Reverse takeover to put start-up investor Scalare on ASX boards

An Australian tech investment and advisory firm has signed an agreement to take over an ASX-listed shell company, giving retail investors access to early-stage tech start-ups.

Scalare Partners chief executive Carolyn Breeze.

A tech investment and advisory firm has signed an agreement to take over a shell company that would give stockmarket investors a chance to cash in on its earliest investments in 28 tech start-ups and companies.

The reverse takeover (RTO) would provide a rare opportunity for retail investors to access some of the fund’s earliest investments months or years after they were made.

If approved by regulators, Scalare could finalise its takeover of Candy Club Holdings as early as August, according to its chief executive, Carolyn Breeze.

Ms Breeze said the deal would be structured in a way that gave new investors a return on all its investments to date. They included Circadian Health Innovations and AsiaVerify. It also was an investor in Cape, which was recently acquired by British firm Anna Money.

“At the moment there are other ways to invest in early-stage tech through VC funds, but the way we’re structured means that investors get access to all of our investments to date, of which there are 28, and all the investments we make moving forward with no ring fencing or anything like that,” Ms Breeze said.

A listing would entice a number of investors who had previously been deterred from backing early-stage start-ups by rules including the sophisticated investor test, Ms Breeze said.

To qualify as a sophisticated investor, and consequently gain access to what are deemed “complex” investment opportunities, a person needs to earn a gross income of at least $250,000 a year for two consecutive years or have $2.5m in net assets.

Recent proposed changes to the sophisticated investor test were making it even more complex for people to back start-ups, Ms Breeze said. “It’s creating a lot of barriers to allow investors to get into this early-stage tech, which is a huge asset and a huge opportunity for them,” she said.

Scalare believes there’s another opportunity the RTO would bring, which would allow short-term investors to potentially earn a return faster than they would via angel investing or through venture capital.

“The theory has been that if you do it that way, through venture capital or angel investing, you’re locking away your money for five to 10 years before you can see an exit or see any upside in that investment,” Ms Breeze said. “We want to remove that barrier.”

The RTO would require some changes to the way start-ups disclose important company movements. Scalare would be required by the ASX to disclose major changes that affect the financial positions of the start-ups in which it invests.

“I think that’s a great thing … it’ll give a lot of information back to the market about how early-stage tech works and how these start-ups scale,” Ms Breeze said.

The RTO comes at a time when there are a lot of misconceptions in the start-up sector about returns, according to Ms Breeze.

When software design giant Canva lists, many investors in venture capital fund Blackbird, an early backer of Canva, are expecting a major return.

“If you look at the recent Canva news, a lot of early investors did receive money back because they were part of that secondary share sale,” Ms Breeze said. But in terms of an IPO for Canva, only Blackbird’s earlier investors would see a return, she said.

“Unlike venture capital funds, which we’re not, we don’t ringfence any of our investments so, when investors back Scalare, they get access to all of our investments to date,” she said.

Scalare was expecting at least two of the start-ups it has invested in to make an exit within the next two years. Two of its previous investments had already done so, the most recent being financial services company Cape, which was acquired by Anna Money.

Scalare made eight to 10 early-stage investments each year, Ms Breeze said, having already made three this year: Circadian Health Innovation, Brauz and Roi-AI.

Originally published as Reverse takeover to put start-up investor Scalare on ASX boards