The unitised trading of individual residential properties, as described previously (Bringing homeowners the bacon, December 24), looks likely to cause quite a stir among private investors, if not the property market itself.
However, there is more to this story. The company that is launching the service, DomaCom, doesn’t intend to stop there.
It has plans for rapid growth, leading to an ASX float of its own, and to get the investments rolling it’s planning to give 10 per cent of the equity raised in its planned IPO to the investors, who have put the first $300 million into its trading platform.
So it will look for large volumes of capital. However, CEO Arthur Naoumidis believes his firm’s trading platform will help inject life into another underperforming sector of the Australian investment landscape – private equity.
Business leaders returning to Australia from abroad often wonder at the cultures of innovation and enterprise found in the US, UK or Israel, where ‘angel investors’ back thousands upon thousands of start-ups that just wouldn’t get off the ground here.
How can we get more private investors to spot good ideas, back them financially, and help create jobs and profits to push Australia higher on the global competitiveness scale?
Naoumidis thinks the same ‘book building’ process that underpins his firm’s unitising of residential houses could be used to build a book on just about any start-up or under-capitalised existing business.
That should set alarm bells ringing for the banks, whose business lending portfolios rely on them being the intermediary between saver and borrower.
How disruptive would it be, therefore, to put savvy savers/investors in touch with start-up businesses?
Though he didn’t say so when I visited the DomaCom office in Melbourne, Naoumidis’ business is a fairly good example of an innovative start-up.
By remortgaging or selling their homes, and by approaching individuals who know their industry, Naoumidis and his partners raised a few million to get to work on the long regulatory slog needed to get to ASIC approval, and the IT work to build the platform itself.
However, Naoumidis and partners had the advantage of already being well known for having previously worked on building the Praemium investment platform, which financial planners and accountants use to invest money for clients.
But had they not been so well known, they would need a way to find private investors who understand how the investment industry works, and who would not have a problem buying a small amount of exposure to the start-up firm.
What this example illustrates is that by encouraging start-up companies to unitise early on, without a full float, the DomaCom platform has the potential to link a lot more ‘angel investors’ to innovative business ideas – particularly as a single investor can more easily, and cheaply, diversify their holdings across numerous start-ups.
This is all exciting stuff, but the DomaCom system is yet to be tested in the real world. If it proves itself with residential property, the potential is there to expand into small business funding.
And Naoumidis and his partners, though they have signed Perpetual as the responsible entity and custodian of the assets DomaCom will manage, are aware that other corporate players will be watching.
A ‘fast follower’ could eat their lunch if they don’t move quickly.
Whether it’s DomaCom or a predatory fast follower who gets this platform into the hands of individual investors, the underlying principles in this project have the potential to do nothing less than transform the country.