Updated: Oct 2, 2020
Something quite interesting happened in Western Australia a couple of weeks ago and you probably missed it. A company I've been following with interest for a while, Brainchip, suddenly became worth more than $1.5 billion after a frenzied rally in its share price, propulsing its share price up 1,500% over the year. Brainchip is a fascinating AI company, developing a computer chip which can mimic how the human brain functions.
To put the above share price graph in perspective, I've dipped in and out of the stock a couple of times, and I was chuffed to have sold my last holding for around 6.5 cents earlier this year. Oops.
I remember attending a presentation by the chip's inventor Peter van der Made at the Innovation Centre of WA back in 2015, when the company was about to complete its backdoor listing onto the ASX, and to be honest most of the science went over my head at the time. It was all about the company's SNAP technology, a "revolutionary neural computing technology that ‘self learns’ the same way the human brain does."
As I understand from catch-ups with a friend who now chairs Brainchip's Scientific Advisory Board, it's a new type of chip than can process data more efficiently than existing technology, as it's not only powerful but also ultra low power. It also has the ability to learn independently, without being connected to the cloud - in other words it can continue to function and evolve in a remote environment. The technology has huge applications in the internet-of-things arena like self-driving cars and drones, but also in the context where you might deliberately not want an internet connection, eg for a smart device in the home that maintains your privacy. Cool stuff.
According to Bloomberg, Brainchip became one of Asia Pacific's best performing technology stocks in 2020. While it would be fantastic for Perth to get its first unicorn (note the qualifying comments at the end of this post*) since Canva, September's market rally seemed astounding and, largely unexplained. Even the company's CEO expressed surprise at the price surge. The rally was possibly caused or at least accelerated by the stock's inclusion on various discussion threads on forums like Reddit over the previous months.
Regular readers may recall my piece about "Robinhood traders" and bankrupt Hertz' share price a couple of months ago - here that's link again to Alex Dranco's fascinating post on the topic. And if you were wondering what happened to Hertz's proposed cap raise, sounds like it was eventually blocked by the SEC. The company is now seeking a US$1.5 billion loan, and has just announced it's appointed its third CFO so far this year.
Since I wrote about the effect of the so-called Robinhood traders in the US back in June, the Australian regulator ASIC has published a warning about at-risk behaviour from new investors and the rise in investing threads on social media platforms such as Reddit. ASIC noted that retail investors make up 80% of the trades in stocks that more than doubled in price, despite representing just 16% of broader market activity. ASIC had earlier reported that during the COVID-19 market downturn, retail accounts had been opened at more than 3 times the normal rate, as first time mum-and-dad investors flooded the market trying to pick the bottom.
But with Brainchip, here's hoping it's more than just speculators fuelling a bubble, as the company does seem on the cusp of commercialising something awesome. The share price has dropped right back down below 40 cents, with many analysts suggesting that's a fair valuation - and so for now at least, no longer a unicorn*.
* Even though some in Australia apply the term 'unicorn' to any tech company worth more than $1 billion, the generally accepted definition is a young privately-held company valued at more than $1 billion. As such Brainchip was never, technically, a unicorn.
An interesting feature of Western Australia's tech funding landscape is the combination of:
a dearth of local venture capital firms (read my piece on startup funding in StartupWA's 2019 report if you'd like more analysis);
a well-developed local industry of corporate advisors specialised in listing companies, with 35% of all ASX-listed companies based in WA.
As a result it's perhaps more likely that successful WA founded companies are more likely not to become unicorns, with those that do reach a billion dollar valuation doing so after listing rather than before.