To NXT or not to NXT

Equity crowdfunding may be taking an increasing share of investor funds for small, high-growth companies, but Snakk Media is sticking to the traditional stock market funding route – and the stringent disclosure regime that entails. Idealog finds out why.

On Friday this week, smartphone advertising business Snakk Media is expected to become the second company to be listed on the NZX’s fledgling small-cap market, the NXT. Snakk, co-founded by tech entrepreneur Derek Handley (probably better known for setting up and selling mobile marketing firm Hyperfactory), originally listed on the NZX’s alternative NZAX market in 2013 and has just finished a $1.75 million-plus share offer.

With the phasing out of the NZAX, Snakk has decided to switch to the seriously-underused NXT.

There have been some tough times over the last couple of years for the company, which specializes in advertising via mobile phones and tablets. Losses doubled in the March 2015 year to $4.2 million, although sales were up 40% as the company moved into Asia.

Meanwhile, the share price fell from almost 15 cents at the end of 2013 to around 5 cents, and auditor Staples Rodway expressed concerns in the 2015 annual report about the company’s ability to meet revenue targets – although Snakk later said it had enough cash reserves to fund its growth.

The share offer, which closed on October 30, was priced at 4.5 cents a share. The company said the money would fund new staff, Asian expansion and investment in technology partnerships.

Sydney-based CEO Mark Ryan, a former COO of ad agency Ogilvy in Australia, talked to Nikki Mandow about the prospects for the company, the benefits of listing, the impact of crowdfunding, and why the NXT is far from a cruisy option.

NM: How is Snakk going?

MR: This quarter will be our biggest ever, coming up to Christmas, with the big growth coming from Southeast Asia. Revenue-wise we are punching at $10 million this year. But the business is cyclical, building towards the end of the year and then can be quiet. Over the next 12 months we need to be breaking even regularly across quarters.

(For an idea of what Snakk does, here is its advertising reel)

With Derek Handley having left the company last month, and both you and the new chair Peter James based in Sydney, is Snakk still a New Zealand company?

Of our 20-25 staff at Snakk, two are in New Zealand, two in Singapore and the rest in Australia. New Zealand is small market for us – 10%-15% of revenue – but it is still our spiritual home. We are listed here.

The NXT was promoted as having less onerous disclosure requirements than the NZAX or the main board. Has that turned out to be the case?

No. You need to report quarterly, plus you need to report on a raft of key operating milestones agreed with the NZX, and forecast two years ahead. If they vary by more than 10% above or below you have to give explain to the market, or change your milestones. This is pretty serious transparency and some NXT conditions are actually more onerous than those on other exchanges, for example businesses having to agree operating milestones and to report quarterly.

You call it “serious transparency”. Is that a good thing?

It’s hard, but because we are a business that didn’t exist a few years ago, we are a bit of a mystery to some investors. So giving them a look under the bonnet probably makes sense and should give potential shareholders some confidence.

My job is 40% running a media company, 60% running a public company.

So why stick with a stock market listing?

The transparency is onerous, but actually it is in line with how I want to run a company. You can’t hide if your business is fundamentally crap, and when you say the company is doing well, there’s research to back it up. If someone’s going to invest significant money in Snakk, they deserve a level of financial rigour and protection. I thrive in those environments.

There hasn’t been much listing activity this year, and until you list the NXT has only one company. Is this a problem?

Listing is expensive. And the requirements for a listed company are hard work and confronting – I’m not sure how many CEOs of small, high-growth companies in New Zealand have that level of experience?

There’s the monthly board meeting, quarterly results, continuous disclosure of anything material – new deals, deals going south etc – audits, AGM, dealing with the media, shareholder interaction, broker/investor interactions, and general public company PR and communications.

Snakk is the smallest business I have run in two years, by a factor of 6-7, but it’s challenging to find a CEO who can lead a company through all that. It’s a lot of work and pretty daunting. My job is 40% running a media company, 60% running a public company.

You listed on NZAX in 2013. If you were starting out now would you go the same route?

Maybe not – market conditions have changed and the mood now can be a bit gloomy. Would I use crowdfunding? Maybe. Our advisor worked with Invivo when they raised money with Snowball effect and it went really well. It’s a great way to tap into people with $1000-2000 to invest. It’s not so easy for us at our stage, but if Snakk was six people and looking to do a raise, I would look at crowdfunding. Another advantage [of crowdfunding] is you’ve got people investing from all around the world – you aren’t constrained to New Zealand institutions.

Did you consider moving to the ASX instead?

We did explore the ASX and the ASX were keen to take us. But we backed off. From my personal experience if you aren’t above $80-100m in market cap, you can be day traded into oblivion. For us to reach a market cap of $80-100m we needed $20m revenue. At the moment it’s around $10m.

Still, if the business keeps growing, we could be looking at other exchange options, possibly the ASX or an exchange in Asia.

Mark Ryan (CEO) and Peter James (chair)

And the future for Snakk?

I like to compare the mobile advertising market with the early stage of motor industry in US. At one time there were 300 American car manufacturing companies, people were building cars practically in their back yard. Then there was consolidation. It’s like that with mobile advertising – lots of people are doing it. I’d love to put us together with companies that we compete with. 12-24 months down the track I see us looking aggressively at acquisitions, and at partnering with businesses in Asia.