Private to public - Fresh Amplify finds 3 'undervalued' ASX startup stocks

More start-ups are starting to think about a public listing as private capital market tightens
There are two key differences between public and private markets, investors should note
Fresh Amplify highlights three startups which listed on the ASX in recent years as undervalued

Seed, Series A, Series B, SAFE Notes and venture debt are all the typical funding mechanisms for a startup. But with a tightening of private capital, Fresh Amplify co-founder and CEO Ben Williamson told Stockhead more startups are starting to rethink the listed market.

He said whilst the private market has continued to develop and mature, listed exchanges only exist for two reasons – raising capital and liquidity. As such they are well ahead.

Raising capital and liquidity – public vs private companies

Williamson said there are some pretty big differences between raising private and public capital.

“As a public company you can raise from more sources – mainly retail – and you can typically raise quicker,” he said.

“Having worked on more than 2,000 of these raises, there is a definite process to it.”

Williamson said with the added advantage of people being able to buy/sell stock it means they aren’t locked into a binary outcome years in the making.

“In the private sector you have to raise patient capital. That has a 3-10 year horizon, and the outcome typically being zero or hero, and no recourse if you disagree with management,” he said.

“In the public space, you can invest today, management changes or makes a call you don’t like tomorrow, and sell the day after – there is no lock in.

“This is a double-edged sword though.”

Williamson said as a private company, you may have the option for liquidity once a year; as a public company it is daily.

“With a public company your share price can move any given day,” he said.

“Besides the mental battle of trying not to open CommSec before lunch, this can either assist, or hinder your options.”

Lower volumes = less accurate current price = fear and doubt

Williamson said on the flipside, low liquidity will keep a lot of investors out and if you have low turnover then it is perceived as higher risk.

“Liquidity brings more people in, encouraged by not having to tie up their money for long periods,” he said.

“It is lower risk, so you can typically raise more cash at a higher valuation.”

Williamson has chosen three startups which listed on the ASX to see how they are going several years later.

1. Tinybeans (ASX:TNY)

IPO: April 21, 2017

Current share price: 25 cents

Current market cap: ~$16m

TNY is an information and social media tool for families to privately share memories.

Listed nearly six years ago, Williamson said TNY has done well as a business, moving from $1.3m revenue in 2016 to $16m in 2022.

“No doubt in frustration for the founders their share price has not followed the same trajectory – moving from $1 at IPO, up above $4 in 2019 and down to 25 cents currently,” he said.

“Now trading at around 1x revenue, it is a company that would most definitely be valued much higher as a private company, but it has enjoyed a run up before and management are working hard to keep the business scaling.”

2. Wisr (ASX:WZR)

IPO: July 13, 2015 as DirectMoney, rebrand as Wisr Feb 2018

Share price: 6.2 cents

Current market cap: $84m

Wisr is a non-bank consumer lender using technology to help drive applications and lending decisions. It listed on the ASX through a reverse takeover of Basper Ltd, raising $11.2m at 20c/share.

“Whilst impacted from the market sentiment shift away from listed fintechs (think BNPL & boutique lenders), Wisr has continued to grow with a loan book nearing $1bn and annualised revenue approaching $100m,” Williamson said.

He said the last five years have seen the business grow from a low of 2 cents/share to above 30 cents/share but it’s now suffering from a sell-off and change of investor expectations.

“Lenders like Wisr are attracted to the listed market due to the capital available,” Williamson said.

“These are cash hungry businesses whilst getting set up, and then typically become cash generating machines afterwards.

“Accessing this capital can lead to their growth rate increasing, and all shareholders then being able to participate.”

He said sentiment appears to be turning for WZR as investors can see hard work shining through and it starts to move to operational profitability.

“One investor I spoke to said they see the share price going back to all time highs in the next two years,” he said.

3. Spectur (ASX: SP3)

IPO: June 2017

Current share price: 3 cents

Current market cap: $6m

SPC is an autonomous security and warning system. Williamson said like many ASX tech companies the last five years as listed company have been a wild ride for SP3 stakeholders with the share price doubling in the first six months of listing, and sliding down to 3 cents/share today.

He said with the average daily trading volume (how much is traded per day) being ~$6k, the low liquidity brings risk, and poses the question – is this the right valuation?

“With all that in mind the company’s revenue is ticking up steadily, with last quarter hitting a record of $1.96m,” he said.

“Annualised that is nearly $8m of revenue, and growing, for a business with a $6m market cap.”

Williamson said conviction investors continue to think of SP3 as one to watch.

“One investor I spoke to said revenue is increasing but the market hasn’t woken up to it yet,” he said.

The TNY, WZR & SP3 share price today:

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

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

Williamson held shares in WISR at the time this article was written.