It takes many things to get a business off the ground. It takes a flash of insight, plenty of drive, and good advice. It takes savvy staff and helpful networks. It also takes something few start-up founders have to begin with: money. Australia’s venture capital industry is growing and maturing. But the funds to finance start-ups don’t just come from high finance. Increasingly, a generation of Australian entrepreneurs who made or grew their fortunes over the past decade are investing their money back into start-ups, either directly or through niche venture-capital firms. Through this, they’re helping build a start-up ecosystem able to support new, growing start-ups, using the spoils of yesterday’s success stories. Here are just a few rich listers putting some of their money back where it came from. James Packer In many ways the trailblazer in this regard was James Packer, who made a fortune investing in companies like SEEK and Carsales.com.au a decade ago. While by no means a successful start-up leader (Packer inherited most of his money), he has nonetheless grown his fortune through savvy start-up investing, a passion that doesn’t appear to have ebbed with time. Packer bought a 25% stake in SEEK for $33 million in 2003. When the business listed, Packer’s stake was worth $150 million. By the time he sold out, he had made $440 million from his investment. He was also an early investor in Carsales.com.au, putting $100 million for a stake in the company that sold for $500 million a few years later. Those were some of the best dot.com investments ever made in Australia, and, perhaps spurred by his early success, Packer has continued to invest in start-ups with potential to disrupt their industries. One of his most recent investments was last month in taxi app goCatch, which could radically disrupt Australia’s cab companies and Australia’s Cabcharge monopoly by allowing passengers to book a taxi by directly liaising with the driver. Paul Bassat Packer is joined in his goCatch investment by Paul Bassat, a cofounder of SEEK who’s since left running the business to his brother while he focuses on investing. Bassat is the cofounder and joint chairman of Square Peg Capital, a newly minted venture capital firm that’s already put money into a heap of start-ups like beauty-box business Bella Box and design start-up Canva. “First and foremost, we want to back fantastic people who are smart, passionate and high integrity,” Bassat told StartupSmart when Square Peg was formed a few months ago. “For businesses that have been around for a few years and have a bit more traction, the question of if they’re solving a problem has been partially answered. If it’s an early stage business without a track record, we want to know exactly what the problem you’re trying to solve is if you’re actually solving it, in a unique and differentiated way.” Bassat is also a mentor at Startmate, which offers mentoring and seed financing to online and software start-ups. Mike Cannon-Brookes and Scott Farquhar Bassat isn’t the only rich lister to volunteer his time mentoring young companies. Scott Farquhar and Mike Cannon-Brookes, who cofounded Atlassian and for two years have topped the BRW Young Rich list, are also mentors at Startmate. Last year, Cannon-Brookes also invested in Shoes of Prey, which gives shoe lovers the chance to customise every part of their shoes online and have a unique pair created and shipped. Both Atlassian cofounders put money earlier this year into Ninja Blocks, a Sydney start-up that builds devices that let people link their devices to physical things in their homes (‘SMS me when the washing is done’, for example). This story first appeared on SmartCompany.
The federal government is set to consult with Australian industry over the tax treatment of employee share option schemes, which start-ups say needs to be overhauled to promote growth. The government is aware the current tax situation around employee shares creates difficulties for some sectors of the economy, especially start-ups, and will consult with industry on the impact of tax and administration requirements for the schemes, StartupSmart has been told. Revamping the tax treatment of employee share option programs is fundamental to growing the start-up sector in Australia, says Malcolm Thornton, investment director at venture capital fund Starfish Ventures. “It’s a key currency that people employ to keep highly talented people on board while conserving cash,” says Thornton. The start-up sector can expect consultations with the relevant federal government departments in the future, with sources telling StartupSmart the government is aware the current tax situation around employee shares creates difficulties for some sectors of the economy, especially start-ups. Employee share option programs enable start-ups to attract and retain leading talent to their company by offering staff a proportion of the future company on top of the (often low) wages they are able to pay. The complexity of the current system has held Australian start-ups back from embracing the system. A key drawback is that employees can become liable for significant amounts of tax based on the asset’s value, even if it’s not currently earning any capital. Thornton says an update of taxation rules around the program is “imperative” for the start-up sector. “It’s completely complicated and convoluted in Australia, compared to when our companies are US-based, and we can just take a program off the shelf and every lawyer in San Francisco knows how to manage the process.” Thornton says the current system fails to grasp the variety of companies that would benefit from the implementation of such schemes. “Start-ups and high growth companies have very different characteristics to large, mature multi-decade companies,” he says. “One of the key elements to appreciate is that there is little to no value in the options until the company has grown and either lists or is acquired.” Alan Downie, chief executive and co-founder of BugHerd, a visual bug tracker for web developers, has recently implemented an employee share scheme for one of his six staff and is working on setting the scheme up for another employee. “It’s a critical issue for start-ups,” says Downie. “As a start-up you don’t have a lot of cash so it’s the way to keep talent. If you have to compete with guys like Telstra and Atlassian for developers, all you’ve really got is the growing company equity.” Downie and his co-founder Matt Milosavljevic spent 12 months working out how to implement the scheme for their first hire, a developer. “It was a very long and tedious and expensive process,” he says. “There is no standard way to do it and that’s the problem.” “When our developer started with us, he was on a third of what he could make as a developer. But he was so engaged and he got we didn’t have the money, so it was really important to him to get a piece of the company.” Downie says he spoke to four accountants, a few lawyers and several entrepreneurs about how to implement an employee share scheme, and they all had different answers. “It’s still not ideal for the employee, as they still have a bit of uncertainty. From the employer’s point of view, you want to have solid understanding of what the government wants, rather than jumping through hurdles.” He says the Australian Tax Office hasn’t spoken to any of the parties involved, so it’s still untested. According to a report by the ABC, the employee share options scheme will be explored in the next update to the National Digital Economy Strategy.
Key players in the Australian tech start-up scene have lashed out at Prime Minister Julia Gillard’s suggestion the 457 visa program is being abused by the IT industry.
Blackbird Ventures is determined to offer Australian start-ups much-needed Series A funding rounds, after announcing the formation and first close of its $30 million venture capital fund.
Mick Liubinskas has highlighted the trials and tribulations of Pollenizer, including how it turned Spreets into a $40 million company, as the online venture builder celebrates its fifth birthday.
The US-founded Startup Grind event series continues to grow in Australia, with the Sydney and Melbourne chapters set to host the founders of Atlassian and Zendesk respectively.
Independent eftpos provider Tyro Payments has vowed to step up its fight against the big banks, after revealing it surpassed $3.5 billion in credit and debit card transactions in 2012.
Local online retailer Shoes of Prey has taken a step towards the bricks-and-mortar world, teaming up with department store giant David Jones as the two companies explore new ways to boost sales.
The first class of Atlassian Hack House graduates have highlighted their achievements since participating in the program, after the second class began work yesterday.
It appears that the ‘lean’ spirit of modern entrepreneurship has finally inspired the Australian venture capital industry to invest in early stage start-ups – a trend is set to increase due to the accelerator boom.
Government regulations need to change if Australia is to create a 'Silicon Beach' that will compete with the world's leading digital economies, a gathering of tech giants and start-ups has told Prime Minister Julia Gillard.
The 2012 BRW Young Rich List has a strong start-up and tech flavor, with Atlassian founders Mike Cannon-Brookes and Scott Farquhar heading the rankings.
An expert has issued some advice to start-ups who plan to offer stock options to employees, after players in the technology industry highlighted the drawbacks of Employee Share Option Plans.
I saw a story recently on how a start-up managed to get investors on board after they mentioned that Mike Cannon-Brooks had put money in.
A new report reveals start-up funding in the United States is in decline, falling by 12% in the April-June period, but a local body says the fundraising climate in Australia isn’t quite as tough.
Going by economic indicators such as unemployment, inflation and interest rates, Australians should feel pretty good about how we stack up with the US.
A new start-up meet-up backed by the City of Sydney has attracted more than 100 entrepreneurs and investors, with Sydney’s lord mayor flagging further start-up initiatives for the NSW capital.
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.
Launch48, the weekend-long gathering for budding entrepreneurs, is to return to Melbourne with a greater emphasis on improving start-ups’ pitching skills.
Australian software giant Atlassian has acquired US-based instant messaging network HipChat for an undisclosed sum, with plans to incorporate HipChat into its ever-increasing portfolio.