Critics of the embattled music streaming company Guvera have spoken out in support of the ASX’s decision to stop the company from listing on the exchange, with industry leaders saying the co-founders were “on a different planet” when they decided to list.
Atlassian co-founder Mike Cannon-Brookes applauded the ASX on Twitter, saying it was a “good move” and that “investors would have lost all their cash”.
“No tragedy for the nation here. Just saving people’s money,” he said in response to the head of AMMA Private Equity Paul Jansz saying in an email to shareholders that the ASX’s decision had been “small-minded”.
“Guvera off planet here. ‘Small minded’? Laughable. Smart call. Only thing smaller is AMMA fees. $20m not enough?”
AMMA has been responsible for raising $185 million for Guvera from its network of accounting firms and one of its directors is Guvera chief executive Darren Herft.
Despite receiving a green light from the Australian Securities and Investments Commission, Guvera’s hopes of listing were dashed on Friday when the ASX said it would not allow the business to list.
The decision came after the company, which made only $1.2 million in revenue on an $81 million loss in the 2015 financial year, was scrutinised over its high cash burn, debts, dealings with related parties and its method of capital raising through self-managed superannuation fund investors.
The ASX is meeting with Guvera on Tuesday to discuss the decision, but it is not up for review.
The managing director of Axstra Capital, which helps small cap listed and private businesses raise capital, Reuben Buchanan, said the ASX “definitely” made the right call in blocking the float.
“Allowing it to go ahead would have been damaging to the reputation of the local technology industry,” he said.
Mr Buchanan first reviewed Guvera’s offer in 2009.
“It was a questionable deal then that most genuine sophisticated investors could see through, and it is an even worse deal now,” he said.
“Its concerning that it has managed to get to this point. AMMA and the accountants who put their clients’ money into it really need to be investigated by the regulators to explain that.”
The Australian Financial Review revealed that some accounting firms had received kickbacks when their clients invested in Guvera.
It’s not the first time the ASX has prevented a company from listing. Earlier this year it stopped the Bitcoin Group from going public because it was not convinced the company had enough capital to make it through its first year.
The ASX has not disclosed why it blocked the Guvera float, but like Bitcoin Group, Guvera would also have had to raise more capital before the end of the year, based on its minimum raise amount of $50 million.
EM Advisory managing director Natasha Mandie, who advised Redbubble on its recent listing, said she was not surprised the exchange had stopped the listing.
“A company that tries to list with less than 12 months of funding will always attract scrutiny and begs the question of if it’s in the interest of an orderly market to allow the IPO to proceed,” she said.
“The ASX always asks questions if the company has had less than 12 months of funding, as it should.”
But some in the tech industry disagree with the ASX’s decision.
TechnologyOne chief executive Adrian Di Marco said this was the “worst result” and called on the ASX to consider further tightening of its listing rules, on top of the changes that it’s already proposed.
“The ASX has made an arbitrary decision … companies meet the guidelines, or they don’t … They did meet it, so they should be allowed to list,” he said.
“Let’s get some guidelines together that are realistic and will protect investors so people can go through this process with confidence.
“It’s confusing for the market and it’s tarnished [Guvera’s] brand and it’s not good for their investors.”
Shark Tank judge, investor and entrepreneur Steve Baxter also labelled the ASX a “nanny” after the decision.
But most in the industry have not agreed with the ‘buyer beware’ mantra in the case of Guvera.
Rivkin Securities chief executive Scott Schuberg said Guvera’s executives had existed in a “false reality” where they’d been buoyed by their success raising funds privately through AMMA’s network.
“Guvera executives were living on a different planet as they approached this listing,” he said.
“This listing was just never going to happen, and anyone who thought it was probably only did so because they were still high on the euphoria from AMMA’s seminars.”