Seattle-based startup Buddy is going public, but not in the way you might expect.
In one of the more unique acquisition deals we’ve come across, the Internet-of-Things (IoT) data platform is set to be acquired by a publicly-listed Australian mining and resources company called Potash Minerals in what’s described as a “reverse takeover.”
Potash will acquire 100 percent of Buddy in an all-stock deal, but will allow Buddy to essentially run the company moving forward. Buddy will assume Potash’s public listing on the Australian Securities Exchange (ASX), raise money in an IPO and be re-quoted on the ASX as “Buddy Limited.” It will also take ownership of the board and have Potash file a change of business from a mineral exploration company to a technology company.
Buddy CEO and co-founder Dave McLauchlan explained that the deal allows his 3-year-old startup to raise more money at a better valuation and less dilution than following the traditional venture capital path.
“In fact, we turned down VC offers in order to go this route, and while extremely early, we’ve been very pleased with the process,” McLauchlan said.
McLauchlan pointed to 1-Page, a San Francisco recruiting technology company that became the first Silicon Valley startup to list on the ASX back in November. 1-Page has grown their share price from $0.20 on the listing to around $2.50 today.
“Their market cap exceeds $330 million, and they’ve used their share price growth to be acquisitive as well as raise additional capital very affordably,” McLauchlan noted.
McLauchlan, who is Australian and hails from Adelaide, called ASX a “phenomenal market to list micro-cap companies,” noting its large pool of investible funds, friendly listing requirements, and a history of funding and listing early stage companies.
“Should we need additional financing in the future, we will have access to the capital markets, and as a publicly-listed company, we’ll have access to customers we wouldn’t otherwise be eligible to service — a big bonus for a B2B organization like ours,” he added.
Buddy will keep its headquarters in Seattle and continue to hire and grow its team here. As a result of the reverse takeover, Buddy will open a small engineering office in Australia, taking advantage of the time zone difference and deep talent pool in Australia. It plans to report its finances in U.S. dollars.
Regulatory issues aside, McLauchlan — a former Microsoft veteran — said “it’ll be business as usual for us here in Seattle.”
Founded in 2011 by McLauchlan and Jeffrey MacDuff, two former Microsoft managers, Buddy previously provided backend services to mobile apps but later developed connected device infrastructure after working with connected vehicles. It helps clients manage and analyze the data that IoT products generate.
The company’s investors include Transmedia Capital and AF Square, the investment arm of Atom Factory, a company run by entertainment manager Troy Carter. Buddy employs 12 and has raised $3.7 million to date.
“I expected our investors to have some pushback, but I’ve been thrilled at the unilateral support for this move,” said McLauchlan. “Every investor will have a positive return on their investment on IPO day, and hopefully our share price trades in a direction that will grow those returns even further.”
He also said he expects other companies to follow Buddy’s path.
“While we ultimately turned down a VC offer to pursue an ASX listing, I know several startups that are watching us very carefully as a ‘proof point,’ he said. “If we can do it, I wouldn’t be at all surprised to see more Pacific Northwest-based startups look to the ASX as a source of funding, and from what we’ve seen of the market already, there’s a lot of demand for high-quality, if early, tech plays.”