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afr TECHNOLOGY LiveTiles founder says market doesn't get...

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    TECHNOLOGY
    LiveTiles founder says market doesn't get software-as-a-service 'hyper growth'
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    by Michael BaileyFebruary 14 2018
    The Australian market doesn't understand the 'hyper growth' business model of software-as-a-service companies, the co-founder of LiveTiles said after queries from the Australian Stock Exchange on its cash burn triggered a $20 million capital raising.

    The company requested a trading halt on Wednesday and it was subsequently leaked to The Australian Financial Review's Street Talk column that a placement, managed by Blue Ocean Equities and Moelis Australia, would raise up to $20 million at 45 cents per share.

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    Andrew McKeown, a senior Facebook executive (left), joined the board of Karl Redenbach's LiveTiles last year. Photo: Supplied
    The $220 million company's last capital raise was a $12 million placement at 18 cents per share last August.

    The bourse's 'please explain' campaign in the small cap software-as-a-servce sector had extended on February 6 to LiveTiles' cashflow, after already suspending GetSwift and Buddy Platform for unsatisfactory answers to queries about potentially over-hyped contract valuations.

    New York-headquartered LiveTiles, provider of a one-stop interface to Microsoft's Sharepoint and Office 365 corporate collaboration products, had revealed a $5.3 million cash outflow in its December quarter update, announced January 30.

    It forecast a $6 million cash burn for the March quarter, with just $7.2 million in the bank as at December 31. LiveTiles' shares had fallen from a 60 cents high in January to 48 cents as cashflow concerns weighed on investors.

    Capital raising
    LiveTiles assured the ASX on February 9 that it could continue operating, despite appearing to have only enough cash for two quarters, because of rapid growth in its annualised subscription revenue (ASR), which it reported hit $6.9 million on December 31, up 245 per cent year-on-year.

    LiveTiles also promised the ASX it would consider raising more capital, however the timing of the subsequent $20 million raise was "coincidental", chief financial officer and director Matt Brown insisted on Wednesday.

    Karl Redenbach, who with Peter Nguyen-Brown backdoor-listed LiveTiles in 2015 and collectively own more than 66 per cent of its shares, told the Financial Review during a visit to Sydney on Tuesday that he was emulating the "hyper growth" model of his heroes in the enterprise software-as-a-service space.

    "I think the market in Australia still doesn't really understand how the likes of Atlassian, WiseTech and Aconex became so successful," Mr Rebenach said.

    "They've all been through that hyper-growth phase where you are heavily reinvesting back into your products and your sales and marketing engines to just keep compounding that growth."

    Faster than Atlassian
    He claimed that LiveTiles was actually growing faster than Atlassian had when it was the same age.

    "We could have turned off a lot of costs when we reached $4 million ASR and printed money for a while, but our ambitions are much bigger than that," he said.

    Mr Redenbach told the Financial Review he had been talking to "Silicon Valley investors" about LiveTiles, whose only significant institutional supporter to date has been Regal Funds Management with an 8.5 per cent stake.

    LiveTiles is less aggressive in announcing client wins than the likes of GetSwift, however Redenbach said it now had 485 paying customers.

    "We run plenty of free trials too but we don't count any of them in annualised revenue until at least a one-year contract has been signed," he said.

    "Peter (Nguyen-Brown) and I spent 17 years as Microsoft resellers before LiveTiles and our contacts in that network are a key way we find new customers. People look at our growth and wonder how it can be real, but we've been at this a long time."

    R&D expansion
    Most of those customers use LiveTile's 'drag and drop' design editor to configure their intranet home pages, however the start-up is entering new markets.

    Last year the New York City Department of Education licensed LiveTiles 'Mosaic' product – a digital classroom run off Office 365 – to its 1.2 million students and teachers, while in January it announced a tool for retailers using Microsoft's artificial intelligence technology.

    A strategy to base LiveTiles employees outside major centres would constrain staff costs, Mr Redenbach said.

    A 14-person product development hub in Hobart had allowed LiveTiles to claim the research and development tax incentive, from which it received a $2.1 million refund in January.

    Like a similar hub at Richland, outside Seattle, the Tasmanian office had "100 per cent staff retention" and lower average wages due to its lower costs of living, Mr Rebenbach said.

    A new innovation centre in Geelong, which Mr Redenbach claimed would create 500 jobs "over many years", was announced last year and like the other regional offices he said it had attracted government incentives, although none were reported in the first half of 2017-18.
 
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