How Firmus, the biggest IPO in three decades, fell over

It was supposed to be the second biggest stock float in Australian history.

Sydney-based AI startup Firmus Technologies was close to listing on the Australian Stock Exchange (ASX) at a $43.7 billion market capitalisation.

It would have been the biggest IPO since Telstra listed in 1997.

The company, founded in 2019 by Oliver Curtis, Tim Rosenfield and Jonathan Levee, had planned to raise about $7 billion by going public.

The intention was to list and then borrow more to build data centres across Australia, Singapore, Malaysia and Indonesia.

Investors grow anxious

By Wednesday night the IPO plans began to unravel and reports emerged that bankers were considering lowering the share price and valuation towards $30 billion.

On Thursday morning, as Firmus scrambled to try and save the IPO from failing, it withdrew from appearing at a federal parliamentary inquiry into AI.

By Friday the founder's grand plans had fallen apart and the float was pulled.

Despite being backed by global AI giant Nvidia, investors had grown anxious.

Firmus had previously said it secured $US2 billion in commitments from investors, including Nvidia and Blackstone.

Other potential investors felt the company's share price offer was overpriced, some felt there was not enough detailed information in the IPO prospectus, and many were spooked that the rapid growth of AI and data centres would soon stop.

The founders are now hoping to pursue further private funding and Firmus will attempt to list on the Nasdaq next year.

What caused the Firmus float to fail?

A mixture of factors led to the float's demise, including the high per-share price offer, which by Thursday had reportedly fallen from $11 to $8.25.

The company was being given a similar valuation to Woolworths, according to Morningstar senior market strategist Lochlan Holloway.

"The economics look good now and the growth is very fast now, but what that looks like again in five or 10 years is the big question mark," he said.

The timing of the IPO was also wrong.

Commentators say fears of an AI bubble, set against a backdrop of mounting concerns from politicians and the community about the rapid rise of data centres, also played a part.

"Firmus ran into a wall of AI anxiety right at the time that they had planned to list," Philip Wohl from Reliance Investment Research said.

And then there was some angst over Mr Curtis's colourful past. He served a year in jail in 2016-17 for insider trading before co-founding Firmus as a bitcoin mining company in 2019.

Mr Wohl said Firmus's assertion that it was market volatility that prevented it listing at its desired price was "a euphemistic way of describing exactly what happened".

"The market is more uncertain now when it comes to AI hardware and, given the perhaps aggressive pricing that they were targeting, they really didn't see the demand," he said.

'They do have to come back to the market'

Ten Cap Investment co-founder and lead portfolio manager Jun Bei Liu said the IPO was overpriced, but thought a second attempt was on the cards.

"The valuation for the company was way too high to start with," she said.

"It is almost three times what the valuation was when they raised money just a few months ago.

"At some stage they do have to come back to the market simply, because it's a very capital intensive business. It requires listed shares."

Floodline Research founder Anna Wu said the founders should have tried to list in the United States in the first place because the Nasdaq was a bigger and more accepting market than the ASX for emerging tech.

"The downside is much tougher competition and as an Australian company Firmus may struggle to attract the same attention and valuation as its US peers," she said.

The Nasdaq has recently hit record highs and is up 43 per cent in the past year, but Australia's tech sector has faltered by comparison.

The ASX All Technology Index, which tracks the share prices of 42 tech-linked stocks on the ASX, has dropped almost 18 per cent this year, including 9 per cent in September alone.

In part that is because Australian technology listings are more heavily skewed towards software companies, which have been sold off in the so-called SaaSpocalypse as investors worry that AI will undercut their business models.

Investors were also questioning whether Australia had the energy infrastructure energy to support data centres.

"We're in a slightly different regime now for AI in terms of its life cycle," Ms Wu said.

"It's no longer 2023, where everything's about big ideas and anything with AI in the name would go past any valuation test."

She said the lack of details on the Firmus IPO and concerns about Mr Curtis's criminal past also weighed on some investors.

"That creates more ambiguity," she said.

"So when the market gets hit by oil anxiety every second day, and when investors are facing a much higher capital cost, that would actually drive the question on the valuation.

"It probably sends the sentiment signal to the broader community that right now — an IPO is not a free lunch anymore."

Nvidia's play in an Aussie startup

Nvidia was contacted for comment about its position on Firmus after the IPO flop.

Ms Wu said Firmus was likely tap the AI giant for a greater investment.

Nvidia already has a 7.2 per cent stake in Firmus and has reportedly been providing funding as well as selling Firmus its chips.

"Nvidia … is going around the world buying anything that it thinks is going to take over in the local market," Ms Wu said.

Mr Holloway said the investment made sense as Firmus data centres got "their chips out there."

For customers such as Meta and OpenAi, partnering with companies like Firmus can be the only option to access these chips.

"There is a very, very short supply of Nvidia's high-quality chips and a lot of demand for AI model training," Mr Holloway said.

"If you had access to those chips, which Firmus did with its partnership with Nvidia, you can basically name your price."

Ms Wu said the backing of Nvidia was still on the cards.

"Nvidia's long-term partnership with Firmus is an endorsement … but also, it's a move towards expanding in the Australia-Pacific region and trying to integrate with the local infrastructure provider."

'Too many unknowns' about IPO

Mr Curtis and his publicist wife Roxy Jacenko opened up a Singapore office two years ago, sparking intrigue from the Australian expat population.

But IPOs in Australia are notoriously challenging to get right.

Mr Holloway said the IPO uncertainty had led more companies in Australia to put off listing.

"We've seen the number of IPOs on the ASX fall considerably in the last few years," he said.

Rather than "floating in public markets, remaining in private hands is becoming much easier" because a surplus of private cash.

But analysts say IPOs being delayed or pulled is likely to become more common.

Firmus's website said it had two sites operational in Australia and Singapore, and that five were "under development".

"There were just too many unknowns here and it required too much optimism for investors to take that leap of faith with Firmus," Mr Wohl said.