DesignCrowd seeks to differentiate itself from traditional graphics design studios as its international growth continues8:29PM | Tuesday, 12 August
Australian crowdsourced marketplace DesignCrowd has set $100 million a year in gross revenues as its next major target, according to chief executive officer Alec Lynch. Lynch told Private Media he sees traditional design studios, rather than online competitors (such as Canva or 99Designs), as his main rivals. “Design is a $4 billion industry that’s highly fragmented, with thousands of traditional studios. So our main focus is differentiating ourselves from traditional studios,” Lynch says. The business began in 2007 when Lynch, then a 23-year-old consultant for Booz & Co, saw an opportunity to disrupt the design industry. “I was working as a strategic consultant and I could see the design industry had problems,” Lynch says. “For people buying designs, it was expensive, slow and risky. And for designers, you needed a portfolio to get a job and a job to get a portfolio. So there were 20,000 designers employed – and 60,000 graduates.” Lynch says there have been three key phases the business has gone through since starting. “We bootstrapped for the first two years, then in 2009 we got a seed investment of $300,000. That angel investment allowed us to grow 13-fold,” he says. “Then, in late 2011, we raised $3 million from Starfish Ventures and we’ve used that funding to scale internationally, increasing our revenue six-fold and go from employing three people to 30,” he says. In November of last year, the business raised a further $3 million from Starfish Ventures, with the aim of launching teams in the United States. The company’s expansion continued in June, when it acquired design and photo site Worth1000, having previously purchased Texas-based company Brandstack in 2011. Over the past year, the company has grown by 83%, and now boasts over 400,000 designers from more than 165 countries. The strong growth led EY to name Lynch its 2014 Emerging Entrepreneur of the Year for the Eastern Region. “Primarily [the most recent funding] helped us scale internationally. Australia used to be our strongest market. Today, 75% of our revenues are from overseas and 40% are from the United States,” Lynch says. “We see huge opportunities to scale further, from $15 million to $100 million or $200 million in gross revenues. That’s total revenues and sales, include what gets redistributed to the designers.” Follow StartupSmart on Facebook, Twitter, and LinkedIn
Freelancer claims it is “the world’s largest online marketplace for outsourcing, freelancing and crowdsourcing services”. But is it? For all the hype, the Australian online sector is relatively sparsely populated. Unlike the United States, our ecosystem is dominated by a handful of brilliantly executed marketplaces like Seek, Carsales and Realestate.com.au. However, a new generation of titans is also emerging — with the media giving increasing attention to businesses like Atlassian, Bigcommerce, 99Designs, Xero (technically a New Zealand company, but like Phar Lap, we’ll claim it) and Freelancer. For the most part, the new marketplaces have excellent prospects. While none are hugely profitable yet, most dominate their sector globally — in particular Atlassian, whose Jira software is the most widely used project management software globally, despite the business not having a sales team. Xero and 99Designs are also market leaders with exceptional growth. But there is an odd one in this group. Despite the hype that founder Matt Barrie is able to generate for himself and his business, Freelancer appears to be far more sizzle than steak. Barrie became an internet folk hero last year after rejecting a $400 million bid from mysterious Japanese recruitment firm Recruit Co to float on the ASX. Freelancer offered a very small number of shares in its float, which initially sought to value the business at $200 million — but Barrie appeared to have the last laugh, as Freelancer’s share price shot up to $1.50 (from a listing price of only 50 cents), valuing the business at $600 million. Barrie was instantly catapulted into the BRW Rich List, with an estimated net worth of $255 million this year. Some remained sceptical of Barrie’s heroics. For a start, there was never any actual evidence of Recruit Co’s $400 million offer (Recruit Co never confirmed the offer was even made, and Freelancer was vague about the specifics). But the bigger problem with Freelancer is its claim that it is “the world’s largest online marketplace for outsourcing, freelancing and crowdsourcing services”. The claim to be the largest marketplace is critical for valuation. Investors (justifiably) place a significant premium on the No. 1 marketplace (like Seek, Carsales and REA). In some instances, a second or third player can also create real value, but a stiff premium is attached to the largest operator. This is probably why Freelancer have been so keen to make such a statement to the market in its prospectus and public statements. Not long after Freelancer listed, two of the biggest players in the outsourcing space, oDesk and Elance, announced they were merging. This was quite big news, as the combined businesses generated US$750 million in payment volume in 2013. By contrast, Freelancer’s annual report noted that despite growth of 66% during the year, it had generated only AUD$84.4 million in sales during 2013. Not only is Freelancer not the largest marketplace globally, it is around one-tenth of the size of the dominant player. Last week Freelancer released a quarterly cashflow update, noting that (on an operating business) the company suffered negative cash flow for the June quarter. The operating cash flow situation would have been worse but for Freelancer receiving a $150,000 government grant from taxpayers. Worryingly, it appears that Freelancer’s growth has slowed significantly. In 2012, Freelancer generated operating cash flows of $9.4 million; in 2013, cash flows increased to $18.8 million (and strong rise of 100%); in this year’s June half, cash flows were $11.8 million — meaning growth appears to have slowed to around 25%. It appears that Freelancer is a distant No. 2 marketplace, whose growth has slumped and which isn’t able to generate much, if any, surplus cash flows from operations. The market it seems, has noticed, with Freelancer’s share price slumping from $1.54 in April to only 79 cents now — a drop of almost 50% in less than four months. The company, which briefly had a market capitalisation of $1.09 billion, is worth around $345 million now (less than the Recruit Co offer). Barrie, to his credit, hasn’t sold any of his Freelancer shares, but has seen the value of his stake drop from $520 million to $158 million. Barrie has done a remarkable job rolling up a number of freelance businesses to form and float Freelancer at the perfect time, but it seems like the market is becoming far more sceptical to the spin and looking to the substance. Unless Freelancer can start generating significant growth, or extract some real earnings, even its discounted valuation of $345 million will appear generous. This article originally appeared on Crikey.
The Tin Alley beta program has finished the selection process for its winter internship program, with benefits anticipated both for students and the startups they’ll work for. Under the program, 10 tech interns from the University of Melbourne will spend one or two days a week over 10 weeks working with five companies. Applications for the winter program opened in March and closed on July 16, with shortlisted companies interviewed on July 22 and internships beginning on July 28. One participant in the winter internship program is digital pathology startup Pathobin, which has taken three interns through the program. Pathobin co-founder and chief executive Shane Battye told StartupSmart his startup is giving interns the opportunity to do innovative, cutting-edge work in terms of hardware and software development. “We’re providing a web service that allows pathologists to upload images based on their glass slides, and are also working on hardware that will help pathologists to digitise their slides,” Battye says. “What you had in the past is that a surgical specimen – any lesions – had to get processed in a laboratory on to a glass slide. Glass slides are difficult to share, transport and research. By digitising, you can overcome some of the issues.” Battye says that while his startup has a backlog it wants its interns to help out on, there’s also a lot of scope for them to pursue their interests in a range of areas, including web software, smartphone app development and robotic hardware development. “Interns we’ve interviewed and selected have diverse talents. So it will definitely be a two-way process where they learn from us as we learn from them. We’re very excited about the Tin Alley program,” Battye says. One of the interns set to work for Pathobin is software engineering student Oscar Morrison, who told StartupSmart he is excited about the opportunity the program presents. “From an intern’s point of view, it’s an exciting opportunity to work with an up and coming startup, backed by the University of Melbourne, as well as a great chance to get industry experience,” Morrison says. A past participant of the program, Dan Williams, who now works for 99Designs, told StartupSmart a Tin Alley beta internship helped to give him a start in his career. “It has been a pretty amazing experience,” Williams says. “I did an internship [with 99Designs] over summer and got along with everyone very well. I worked with the CTO, Lachlan Donald, on a project to improve how designers are matched to people who need them, using some pretty interesting computer science.” “They offered me the opportunity to continue working for them three days a week while I continue my studies.” For his part, Battye encourages startups to participate in the Tin Alley beta program, noting the diverse pool of young talent coming out of the University of Melbourne. “The most important thing is to just get out there. All startups have something to offer interns,” Battye says. Applications for Tin Alley beta’s summer program are set to open in mid-August.
The University of Melbourne’s Tin Alley beta program is set to expand, with three universities – Monash, Swinburne and Tasmania – joining the initiative. As program co-founder Miguel Wood told StartupSmart, the program helps to bring together startups with enthusiastic tech students. “The program is a form of community infrastructure that fulfils a core need, and that’s access to talent, bringing together stakeholders,” Wood says. “Startups spend a lot of time and effort on looking for tech talent, while students often don’t know to look to find opportunities to work for startups.” An official announcement of the expanded program will take place at an event at the offices of 99Designs in the Melbourne suburb of Richmond. While applications for the 2014 program don’t open until mid-August, Wood says the event will be a good opportunity for startups to get familiar with the program. “It’s really to announce the program expansion, explain how the process will work for the expanded program, and it’s an opportunity for startups to talk with partners, fellow startups and ex-students,” he says. For startups wishing to go further, Miguel warns that the selection process is competitive in finding the best startups for the talent. “It’s a fairly basic online application that involves the need for tech talent and the potential role for people being selected, then there’s an independent panel of peers to make a selection on the best environment for the student,” he says. The original program ran last year and paired five Melbourne University undergraduates with local startups to get a feel for what running their own tech company looks like.
Google has partnered with incubator Fishburners, in a six figure deal, to implement its startup outreach program Google for Entrepreneurs to help facilitate the growth of the startup community. The partnership will see Fishburners become part of the global network of Google’s 30 startup hubs, allow companies based at Fishburners access to the Google framework for startups, as well as international innovation programs. It will also be renovating and doubling its space, including a ‘physical’ Google Hangout. Fishburners chief Daniel Noble says that the partnership was a good fit based on the fact that Fishburners acts as a not-for-profit and does not take equity or invest directly in startups accepted to its programs. Startups apply for space at Fishburners and commit to a 20-month program until they are ready to move on. Successful applicants pay for their time there with desks being charged at $400 a month. “We’re about equipping startups to be better formed companies when they go to market, or seek investment,” Noble says. “Too often companies try and do things much too early.” Part of the Google deal will also be a push to encourage more female entrepreneurs. In a blog post announcing the deal, Google says: “From the Cochlear bionic ear to Wi-Fi, Australia has a long history of innovation. Local-born innovations and startups like Atlassian, Freelancer, 99Designs, and Shoes of Prey are flourishing in global markets with the help of the web. While we’ve seen the growth of the startup community in recent years, we know there’s still a long way to go.” One of the first programs on offer is BlackBox Connect, a two-week immersion program in Silicon Valley. A Fishburners’ based startup will be selected to spend a week on Mountain View and have access to Google’s network of experts. “Supporting local tech startups is vital to Australia's future economy. We know the talent, drive and potential for innovation is all here; we hope to help realise the full potential of Aussie entrepreneurs,” concludes the blog post.
Australian DesignCrowd, a global crowdsourcing marketplace for design work, has acquired Worth1000, home to over 600,000 graphic designers and enthusiasts. While no financial details of the acquisition were made public, DesignCrowd COO Chris McNamara told StartupSmart they had acquired 100% of the company and no staff would be coming across. McNamara says the acquisition means that DesignCrowd will have more graphic design talent than if you knocked on the door of every design agency in the US, Australia and the UK combined. “Our goal is to build a global marketplace that is home to the most creative people on the planet," McNamara says. “This acquisition is just another step towards that.” Worth1000 is a popular design community website that runs creative competitions of all types, including effects contests (otherwise known as ‘photochop’ or photoshop contests), photography contests, illustration contests, writing contests and more forms of multimedia. It has a strong reputation for being community-driven. Worth1000 has never been properly monetised, and was only sold late last year to US firm Emerge Media, from whom DesignCrowd acquired it. McNamara says that they were mindful of working with the existing Worth1000 community to understand what they wanted and are already looking to bring on a community manager to solidify that relationship. “We’re in the process of understanding deeply how existing users are using Worth1000, and part of our approach going forward will be mindful of that,” he says. The migration process of Worth1000’s users has already begun, and DesignCrowd’s user base will be growing significantly in the next few weeks as a result. DesignCrowd recently opened an office in San Francisco to grow their US presence and are on a mission to expand globally after $3 million funding from Starfish Ventures last year. DesignCrowd’s biggest competitors are fellow Australian-owned 99Designs, which has a bigger market share to date and also has a more established market share in the US. What impact the acquisition makes on that remains to be seen. The success of both companies has been buoyed by the phenomenal growth in crowdsourcing and competition incentivised platfoms. “A growing number of businesses around the world are looking to online crowdsourcing communities to get work done, and we’re working hard to support this demand globally,” says McNamara.
Investors, founders, and an enthusiastic crowd of startup ‘wantrepeneurs’ packed into Inspire9’s Richmond offices last night to celebrate the launch of new not-for-profit Startup Victoria, which aims to grow the local startup community. Speaking to StartupSmart, Startup Victoria chair Leni Mayo said the Victorian startup scene’s biggest challenge is the lack of good product people. Mayo, the founding investor in a host of startups including 99Designs, Flippa and Learnable, hopes Startup Victoria can go some way in addressing the problem. “I think we are terribly weak at product, marketing, branding, sales, we really need to pull our socks up, but of those the one that stands out far above the rest is product,’’ Mayo says. “In Melbourne I could pick 100 engineers and stack them up against engineers in your average Silicon Valley startup, and it’s a fair fight. “In product, we have less than half a dozen in Melbourne that would stack up, and probably less than 10 Australia-wide. “It’s a blend of human understanding, commercial nous and tech nous, and we don’t have enough people like that. We don’t value them enough.’’ Newly appointed Startup Victoria CEO Lars Lindstrom agrees. “The Americans are very, very good at that,’’ he says. “We need to improve.’’ Lindstrom has a wealth of experience in startups. Having spent roughly 10 years in investment banking in Melbourne dealing with billion dollar takeovers and mergers, he left the industry to cofound a startup, a free home distributed newspaper delivered in all the major cities in Denmark. That was in 2006, and within 12 months the newspaper, funded by advertising revenue, became the most read in Denmark, and employed over 1000 people. Lindstrom says the company was close to breaking even when “Lehman Brothers cracked”, as a consequence advertising revenue dried up, and that was the end of that. Not dissuaded from the startup industry, in 2009 he returned to Australia and co-founded the world’s first eBook reading software ReadCloud aimed at schools, where he remains chairman. ReadCloud has a catalogue of over 100,000 eBooks and distributing deals from the world’s major publishers. Under the leadership of Lindstrom, Startup Victoria will run a “better founders” program which will bring together experienced, practising startup founders to discuss the best way to tackle large fundamental problems facing the Victorian startup scene, like the lack of globally competitive product people. “It will involve different startup founders talking about stuff deeply concerning and important, and the people around that table need to come up from a large shared experience,’’ Mayo says. “This is an area Startup Victoria can help through better founders, because it won’t just help the founders, but also their employees.’’ The program has parallels with a similar effort being made by Inspire9 founder Nathan Sampimon. In addition, Startup Victoria will also run a “more founders” program which will be open to anyone interested. “We’re trying to create an institution where you have access to real information that can help you along the way, as opposed to getting opinions,’’ Lindstrom says. “We’re trying to be more scientific about it and give best practice. “Not necessarily guarantee their success, but point them in the right direction.’’ Startup Victoria was launched with the support of the Victorian government, which provided $100,000 worth of seed funding.
According to Paul Graham, investor and founder of Y Combinator, the best way to get a winning business idea is to not think of any. Instead, you should be looking at which problems you can solve.
It is a crying shame that some people in the local start-up community think playing on a world stage means a brain drain for Australia. If they used their own brain, they might see it's not a choice of Australia or Silicon Valley but rather Australia and Silicon Valley.
When it comes to learning on the job, lessons aren’t confined to those who want to boost their chances of a promotion. Aspiring start-ups can also glean the skills they need to embark on the path to entrepreneurship.
Some of Australia’s leading start-up entrepreneurs have made an appearance onto this year’s BRW Young Rich list, with the tech and retail sectors well represented.
We've bootstrapped Shoes of Prey to date but we've been exploring the possibility of raising capital to help accelerate our growth.
We all love a list, whether it is a rich list or a list of the best companies to work for.
The business world has been abuzz with talk of a second dotcom bubble, fuelled by the huge public debut by LinkedIn last week.
James Packer is reportedly planning to pour $40 million into daily deals and group buying site Catch of the Day, suggesting tech companies are the current flavour for large investors.
Mark Harbottle happily admits he’s a “start-up guy”. The co-founder of SitePoint and 99Designs may not be steeped in the pinstripe and spreadsheet CEO culture, but he can be relied upon to come up with a sector-defining online idea.