A growing number of foreign entrepreneurs, many focused on developing new technologies, have listed on ASX recently. It’s a way for them to raise capital so they can build scale and more rapidly grab investors’ attention. It also helps them understand how to make money managers happy. It’s much more doable and less intimidating to pursue that here than in the US or Europe. Chris Hulls, the CEO and co-founder of California based social media company Life360, is convinced Australia is the right place for his shares to trade, even though he sits on the other side of the world where most of his users live.
Hulls explains: “James Synge from venture capital firm Carthona Capital was our first outside investor and he is now a board member. Carthona has a good reputation in Australia. I think we were its first tech investment and James has become a very important and trusted adviser. He knew about ASX’s push to be a competitor to traditional, late stage, private capital. The idea of listing in Australia is to get the benefits of being publicly listed at an earlier stage. It is similar to the pitches that special purpose acquisition companies (SPACs) make in the US.” SPACs are US-listed shell companies that buy a new enterprise with the support of investors, many of whom are chasing quick rewards if the shares rise. But that attracts speculators, rather than patient, long-term capital.
Chris Hulls, CEO, Life360
Life360’s main product is an app that uses GPS tracking so family members know where everyone is located, at any given time, to check they are safe. “We hit our stride as a business a couple years before we went public,” Hulls says. “Then, we started looking for capital. The valuations for a standard US private investment round and an Australian IPO were about the same. But the Australian market was compelling because we could refresh the board, no longer have different types of equity and use the listing as a tool to recruit staff. Going public on ASX gave us the upside of a private company, with the protections of a public one. And we didn’t risk a disaster scenario if we raised money and the share price didn’t perform quite as well as we’d hoped. Then, the company sells for a gazillion-million, but you, as an employee, get zero. That is a risk when you are private.”
Life360 did have to face one critical issue listing here. It had to address scepticism in the Australian and US markets. “ASX investors think, ‘you’re in San Francisco. You have the best investors down the street. So why are you coming here to a market that doesn’t understand the business nearly as well as US investors do? Is there something wrong with this? Why aren’t you raising money back home?’ The scepticism the other way is, ‘who are these Australian guys?’ We tried to figure out the catch, both ways. But there wasn’t one. It was serendipity.
“We’ve been a bit of a black sheep in Silicon Valley because most apps or software products are used by early adopters. They have a strong base. We have always been the opposite. Our user base is parents, and they are not only in San Francisco. We did have traditional venture capital, but we were always a unique business, for better or worse.”
Life360’s mainstay is a location-based app that is designed so parents can track their children when they are away from home and kids can check in with other family members. The real-time whereabouts of devices used by friends and family on the app can be made known to others in the user group. The system has had a lengthy gestation period, with the prototype initially designed for use in emergencies.
“Hurricane Katrina, which struck the US in 2005 and was huge, was the initial impetus for the technology,” Hulls explains. “I was in college at the time and the US government started to develop technology to help families reconnect after major emergencies. Smart phones were just becoming a thing and a friend and I built a prototype. Our one and only pivot from a strategic point of view happened in our first year when we realised the potential for the app was bigger than just for disasters. There was a way to build a dominant digital brand based on mobiles and safety to help families get through their day. It started as a project from an entrepreneurship class way back then.” The concept hit its stride a couple of years before Life360 eventually went public on ASX in May 2019.
The platform’s basic functions include communications such as personal SOS and automated family notifications, safe driving and location sharing. By 2018 its user base had grown to more than 18.5 million people from around seven million users two years prior, thanks in part to its freemium model.
The business is yet to make a profit and losses have mounted to US$86.5 million, which is covered by capital raisings topping US$100 million from venture capital, strategic and individual investors. These funds have also allowed the company to expand its services, include a safety function for drivers, personal SOS and crime reports and automated family notifications and messages. One new, free service is aimed at combating ID theft through data breach alerts. The strategic aim is to disrupt the security and insurance industries by building a global user base of security-conscious families.
Life360 sells plans so users can choose the safety and communications tools that suit their lifestyle. Over and above the free services, users can pay a $US50 monthly subscription to access features such as help alerts and battery monitoring. More features have been added to the platform since the US and other markets started easing COVID restrictions. Use of the app dropped when families were confined to their homes during the worst of the pandemic lockdowns and thanks to the emergence of the COVID Delta variant, but usage is picking up now. The rebound is due to a combination of factors, although Hulls it’s says it hard to tell the relative weight of each.
“We’ve opened back up and people are living their lives again. Kids are being independent of their parents, and vice versa. We have all become far more comfortable with digital communications tools, and that effect extends to our app. The other factor that’s helping us is our prime customers are digitally-native parents. That is different to Gen X or baby boomers, who might not as naturally reach for their phones. We have a very strong demographic tail wind that will only continue to support us.”
Nevertheless, the company failed to meet its forecasts in the second quarter of 2020, the only time that has happened. “As CEO, I take full ownership of everything that happens in the business. But if there was ever a time when businesses needed a pass for missing numbers it was then. We quickly got through that and since then we’ve done exactly what we said we were going to do. COVID hasn’t had any long term impact on our operations, for now anyway,” he says.
Hulls told analysts listening to a recent earnings call registrations to use the app in the US were reaching pre-COVID levels. “Life360 is returning to the centre of family life,” he said. In June, 32.3 million people used the app, with some services paid for and some free. Registrations grew by a record 4.2 million people in the June quarter on the prior quarter. The business is now investing in marketing, using funds from an opportunistic capital raising early in the pandemic.
While its fortunes are favourable, Life360 has its critics. For instance, when Ohio teenager Andrew Polenske posted a TikTok video used the tag #banlife360 to urge others to liberate themselves from the yoke of parental surveillance. The video went viral on the social media platform, quickly accumulating 75 million views. Hulls responded with his own video posts. One showed his wife and kids taunting him with t-shirts calling on the company to be banned. Another refers to him as a professional rat. Hulls says TikTok has become a very meaningful marketing channel. “While our presence on TikTok started in a very negative way, we had a comedy comeback attack centred around me. That seeded viral trends on the app, which have resulted in big waves of support.” For instance, The Wall Street Journal ran a page-one article headlined, ‘How a CEO Dealt With Taunts Of Generation Z: He Hired Them.’
Life360 started on the path to an ASX listing in 2018. Hulls had plenty of opportunities to become known to Australian institutional investors before the business went public and visited here several times before COVID hit. He says once investors could put a face to his name he could continue conversations with video calls. But Hulls and his team had to overcome a tricky issue before the ritual ringing of the bell at ASX’s Sydney headquarters on listing. He couldn’t simply fly into town, flash his business card, hand investors a prospectus and leave because few local investors and analysts understood business-to-consumer (B2C) investments. Australian online companies tend to focus on a business-to-business (B2B) model. That meant potential investors and analysts needed to be educated before they could be convinced the company was a buy.
“Australian investors didn’t have much experience in the B2C space. I say that with a lot of empathy. At one meeting, investors listen to our pitch and then the next one they go to might be a coal mine that has a completely different set of metrics and numbers. I had to put myself in the investors’ shoes. I didn’t blame them for not knowing the ins and outs, because if I were in their shoes looking at a mine or similar, I would ask basic questions as well.
“That’s where the scepticism came in. People didn’t feel they had the skills to deeply evaluate us, although we looked good on paper. In a weird way we looked too good on paper. Our share price ended up trading on what other people thought it should be trading at, versus achieving a share price based on a fundamental analysis of the business. That was the biggest thing we had to overcome. Now, the market has a better sense of how to think about us, although investor understanding can still be a challenge.”
Hulls met a number of large investors who had shown interest on one of his early trips to Australia. “We did a late stage private investment round with the Australian market before we pulled the trigger on the listing to see if there were real dollars here. We had some credible investors who put in real money, which gave us confidence the IPO would have a high chance of success.” Insurance house IAG was the first big-name backer and local institutional investor to take a position in the company.
One positive outcome is the number of analysts who now follow the company. Hulls, chief financial officer Russell Burke and head of investor relations Jolanta Masojada fielded questions from investors and stock brokers including Credit Suisse, Evans and Partners, Morgan Stanley and MST Marquee at Life360’s second quarter earnings call late in July this year. “We’re attracting analysts from big-name global firms, but dealing with companies like us isn’t their bread and butter,” Hulls says.
While Hulls was a frequent visitor to Australia prior to the ASX listing, COVID has subsequently prevented his team from visiting this market and they now largely communicate with investors via Zoom. He hopes it stays this way. “You can get to know people almost as well through video conferencing as you can meeting in person. Having face time is good for building relationships, but it’s less important than people realise. I often work with people in Australia I have never met. Actually, a weird phenomenon often happens. I forget whether I have met people in person because I’ve become so used to communicating in other ways.”
“We are in a position of strength. We have plenty of money and we are trying to think long term. We will come back to the US, but it does not have to be immediate. Next year, if the window remains open, we absolutely think we should. We could do that extremely quickly. Everything anchors around how we get the float going and how we put a transaction together that provides enough volume and demand in the stock,” he adds.
It’s an interesting time from a deal making standpoint. Says Hulls: “There is a lot of capital out there. We see it as an opportune time to consolidate our position in the market by looking at M&A.” To this end, Life360 recently bought Jiobit, which is an award-winning wearable-location device for kids, seniors and pets.
US investors are also buying Life360 shares on ASX. “But there is a structural issue. Smaller funds are buying. The bigger funds are interested in establishing larger positions, but the volumes aren’t there right now. They’re not interested in buying $5 million, $10 million or even $20 million of our shares, they want to buy at least $100 million. It’s on a different scale than Australia. It’s a problem, because we don’t have the float to get those people on board.
“That is where, in hindsight, we didn’t do the best job on ASX. We lingered as a low-volume stock, with a low share price, for nearly two years. But we would rather be a well-respected and established company on ASX than one that was on NASDAQ but orphaned. The other thing is we want to do right by the investors who funded us. Many have mandates that don’t allow them to hold our shares, should we move to the US. Obviously, in the long-term, a US listing is right for the business. But we are very hesitant to do any sort of transaction that would mean investors would have to sell or want to sell.”
Life360 has plans to invest more in research and development, boost marketing budgets, launch new features and products and expand its international user based. Hulls says along the way, the business may look for mergers and acquisitions to pursue these objectives. Longer term, the goal is to make Life360 a household name. Hulls says the app should be the default product young people use on their path to independence. It would ease parents’ worries about things like kids driving safety because the app would show them where their children are and give them a means of communication.
“It’s something to weigh up as a potential household brand,” Hulls concludes. “In the US, you have companies like AAA, which is similar to the NRMA in Australia. We want to develop a modern version. But it will be much broader and more powerful, with a very heavy digital anchor.”