Why Capital Raising Is Sometimes Important For IT Stocks?  

Every business relies on capital to run its operations smoothly. Capital could be accessed either via internal accrual or via external means like debt or equity. Capital raising is a process in which a company taps funds to meet its capital requirements to support the daily operation of a project, to acquire a new business, to develop a new product or further expansion of the business, among others. Capital Raising:

Information Technology is not a capital-intensive business per say. However, in the early phase of a technology business, the requirement of external capital is high. Typically, IT businesses require funds to undertake activities such as:

• Research & Development
• Sales & Marketing
• Product Development
• M&A

Furthermore, technology businesses rely on human capital, which involves a major portion of recurring expenses in the form of salaries and wages. For these reasons, information technology companies require funds to run their business.

Major factors to be considered by IT companies before raising capital are:

• Market Size: It is an important criterion to check the existing market size and also the demand for the products and services in that market. Post which, the company needs to consider the associated production cost along with the margin.

• Capital Requirement: After evaluating the market size, the company needs to estimate the capital required to take the company to the next level, which gives rise to the need for the long-term financial model. The financial model helps the company to explain the use of the proceeds to the investors.

• Project Growth: An effective financial model also helps in understanding the project growth and the amount of capital required for taking the company to the next level.

• Opponents in Market: Before raising capital, companies also try to get the picture of their competitors in the market as by the very nature of capitalism, the moves by competitors have direct impact on the industry dynamics.

• Mode of Raising Capital: Generally, capital is raised either through debt or equity. Equity comprises of common equity and preferred equity. In the early stages, the company issues common equities to the friends, family and seed investors. In the later part, the company issues preferred equity that provides minority interest with protective rights.

In this article, we have delved into the details of 3 IT companies’ capital raising activities.

LiveTiles Limited

LiveTiles Limited (ASX: LVT) is a fast growing SaaS company with headquarters in New York.

Capital Raising in September:

The company has successfully raised $50 million before costs via a placement of 142,857,143 fully paid ordinary shares at a price of $0.35 each share, according to a company statement on 19 September 2019. The placement shares have been allotted to eligible institutional and other sophisticated and professional investors.

Under the placement, all the shares would be issued by using the company’s existing capacity under ASX Listing Rules 7.1 and 7.1A. Of the total, 76,790,397 fully paid ordinary shares would be issued under ASX Listing Rule 7.1, while 66,066,746 shares would be issued under ASX Listing Rule 7.1A.

For the placement, Citigroup Global Markets Australia Pty Limited and Oppenheimer & Co. Inc served as joint lead managers and bookrunners, while Blue Ocean Equities Pty Limited acted as co-manager.

Additionally, the company is set to launch a Share Purchase Plan (SPP) to raise up to an additional $5 million from existing eligible Australian and New Zealand shareholders.

Proceeds raised would be directed towards driving strong customer and revenue growth through investment in the company’s direct sales and partner channels. Moreover, proceeds would be used for ongoing product development and enhancement.

FY2019 Highlights:

The company, in August 2019, released its FY2019 results, reporting an increase of 281% in revenue to $18.09 million. However, it experienced a significant loss of $42.77 million, compared with $22.06 million in the year-ago period.

During FY2019, the company had raised capital for acquiring Wizdom A/S, a Microsoft-aligned, recognised leader in digital workplace software based in Copenhagen, Denmark. In order to acquire Wizdom, the company required to pay a base consideration of around 49.72 million shares in LVT along with a cash consideration of $9 million. The company issued the shares to Webtop Holding ApS as a consideration in order to acquire the 100% interest in Wizdom.

The company also issued around 8.63 million shares to Orange Fish Holdings LLC as consideration to acquire 100% stake in Hyperfish during the financial year. It issued another 6.77 million shares to Orange Fish Holdings LLC as payment to satisfy performance targets of its first earn-out.

Investor Presentation:

In the investor presentation released by the company on 18 September 2019, LVT highlighted that it would require further funding to support its ongoing activities as well as business operations. The fund raised would help the company in developing new products, improve available products, boost its operating infrastructure and simultaneously acquire businesses as well as technologies.

Stock Information:

On 20 September 2019 (AEST 11:50 AM), the stock of LVT was trading at $0.402, up by 5.789% as compared to its previous closing price. LVT has a market cap of $251.05 million and approximately 660 million outstanding shares.

Dubber Corporation Limited

Dubber Corporation Limited (ASX: DUB) is the most scalable call recording service in the world, adopted by various top telecommunications carriers in North America, Europe as well as the APAC region.

FY2019 Highlights and Capital Raising:

In FY2019, the company was able to increase its active users by 222% to ~ 95,000. Operating revenue increased by 269% to $5.54 million. The company also expanded its global footprint of telecommunication providers by 179% to 106.

During November 2018, the company raised $5 million, and in April, $22 million was raised in order to scale business resources that would help the company in scaling its business resources in line with global growth opportunities.

Stock Information:

On 20 September 2019 (AEST 12:08 PM), the stock of DUB was trading at $1.492, down by 3.742% as compared to its previous closing price. DUB has a market cap of $289.246 million and approximately 186.75 million outstanding shares.

Catapult Group International Ltd

Catapult Group International Ltd (ASX: CAT) is engaged in developing technology that supports athletes and teams in improving their performance.

• The company reported its first positive EBITDA in FY2019, which stood at $4.1 million.
• Annual recurring revenue of the company increased by 24% to $66.1 million.
• Group revenue grew by 24% to $95.4 million.
• Operating expenses growth declined from 14% to 9% in FY2019.
• The company incurred a net loss after tax of $12.3 million, representing an improvement of 29%.
• By the end of FY2019, CAT had net cash and cash equivalents of $11.7 million.

Capital Raising:

In March 2018, CAT completed a placement of around 22.73 million new fully paid ordinary shares and raised $25 million. In the placement, each share was issued at a price of $1.10. The funds raised were planned for

• Supporting the recruitment of further sales and marketing full-time employees in the Americas, Europe and Asia.
• Accelerating the company’s penetration in these markets.
• Meeting marketing, distribution and working capital needs.
• Accelerating growth in unit sales.
• Recruiting full-time employees for software development
• Investments in the elite technology stack.

Stock Information:

On 20 September 2019 (AEST 12:23 PM), the stock of CAT was trading at $1.475, up 4.61%% as compared to its previous closing price. CAT has a market cap of $269.16 million and approximately 190.9 million outstanding shares.

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