deals are being done slowly and carefully.

And with no replacement for the Federal Government's Commercial Ready program likely to emerge any time soon, the funding picture for Australian tech start-ups remains as bleak as ever.