Just as her startup was turning five years old, Shauna Mei’s investors started to get antsy.
“There was quite a lot of pressure from our VCs to say, ‘Hey, do you want to potentially think about selling the business? What’s the next step?'” says Mei, founder and CEO of AHAlife.
AHAlife is a venture-backed discovery platform for matching discerning online shoppers with curated high-end, limited-edition lifestyle products from a network of 2,700 designers. Japanese e-commerce conglomerate Rakuten numbers among its investors, having led a $10 million round of funding for the company in 2012.
But as her investors needled her on what was next for AHAlife, Mei says she was conflicted.
“I just didn’t want to sell the company. The business was doing really well, and I wanted to continue to build it and grow it,” Mei says. “The thought and idea of raising another round of venture capital funding was just not at all attractive. Going down Sand Hill Road and pitching VCs and having them ask you the same questions wasn’t appealing to me. Term sheets can get very convoluted to the point where you can become the employee of your own company.”
She also didn’t want to go public on the American exchanges, which could entail months of painful disclosures and diminished power inside the company she’d worked so hard to create.
Then Mei’s friend Joanna Weidenmiller took her talent sourcing platform 1-Page public on the Australian Securities Exchange last fall (the first Silicon Valley tech company to do so), and Mei realized an option she had never before considered. If 1-Page could go public on a foreign exchange with fewer than 10 employees, Aha could do it, too.
Here’s how Mei took her company public more than 7,000 miles away from Sand Hill Road.
Mei had heard that the Australian public market was actively looking for high-growth technology opportunities. Upon further inspection, she found that the Australian landscape is sophisticated both in e-commerce and technology use in general. The country also has a large economy formerly built on commodities and mining that has capital ready to deploy in high-growth investments like technology companies (especially venture-backed ones like AHAlife).
“It’s a really incredible alternative for startup companies who are looking for capital,” she says.
So around the start of 2015, she embarked on the filing process for the ASX, which would take seven months all told but involved far fewer headaches than the U.S. filing process. She had raised enough capital to cover the transaction fees, and since Australia doesn’t have the equivalent of Sarbanes-Oxley (the 2002 U.S. federal law that expanded requirements for all public company boards, management, and public accounting firms), the application standards were much less stringent than in the U.S.
In July, AHAlife debuted on the ASX through a backdoor listing with a private company called INT, which acquired Aha for $37 million.
Through the move, Mei was able to stay on as CEO while raising $20 million in fresh capital.
“It really doesn’t mean much, other than the fact that we raised new capital and we are public there. We are still a U.S. company. We still pay U.S. taxes–everything is 100% U.S., except for the fact that our shares are floating in Australia,” Mei says. “In future rounds, when I raise money, it will be based on what the stock is currently trading at that point in time.”
Timing plays into fundraising from now on: “We do have to figure out timing to make sure that we are not raising capital during a national crisis or something like that.” But fundraising won’t be on Mei’s mind for a while, she says.
“From our perspective, especially being an early-stage startup and still growing aggressively, it really doesn’t mean much. We generally focus on how it’s trading. We raised $20 million of capital,” she says. “We’re really just focusing on continuing to grow the business. And as we grow the business in the future, if we were looking to raise more capital, that’s when i think it matters a lot more to think about how are we valued.”
And just because she elected to pass up the U.S. exchanges for AHAlife’s first IPO doesn’t mean she won’t ever go public in the States. The ASX has a great relationship with the NASDAQ, Mei says, easing the process for dually listing a company on the Australian and U.S. exchanges when the time is right. Once AHAlife begins to trade above the market cap for its shares on the ASX, she says it’s “fairly easy” to come back to the NASDAQ, at which point a company has a built-in trading history and institutional investor base.
AHAlife’s market cap is around $70 million–too small for NASDAQ just yet.
“In Australia, we’re still notable because they have a number of companies that are much smaller around that range in terms of market caps,” Mei says. Once the company reaches a $200 million valuation, she says AHAlife will likely seek an American IPO.
If it’s the right fit, a foreign exchange can offer a company better terms than venture or even angel investment rounds. “There are a lot of other parts that I think can actually provide great capital and more flexibility and often much better terms because they’re willing to take a higher risk to get access to good investment opportunity,” Mei says.
She suggests prepping a company to be public while it’s still private. That includes making sure upper management is equipped for liaising with investors and shareholders, as well as getting financial records in order from the start.
“When you go public, you have to go through audited financials, and it’s quite a painful process. No matter what kind of startup you are, it’s really important upfront to have the controls in place and manage your finances very, very tightly with records.”
But even though it’s a meticulous process, going public on a foreign exchange is worth the headache, Mei says. She’s had entrepreneur friends take down rounds in the face of bankruptcy, and she says this is an alternative to that fate. And while she can’t speak to all foreign exchanges, she studied other exchanges when shopping around, and decided on ASX for a number of reasons.
“Culturally, there’s a lot more parallels with Australia than, say, the U.K. or Hong Kong Exchange,” she says. The investor base there understood her digitally native business model, which was a must.
As long as entrepreneurs do their research on other markets and exchanges for the best possible fit for their company, they should be fine. Don’t try to force interest in a particular business model or product–make sure the ecosystem where you’re filing is ready for what you’re bringing to market.
“Had I known about this, I would have pursued it much sooner,” Mei says. “I think I would have done it before even my last venture capital round. I think it’s an alternative that entrepreneurs need to know about.”