• John Poynton believes Australia should learn from entrepreneurial powerhouse Israel to foster a tech ecosystem
  • As a Security Matters shareholder Poynton believes its share price has been “very disappointing” on ASX
  • Poynton said high valuation of Security Matters SPAC deal testament to its high international regard 

Prominent Perth businessman, investment banker, investor and corporate advisor John Poynton reckons Australia could learn from Israel about how to foster early-stage tech companies.

Poynton who prides himself on supporting early-stage companies told Stockhead he’s done two trips to Israel, and been fascinated by the way the government, educational institutions, capital markets and the whole country back their tech companies.

According to Deloitte “Israel is an entrepreneurial powerhouse and a hotbed for pioneering technologies, profitable business opportunities, and high investment returns”.

“What stands out is the ecosystem and when you go to Israel and do a tour you get to meet people deeply embedded in the innovation space whether it’s scientists, intellectuals, academics or capital market players, people in the military, government or bureaucracy,” Poynton said.

“They all seem to recognise that a country like Israel without any natural resources must rely on its brain power and it’s been interesting to see the way they’ve supported some of their companies.

“We support early-stage companies in Australia but there is a real discipline around how it works in Israel that’s impressive.”

Look beyond resources to grow economy

Poynton said he’d like to see local capital markets backing innovation and tech companies, making it easier for them to raise funds and develop their intellectual properties in Australia.

“We are a long way from anywhere and don’t have a tech ecosystem per se, but we have a couple of homegrown success stories and hopefully that encourages people to invest in the next best thing,” he said.

“We need to encourage a tech ecosystem like they have in the US and other countries like Israel.

“Then we need to encourage people with capital, whether that be family offices, institutions, or private investors to establish a portfolio of technology related companies.”

Poynton said obviously the risk reward with tech companies is higher and there’s more chance of disappointment which is why investors need a portfolio but there’s been some spectacular successes.

“I have always tried to support early stage investment whether listed or unlisted,” he said.

“But as a country we need to do more of it and not just be a service-based or resources-based economy.”

Growing list of Israeli companies on ASX

The ASX has 19 and counting Israeli companies listed as it markets itself as “the exchange of choice for international companies”. It falls behind only New Zealand with 65 and the US with 53.

Poynton is a shareholder and was formerly on the advisory board of one of these Israeli companies – Security Matters (ASX:SMX). With a market value of ~$45.6 million, SMX listed on the ASX in October 2018.

“I was on the advisory board from the time the company listed until about 18 months ago and I continue to be a shareholder,” he said.

SMX’s trademarked blockchain automated auditing tech provides materials a memory of its origination and history to enable recycling, reuse, and authentication multiple times.

Recently SMX announced it was bidding farewell to the land Down Under though and merging with Lionheart, a SPAC company on the US tech-heavy Nasdaq.

Through the marriage SMX will list on Nasdaq via newly-formed Irish company SMX Ireland and be renamed SMX Public Limited Company. Shares and warrants will trade under the ticker symbols SMX and SMXW.

But the big part of the SMX and Lionheart story is its valuation. The total merger value of the transaction is estimated at US$360 million, comprising of:

• US$200 million pre-money value for SMX
• US$126 million of cash in trust with the SPAC if no redemptions
• US$31 million SPAC sponsor position

While its share price has rocketed since the Lionheart deal announcement and is up ~150% in the past month, Poynton admits it’s had a disappointing run on the ASX.

“The issue has been that SMX has never really got traction in the Australian market,” he said.

“It’s an Israeli-run company with international operations and the CEO living in Israel so it seems to me it was probably listed in the wrong jurisdiction.

“When we hear about the SPAC and valuation being described we think maybe if he’s gone to a US listing right from the start it might have been different. “


A very convenient marriage

And, so what does Poynton think of founder, executive director and CEO Haggai Alon’s plan to marry off SMX to Lionheart and get a Nasdaq listing?

“I think being able to attract the SPAC with the kind of valuation they have is a testament to how well he is regarded in other parts of the world,” he said.

“The share price has been really disappointing if you think the counterparties to which Haggai and the company is interacting.

“They are global multinationals corporations with big reach and big revenues you would think that’s a reason for market cap of the company to be higher than it’s been.”

Poynton has a point. SMX has inked a deal with PepsiCo to promote sustainability across the US giant’s European supply chain.

Each week it seems to be announcing some new deal or impressive collaboration venture and has won global awards.

“They have unique IP which seems to be on message in terms of the whole ESG story,” Poynton said.

“To track and trace things from metals, liquids, food to whatever through the supply chain is very helpful technology particularly when there’s controversies about where things were sourced whether gold, cobalt, luxury goods that have been counterfeited.”

Poynton said other Aussie tech companies have received pretty good valuations so he’s not sure why it hasn’t been the case for SMX – although covid-19 lockdowns made it tough.

“The SPAC seems to think the technology is good and it has been very difficult for anyone from Israel to travel to Australia to promote the story, so I think that’s made it difficult.

“But now Haggai has realised the issue and done something pretty interesting to fix it.

“The fact that it’s still trading where it is shows there’s a fair bit of scepticism about the ability of the company to deliver on the deal but hopefully as time goes on that scepticism erodes.”

Poynton said you could argue the capital markets in the US are more likely to value what Alon has than the local one.

“It’s yet to see if it (the valuation) can be justified but certainly vindicates where Haggai has been taking the company,” he said.

At Stockhead, we tell it like it is. While Security Matters is a Stockhead advertiser, it did not sponsor this article.