David Kirk & Paul Wilson interviewed in AFR
By Yolanda Redrup
Via afr.com
Listed technology venture capital fund Bailador has revealed plans to take user-generated content marketing platform Stackla public on the ASX this year, as part of a string of start-up exits it is anticipating in the next 12 months.
The exits will be a moment of truth for the fund and will likely dictate whether it stays focused on emerging companies, or if it also looks at tech companies doing pre-initial public offering funding rounds or even undervalued listed companies.
The software-as-a-service focused fund, which is run by former Fairfax Media CEO and All Blacks captain David Kirk alongside partner Paul Wilson, has seen its share price struggle, despite backing a portfolio of well-regarded emerging technology companies, including hotel guest acquisition technology company SiteMinder and listed language translation services company Straker.
David Kirk and Paul Wilson from Bailador are bullish about SiteMinder's prospects. Ben Rushton
It is expecting up to three exits and two IPOs in the next 12-18 months from its 10 portfolio companies.
To date investors have found it hard to value Bailador, as it is only 4 ½ years into the life of the fund, and VC fund exits generally don't start flowing through until their fifth year.
But Mr Kirk and Mr Wilson, a former CHAMP Private Equity director, believe its $100 million market capitalisation and 84¢ share price significantly under-valued Bailador, given this is a multiple of just 3.8 times its revenue.
In comparison, ASX-listed software companies are now often fetching valuations around 15 times higher than their revenue, with the highest valued stocks like WiseTech trading at nearly 30 times revenue. WiseTech is widely considered to be overpriced.
"When we do our net tangible asset [NTA] numbers, we do think they're fair valuations [that we assign our portfolio companies]. But we do them at a level where we would never want to realise an investment below that, so they're conservative," Mr Wilson said.
Listing plans
"Our NTA numbers are getting closer to a fair valuation ... But at 3.8x trailing revenue, compared to other admittedly larger software-as-a-service businesses trading on 15-20x multiples, even if we doubled our share price we'd still only be 7.6x revenue, which is still pretty cheap."
Having hit a share price high of $1.20 in May 2016, the last time Bailador traded above $1 was in April 2017. Since then it's traded steadily beween 74¢ and 90¢.
Mr Wilson said Bailador was in conversations with brokers to list Stackla this year and he was hoping to convince another one of its portfolio companies to also go public in the next 12 months or so, but he did not want to name the firm until listing plans had firmed.
Bailador's current stake in Stackla is estimated to be worth $12.6 million, having increased in value by 13 per cent in the last year.
Of Bailador's 10 portfolio companies, the fund is most bullish about the prospects of SiteMinder, which it believes could easily be a multibillion-dollar success story like WiseTech or Xero.
The company, which provides the core hotel customer acquisition technology that has let websites like Booking.com and Agoda flourish, has largely flown under the radar locally, despite being the global leader in its field.
Bailador's stake in the company is valued at $55.9 million, but this is up for assessment in June.
Mr Kirk said after it had an exit this year, it would look to make another investment.
Portfolio value
In total, its portfolio companies are generating $200 million in revenue each year.
Earlier this month Bailador released an update of the valuations of its stakes in its portfolio companies. It calculates these based on external funding rounds, or if an external round hasn't taken place, it reviews their value every 12 months.
The current net asset value of its portfolio is estimated at $140.7 million, which Mr Wilson said was conservative. However, it does not disclose what percentage of each company it owns – a point that it has been pushed on by potential investors.
Mr Wilson and Mr Kirk are wining and dining investors this month, endeavouring to better tell the fund's story and explain the progress of Bailador, which they hope will turn around the fund's share price.
At a lunch earlier this month the co-founders were quizzed by a potential investor about whether it would consider investing in pre-IPO companies or even listed small caps, rather than private emerging companies.
Though Mr Kirk said it was not on the cards for this year, he said it was a conversation which came up often and was a possibility in the future.
"Say SiteMinder was to list. We'd have a big position in a listed company, and we'd also have our position in Straker, but we'd still have eight other portfolio companies," he said.
"That would open up our strategic options and it may well be that doing some pre-IPO funding works for us. It would be lower return, but a shorter time frame and could be a good return in the time period.
"We might also make some investments in public companies, so long as we have real conviction that we’re doing it at a reasonable price."
Since listing in November 2014, Mr Wilson and Mr Kirk have been forced to write off its investment in cloud software provider iPRO and write down another, but it was not expecting any other write-downs.
In July 2017 Bailador announced that iPro had been placed in voluntary administration after it missed several launch dates for a platform redevelopment and informed Bailador that it could not complete the redevelopment with its current cash reserves.
Mr Wilson said the company's problems had stemmed from some poor choices made by the founder and the fund did not have confidence the business could get back on track.
"If you’re going to be doing this sort of investing, you have to live with [the fact that some investments fail], and we’re really proud of the fact that people got paid, we didn’t milk it to the last cent … and we handled it the right way," he said.