When the Start-up Nation Meets the Lucky Country
By Stuart Roberts, 6 February 2019
It was the kind of IPO investors wish they had more of. Splitit Payments, a monthly installment payment solution provider, raised A$12m at 20 cents per share ahead of its listing on the Australian Securities Exchange (ASX). The offer was heavily oversubscribed, and so by the end of its first day of trading on ASX on Tuesday 29 January, Splitit stock, trading under the code SPT, had made it to 38 cents. The next day it went as high as 74 cents intraday and by the end of last week it had closed at 54 cents. Welcome to what can happen when the Start-up Nation Meets the Lucky Country.
You see, Splitit Payments is based in Israel, a place renowned the world over for its development of world-leading technology companies, hence the country’s nickname of the Start-up Nation. Splitit chose to go public in Australia, some 14,000 km from Israel, because, like a growing number of young but fast-growing Israeli tech companies, it was too small for either the Tel Aviv Stock Exchange or Nasdaq but not too small for an exchange like the Lucky Country’s ASX where, historically, investors have displayed a high appetite for risk. Before Splitit around 20 Israeli companies had made the capital trek to Australia and we think their overall performance has set the stage for many more to come.
Average performance of 25% post-listing
At Pitt Street Research we ran the numbers on all the Israeli companies listed on our exchange prior to Splitit. Since these are technology companies, there have been winners and losers. Also, most of the companies only got here in just the last three years. However, we think the average 25% post-listing return of the Israeli cohort has helped raise the confidence level of investors that Israel has the goods in terms of delivering for investors. We note, in particular, the creditable performances of Audio Pixel (ASX: AXP), Elsight (ELS), Sky and Space Global (SAS), Creso Pharma (CPH), MGC Pharmaceuticals (MXC), G Medical Innovations (GMV), MMJ Phytotech (MMJ) and Security Matters (SMX).
Three factors driving young Israeli companies to Australia
I joked recently that so many Israeli companies were coming to ASX that it was a fulfilment of that verse in the Bible which reads ‘Cast thy bread upon the waters: for thou shalt find it after many days’ (Ecclesiastes 11:1). But just how did this steady stream of interesting Israeli outfits start showing up Down Under? Chalk that up to three main factors.
Firstly, the presence in Australia of brokers and corporate advisors who are pro-Israel and know the country well. Secondly, the ability of the ASX, with its more liberal listing rules, to help capitalise non-Australian companies that are too early for other public equity markets. Thirdly, the increasing affinity in recent years of Australian investors with the Technology and Life Sciences sectors - something that we at Pitt Street Research have witnessed firsthand as we have built our issuer-sponsored equity research business here in Sydney since mid-2016.
Of these three factors, the one that I think is most important is the first – the supportive knowledge base around Israel that you’ll find Down Under. Australia and Israel have maintained close ties ever since the latter’s founding in 1948 and it’s fair to say that our country has been a strong and proud backer of Israel through thick and thin. Indeed, our government recently recognised Jerusalem as the legitimate capital of the country.
Australia today has the world’s ninth-largest Jewish population, and Jewish people are prominent in the nation’s business community, so naturally Jewish brokers, investors and advisors have been actively involved in many of the Israeli ASX listings. However, it’s not just the Jewish folks who have done their homework on Israel.
My Pitt Street Research co-founder Marc Kennis has built a deserved reputation as the leading Australia-based analyst covering the Israeli Tech scene, with cutting edge research on companies like Weebit Nano and Security Matters. Last December I went with Marc to Israel to scope out the Biotech and medical device potential of the country (and, I’ll admit it, to see for the first time the Promised Land I’ve read a lot about in the Bible). Needless to say, I came back impressed, because Israel has long been a global, albeit under-rated, powerhouse of Biotech development and home to one Top 50 pharma company, Teva.
Australians and Israelis have a lot in common
Enhancing the match between our two countries, on the Israeli side, is the businesslike way that most Israeli tech and biotech entrepreneurs go about funding and building their companies. I’ve been pleased with the high commitment displayed by Israeli companies to best practice when it comes to compliance with the ASX listing rules, and I’ve always found an investor presentation by an ASX-listed Israeli Tech company to be sharp and to-the-point. Israelis are easy to deal with because they have a frankness about them that Aussies like. However, what really excites Australian investors is the hustle that typically goes with an Israeli company.
When I read Start-up Nation, Dan Senor and Saul Singer’s masterly 2009 analysis of the Israeli economic miracle, I was struck by the authors’ contention that Israelis are an impatient people. I guess you would be impatient too if you had waited several millennia to get your country back. This impatience usually means that when an Israeli team starts a new tech company, their business plan will prominently feature revenue generation at the earliest possible opportunity. Australian investors have a similar impatience when it comes to earning returns from technology investments, born from the fact that sometimes it doesn’t take long, in the outback of the Lucky Country, to go from a successful drilling campaign to a producing and highly valuable mine. So, from an investment perspective, Israel has the kind of stories the Aussies are looking for.
Plenty more where that came from
We at Pitt Street Research predict that 2019 will feature more and more Israeli Tech and Biotech company listings on ASX. Many in the Israeli ecosystem now know about Australia as a potential funding route because for some years now the ASX has been diligent in reaching out to Israel to build relationships and explain the benefits and responsibilities of listing.
Here in Sydney last week Marc attended a luncheon briefing with Israel’s Ambassador to Australia, Mark Sofer, in honour of the ASX Friends of Israel, and we’re looking forward to participating in one of the ASX’s events in Tel Aviv next May. My instinct coming back from Israel last December was that the country was generating quality start-ups at a faster rate than could be fully funded locally, and that many were ASX-ready or close to it. Meanwhile investors Down Under are now asking their brokers and advisors for the ‘next Splitit’.
Our considerable expertise is at your service
Pitt Street Research is now putting its considerable and respected Tech and Biotech expertise to work for the benefit of Israeli companies. Over the last year or so we’ve facilitated a number of discussions on potential ASX listings related to Startup Nation opportunities, and we’re helping such companies get ASX-ready in a number of ways. Indeed, one of them may just be ‘the Next Splitit’ in the sense of being a successful Israeli Tech start-up, although not in the payments space. Whatever your niche in the Tech or Biotech sector, we believe that you might find our Down Under advice worthwhile. So get in touch and let’s talk.
Stuart Roberts firstname.lastname@example.org
Marc Kennis email@example.com