Design marketplace Redbubble has raised $15.5 million to fund its European expansion and further product development. The funding round was led by Melbourne-based Acorn Capital, and London-based specialist marketplace investor Piton Capital. They join existing high net worth investors Simon Baker, Michael Birch, Stan Chudnovsky, Su-Ming Wong and Simon Yencken. The valuation was not disclosed. Greg Lockwood, a partner at Piton Capital, intends to join the company’s board of directors. Redbubble founder and chief executive officer Martin Hosking says in addition to supporting the startup’s geographic and product expansions, it will also be used to continue to develop its relationship with designers. Hosking says Redbubble’s pitch to investors was it’s catering to a fundamental change in the types of products that appeal to consumers. “Consumers are looking for things more relevant, more personal, more creative. That trend is across so many of the things consumers are buying,” he says. “It’s something you see with beer companies. They’re struggling to grow strong brands because they no longer have weight with consumers. It’s a bit of a truism, but millennials are more likely to have a tattoo than they are to drink VB beer. “The trend is towards much more personalised products, and that means the market is simply enormous. When Coca-Cola is releasing cans with people’s names on it, you know people are trying to adapt to that trend. It’s transforming industries.” Redbubble currently hosts 14 million unique images that can be printed on a number of lifestyle products, including apparel, homewares, fashion and technology accessories, and wall art. It’s on track for over $100 million in sales for 2015. Last year more than 1.2 million customers shopped on RedBubble and over 60,000 artists made sales. Since launching in 2007, artists have been paid $30 million through its marketplace. It’s been a big year for Australian design marketplaces. Earlier this month Canva raised $US6 million from Matrix Partners, Shasta Ventures, Blackbird Ventures and AirTree Ventures. In April, 99designs closed a $US10 million Series B round led by Recruit Strategic Partners. In February, DesignCrowd raised $US6 million in Series B funding from AirTree Ventures and Starfish Ventures. Do you know more on this story or have a tip of your own? Raising capital or launching a startup? Let us know. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Aussie VCs to standardise their legal documents to make it easier and cheaper for startups to access seed capital5:47AM | Tuesday, 19 May
Several Australian venture capital funds have come together to standardise their legal documents and make them publicly available in order to make it easier and cheaper for startups to access early-stage funding. The agreement is expected to allow Australian startups to complete their funding documents in less than an hour and save them thousands of dollars in legal fees. AirTree Ventures investment manager Paul Bennetts, Niki Scevak from Blackbird Ventures and Sparke Helmore partner Dan Atkin have been working on the open source initiative for the past few months. The Australian Private Equity & Venture Capital Association Limited will host the documents, which will be for rounds worth between $250,000 and $1 million. Bennetts told StartupSmart the standardised documents will improve transparency and efficiency for Australian startups and investors consistent with the majority of angel rounds in the US. “The biggest cost when launching a startup is legal,” he says. “This can cost up to $25,000 to $30,000 regardless of the size of the investment. It makes no sense that five to 10% of a startup’s capital raising is going to legal fees when every startup is getting a very similar set of documents.” Bennetts says any startup looking to complete a seed round will be able to access the documents. “This means that angels can become familiar with the same set of docs across multiple deals rather than having to review from scratch 100 pages of documents each and every time they invest in a startup,” he says. “This removes friction and costs for angels, which will result in more seed deals being done and faster capital raising processes for startups – getting them back to running their business quicker. For VC funds, we can know that the shareholder structure setup before we invest is sound.” Atkin said in a statement the standardised documents are aimed at removing the “heavy lifting” from the financial process. “Think of them as a great starting point that will save startups time and money,” he said. Do you know more on this story or have a tip of your own? Raising capital or launching a startup? Let us know. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
The latest federal government budget continues to confuse tech startups with small businesses. Here’s a definition of a startup, from Startmate and Blackbird Ventures founder Niki Scevak. “A startup to me is defined by its ambition to grow very, very quickly,” he says. “And so a startup in the beginning looks like small business, but is something different in that it is aiming for a very large outcome. To grow a business very quickly you need to be aiming for a very, very large market. So you can’t be attacking something that is a small and trivial problem. So it’s a function of ambition. “All of the high growth companies in the past decade have been technology companies. But even that, technology is an enabler of scale, but not necessarily tied to a definition of a high growth company. A high growth company can be many different things. “These companies in the beginning look quite frankly like jokes. They’re started by people with barely a university degree, no commercial experience; they’re started in markets that are incredibly crowded. “Atlassian was the 100th bug tracker, Bigcommerce the 100th shopping cart and Campaign Monitor the 100th email newsletter. “These lighthouse companies grow to tens and hopefully hundreds of millions of dollars a year, employ hundreds or thousands of people; and I think if we produce more of these iconic companies, that’s the catalyst to see the ecosystem grow.” It’s a point not missed by Australian startups. Here are some thoughts from a number of Australian startup founders and CEOs on the latest budget. MoneyPlace co-founder and CEO Stuart Stoyan Mr Hockey tells us that “this is a budget for small business people who want to innovate and grow”, unfortunately it is not a budget for startups. The government needs to distinguish between small businesses and startups, which are typically high growth technology businesses. Startups need more than tax deductions we need to tackle the IT skills shortage and promote education in science, technology, engineering and mathematics (STEM), which are critical more broadly for productivity and innovation. We need to reduce compliance costs and red tape so that it is easier for startups to raise capital locally. Where4Events CEO Caroline Woodhouse The government must differentiate between startups and small business. To truly help the sector, and growing tech businesses like ours, we want to see more assistance for research and development in the technical space. I would use the funding for ongoing development, which means keeping the intelligence and innovation in Australia and not overseas. goCATCH co-founder Ned Moorfield The changes announced in relation to removing obstacles to crowdsourced equity funding will certainly help to provide an additional funding option for startups amongst the limited range of options that currently exist domestically. There are some important additional steps that can be taken though to encourage much more material funding flows. This includes mandating an allocation to early stage venture funding under the Significant Investor Visa Programme and it's something I hope the government will take a closer look as part of the review they're currently undertaking. OneShift founder Gen George The 1.5% tax break is good for existing business, but from the perspective of increasing incentive to start a startup there’s not a lot out there which makes it easier or more cost effective. It’s a step in the right direction, but we’d love to see better incentives for startups, things like payroll tax reform. (Employee Share Option) makes it easier for startups, that are high risk, high return, to incentivise high quality staff to stay here in Australia. Appster co-founder Mark McDonald This is good news for small businesses which are generating revenue; however, more investment in research and developing and early stage startups is required. Increased investment and belief from the government in the startup sector – for example, equity crowdfunding options – would enable the Australian startup scene to become more agile and enable us to build the Silicon Valley of the Asia Pacific. Expert360 co-founder and CEO Bridget Loudon Small businesses are the hearbeat of the nation. One fifth of our entire population works in a small business and that’s why it’s vital the government does everything possible to help this important sector where possible. I support the government’s tax breaks for small business. Small businesses want certainty, especially around cash flow and how they’re going to grow and hire. YourGrocer co-founder Morgan Ranieri We’re excited about the upcoming changes to the Employee Share Scheme laws. As a startup, we’d prefer that our team has equity in the company so that they think of the company as their own. Team members with equity think more like business owners than employees, which is exactly what we want. Fitness Calendar co-founder Deborah Laurence We’ll get a small benefit for the tax deduction on asset purchases; everything helps when running a lean business. The reduction in the company tax rate is also positive but will become more relevant to us in the next few years. Nitro founder Sam Chandler The Australian government seems to misunderstand the distinction between small business and startups. Startups are high growth entities with huge potential to scale internationally. Whereas, small businesses are more localised and have few employees. Both entities have different needs and to have one uniform policy is to do injustice to both. While these proposed changes are great for small business, the package will have little impact on startups and little impact on job creation, economic growth and Australia’s position on the global stage. Do you know more on this story or have a tip of your own? Raising capital or launching a startup? Let us know. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Online education startup Edrolo has raised $2.6 million that will be used to expand its content library to cover more subjects and year levels and increase the number of schools using its products. The round, led by AirTree Ventures and Blackbird Ventures with support from Jungle Ventures, Roger Allen and others, takes Edrolo’s total capital raised to $4 million. Founded in 2013, Startmate graduate Edrolo provides learning resources for year 12 students. This includes online videos, marked exam practices and study planning tools. Edrolo finds exemplary teachers in each subject to deliver the videos. These teachers then earn royalty fees for their work. The teachers are pretty easy to find, according to co-founder Jeremy Cox. He says most school communities know the best teachers, and are keen to pass on that knowledge because they want access to them too. Currently there are almost 130 schools and roughly 20,000 students using the platform. That’s up from about 40 schools using the platform one year ago. It costs schools an annual fee of $25 per subject per student and schools generally sign up for all 15 subjects offered. Edrolo’s products are available to Victorian and New South Wales schools. It’s also launched in the US, but that product is in its infancy. Edrolo is looking to expand into year 11 and offer more subjects. Co-founder Duncan Anderson says a big part of the value is the data Edrolo can provide to teachers. Students are automatically marked on the platform, as well as educated how to self-mark. These self-marked assignments are then given to teachers who can assess whether or not a student understands what is required by assessors. In addition test results assess the strengths and weaknesses of students after the completion of topic areas to help teachers cater each student’s individual needs. “Our mission has been to improve education by driving personalised learning outcomes through informed teaching of students,” Anderson says. “It was once a whole lot of paper questions. You’d need to spend time putting it all in a spreadsheet. With Edrolo you can get all that data in one place.” Co-founder Jeremy Cox stresses Edrolo is a tool for teachers, not their replacement. “It’s there to augment the classroom,” he says. AirTree Ventures partner Daniel Petre said the number of schools already using the platform speaks to its potential. “Edrolo has built a phenomenal product that is benefiting from a full stack approach to learning,” he says. “We are excited to be part of Edrolo’s journey as they deliver to educators something that has been dreamed about for decades. The number of leading academic institutions already using their product is testament to the bright future ahead for the company.” After announcing its latest fund in July, it has participated in the investment rounds of a number of Australian startups: GlamCorner – (undisclosed). Canva – $7.7 million. DesignCrowd – $6 million. Pawshake – $1.5 million. Do you know more on this story or have a tip of your own? Raising capital or launching a startup? Let us know. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Internet of things startup Ninja Blocks has shut down after running out of money. The startup was founded in 2012 and is a graduate of the Startmate accelerator program. Late last year it raised $700,000 from SingTel Innov8, Blackbird Ventures and 500 Startups, to launch its latest product the Ninja Sphere. It has also received investment from Atlassian founders Mike Cannon-Brookes and Scott Farquhar. Its home automation product Ninja Sphere smashed its Kickstarter goal of $155,000, raising $703,000. In a blog post announcing the decision to close, Ninja Blocks’ Elliot Shepherd says all but 300 of the Spheres are built and ready to ship. The plan is to try and get at least one Sphere to every Kickstarter backer. Those that ordered more than one Sphere might not get their whole reward. “This feels wrong, like we’ll be annoying the people who were our strongest supporters, but we don’t have a better option,” Shepherd says. “If and when we could get Ninja back up and running, building and shipping those 300 Spheres would be our first job and highest priority.” Shepherd says development of Sphere ran overtime and as a consequence over budget. When the possibility of further investment fell through, the startup decided to shutdown in order to pay creditors and ship “almost all” the Spheres that were promised. “Even with all the ninjas earning far below what they would expect to get somewhere else, our burn rate couldn’t be sustained forever,” Shepherd says. “Ninja Blocks has always run lean, and when the next round of investment fell through we didn’t have much runway left to adjust course. “With no credible source of funding on the horizon, and hardware still undelivered to Kickstarter backers we made the difficult decision to down-tools.” Shepherd says the Ninja Blocks team would love to find a way to stay together and keep working on Sphere, but “Ninja Blocks, the company, will almost surely be dead”. “…we’re all reeling here from a big few years and a very difficult few months… but we are all proud of what we’ve been able to accomplish, feel privileged to have worked on such an ambitious project, and most of all feel humbled by the community that built up around our small team,” he says. “You’ve all been more excited, more interested, and more understanding than we could have hoped or expected or deserved. Thank you.” StartupSmart reached out to Ninja Blocks president and chief executive officer Daniel Friedman for comment, but did not receive a response prior to publication. Do you know more on this story or have a tip of your own? Raising capital or launching a startup? Let us know. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Design startup Canva has raised $US6 million ($A7.7 million) in funding from existing investors, which will be used to launch its enterprise product Canva for Work. The funding round was led by existing investors Matrix Partners, Shasta Ventures and Blackbird Ventures and AirTree Ventures and brings the startup’s total funding raised to $US12.6 million. Canva’s 2.4 million users, 65% of whom signed up in the last six months, have created 18.5 million designs. Over 200,000 companies and organisations are also signed up, among them almost 200 Fortune 500 Companies. Users can sign up and create designs for free, but can also pay $1 for premium images. It offers a one-time use licence which gives the customer a license to use the image in just one design. Canva co-founder Melanie Perkins wouldn’t disclose how many customers end up paying, or the startup’s revenue. However, she did say all its metrics were trending in the same direction – high growth. That growth has impressed Matrix Partners’ Josh Hannah. “Canva is one of those very rare companies that experiences rapid growth as a utility tool. It’s phenomenal to see the fan base behind Canva and the immense potential of their new product ‘Canva for Work’,” he said. Exactly what the subscription-based Canva for Work product will entail won’t be revealed until it launches next month. Perkins says it’s been part of the plan for Canva since day one. “It’s certainly been part of our original vision. We believe Canva for Work will completely transform the way teams work,” she said. “The world is changing and so too are the needs of companies. Pretty much every profession needs to create more visual content. Even people in sales. “It’s been incredible the amount of people that have been asking for the functionality. We can’t go into the product detail just yet, until it launches next month. What we can say is the companies that have seen Canva for Work in the pilot program, say it solves very significant pain points.” Companies who want to try Canva for Work can pre-register at www.canva.com/work. Do you know more on this story or have a tip of your own? Raising capital or launching a startup? Let us know. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Aussie web design marketplace Elto has been snapped up by domain registration company GoDaddy for an undisclosed amount. GoDaddy – which has 12 million customers worldwide – raised $605 million earlier this month after listing on the New York Stock Exchange. The acquisition comes as the company expands its customer offerings and aggressively targets small businesses and startups. Elto was founded in 2012 as way for small businesses to make simple changes to their website for a set fee. Originally called Tweaky, the startup later rebranded, moved to San Francisco and closed an investment deal with Blackbird Ventures. More than 60% of Elto’s customers are based in the United States, along with all of the company’s major partners such as WordPress. Chief executive of Elto, Ned Dwyer, told StartupSmart he and his co-founder PJ Murray decided to be acquired by GoDaddy because of their “huge customer base” of small business owners. “It’s also about the team, the people who are running GoDaddy these days,” he says. “In the last couple of years GoDaddy have been making big bets on top talent through acquisitions and hiring from companies like eBay, Intuit and Amazon – I get to work with some incredibly smart people every day.” Dwyer says he and PJ will be joining the team at GoDaddy, and while he is excited to start working on building “the biggest marketplace we can” it is still bittersweet to sell something they have been working on for so long. “We would have liked to stay as an independent company but we also couldn’t turn down this opportunity,” he says. “It’s also nice to be able to focus 100% on building a great product experience with no distractions from things like balancing the books, managing payroll and the million other things you have to do as a founder that keep you from delivering value for customers.” The deal has been in the works for some time, with Elto putting a halt on accepting new projects at the start of this year. General manager of hosting at GoDaddy, Jeff King, said in a statement the company was excited to announce its latest acquisition. “Ned and PJ have built something people truly want at Elto — and something that GoDaddy’s small- to medium-sized business customers need,” he said. “We’re thrilled to welcome them into the GoDaddy family.” Follow StartupSmart on Facebook, Twitter, and LinkedIn. Buy tickets to the 2015 StartupSmart Awards.
Netflix has officially launched in Australia, offering users a one-month free trial to scoop up customers amongst fierce competition, including Australian rivals Presto and Stan, in the on-demand streaming space. However, is giving away your product or service for free – even if it is only for a limited time – a good idea for Australian startups? Niki Scevak, managing director and co-founder of Blackbird Ventures, told StartupSmart a free trial is “nearly a universally good idea” when dealing with content or an information-based product. “People’s willingness to pay goes way up when they’ve experienced the product,” he said. “People have a very hard time evaluating it from the outside … that’s why a free trial is a very good idea. Obviously informational goods have near-zero marginal cost – Netflix has some cost in content delivery fees and bandwidth – but where it is rather miniscule or minor you’re not going to go out of business for giving your product away for free in the first 30 days.” Scevak says while different models will work best for different businesses, bundling different options together or having different pricing tiers is something founders should actively consider. “When you bundle products together, the willingness to pay goes up because there’s probably a thing you want on Foxtel or the movie channels and you’re willing to pay a little bit of money for the other stuff,” he said. “Looking at bundled products, Netflix is obviously a great example of that.” However, Scevak also points out that the Netflix launch has another lesson for startups – how to scale rapidly while not losing control of the business. “As Netflix gets bigger they become more vulnerable to the content owners upping their prices and throwing their weight around,” he said. “Things like House of Cards and their own initiatives become more important. As you get bigger, if you’re distributing other people’s products, you probably need to build your own products as you scale – otherwise all the negotiating power goes to the people you are distributing.” Adding Australia and New Zealand brings the number of countries and territories in Netflix’s stable to 50. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Security testing marketplace Bugcrowd has raised $6 million in Series A funding, bringing the total amount of funding raised by the startup to $9 million. The round was led by Costanoa Venture Capital, along with Rally Ventures, Paladin Capital Group and Blackbird Ventures. Bugcrowd draws on more than 15,000 security researchers and hackers to give organisations of all sizes a vulnerability assessment. Clients have included e-commerce platform Bigcommerce to the supermarket giant Coles. The startup will use the latest round of funding to grow its staff – particularly in sales and marketing – as well as the number of researchers who use the platform. Co-founder and chief executive of Bugcrowd, Casey Ellis, says the company’s value proposition has been constantly reinforced thanks to a strong customer acquisition rate as well as “the types of organisations who are trusting us to work with them”. “The appetite for what we’re doing is very widespread and you combine that with this whole cyber security story in general, which is strapped to a rocket at the moment,” he says. “What we’ll be using the capital for is split between going out and capturing more of our market, but also investing more in the platform for making it more valuable for the crowd and the customers as well… stuff around how do we build a better hacker and give people coming onto the platform the ability to learn from each other and improve their skills as a cyber security professional.” Neill Occhiogrosso, partner at Costanoa Venture Capital, said in a statement security continues to be “a top spending priority” for businesses around the world. “The financial and operational leverage that Bugcrowd’s platform enables is a highly strategic asset.” In 2013 Bugcrowd raised $1.6 million after moving to San Francisco to leverage the size of the US market. The company has seen its revenue grow more than ten times over between 2013 and 2014, and is looking to expand its team. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
While the young entrepreneur launching a multi-million-dollar enterprise from his or her parents’ garage is a startup cliché, in Australia young entrepreneurs like 20-year-old CoinJar co-founder Ryan Zhou are actually in the minority. The 2014 Startup Muster survey found of the over 400 founders polled just 5% were aged 20-24 and just 1% under 20. By contrast, a massive 41% of all startup founders in Australia are aged between 30 and 39, with a further 21% aged 25 to 29 and 16% aged between 40 and 44. Zhou credits the AngelCube program with teaching him many of the skills required to run a business. “I co-founded CoinJar after meeting [cofounder] Asher [Tan] in May 2013 – I was not even 19 at the time – and we were accepted into AngelCube soon after,” Zhou says. “I did not have much experience in how to run a successful startup, so at AngelCube I learnt about things like fundraising, product design and business development. Then in late 2013 we raised $500,000 in a funding round, led by BlackBird Ventures,” Zhou says. Zhou, who is studying full-time in addition to running CoinJar, says this lack of experience is a key factor holding back many of his friends from launching startups. “There’s a few of my friends at uni who want to launch a startup, but they think they don’t have the experience to meet all the challenges. So instead they’ll graduate with a job and then, maybe, start one in a few years’ time,” he says. “I think passion is extremely important. If you’re only in it for the money, it’s hard to be motivated to do what you can do. I’ve got a huge passion for technology and the internet and studying finance at university. So bitcoin combines what I’m studying with something I’m passionate about working on in my spare time.” While CoinJar is best known as the startup that introduced Australia’s first bitcoin Eftpos card, it has over recent months also introduced a hedged bitcoin account service and a mobile app for iOS and Android. It was Zhou’s passion for his startup’s end-to-end digital currency products that helped CoinJar take out the best in show prize last month at one of Europe’s largest fintech conferences, FinovateEurope 2015. “A CoinJar hedged account is a product for everyday consumers who want to store money on the internet. The consumer might be interested in using bitcoin, but be concerned about volatility in the price,” he says. “With a hedged account, if you deposit $A300, the value of bitcoins in your account will be pegged to the Australian dollar and will be worth $A300 whether the price of bitcoin goes up or down. “CoinJar Touch is our mobile app for the Google Play and Apple app store. It lets you manage all parts of your CoinJar account from your mobile, so you can put money into your Hedge Account and move money into Coinjar Swipe. “So we presented a real world case study where I paid Asher for a flight – that’s a pound sterling to Australian dollar hedge account transaction. We then demonstrated how to move that money to Coinjar Swipe – and won the best in show award. Looking forward, Zhou is keen to expand Coinjar internationally, after relocating to the UK late last year. It has recently hired its first full-time employee at its UK offices in the London financial district of Canary Wharf. “My advice to students wanting to launch a startup is to learn as much as you can, read about your industry, and gain expertise as well as experience.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Australians do not shy away from taking risks and government support is not necessarily the best way forward for the future of venture capital, according to local startup investors. Sebastien Eckersley-Maslin, founder and chief executive of BlueChilli, told StartupSmart the myth that Australia is averse to risk is “easy to bust”. “We’re the only economy in the world with a horse race ‘that stops the nation’ risking more on that race online each year than Australia’s venture capital industry has been able to invest in the past five years,” he says. “The agricultural and mining industries we’re overly dependent upon are fraught with risk from fluctuating global commodity prices entirely out of our control, to insurance risk and the growing influence of climate change.” Eckersley-Maslin says perhaps the reason why Australians are seen to be risk-averse when it comes to technology is because we understand it less than sectors such as farming and mining. “Yet since the collapse in iron and coal prices our small tech stocks have been outperforming junior mining stocks,” he says. “A rational investor would be piling onto Australian tech venture capital right now, seeing the listed tech startups performing so well.” The way forward for VC funding in Australia Dr Elaine Stead, investment director at Blue Sky Venture Capital, told StartupSmart she is of the view that Australia will eventually see a “critical mass” in venture capital like markets such as the United States. “I don’t think government support is the answer – I think the only way through is for fund managers to develop their own strategy, execute well and develop a track record,” she says. “I think having access to people with expertise and experience is one of the critical challenges Australian funds struggle with. While we have a great pool of talent in Australia, fund managers are blinkered if they are not developing partnerships with other funds both in Australia and internationally where they can leverage often decades of experience, expertise and networks to give their investee companies the best chance to become Unicorns and to generate the best returns for their investors.” Rick Baker, managing director of Blackbird Ventures, agrees. “This is not about government mandate or more concessions, it’s about returns,” he says. “We already have three wonderful schemes which help startups and venture capital in this country – the R&D tax credit, the EIP and the ESVCLP schemes. Apart from continuing to support these, the best thing the government can do is make sure it’s not creating regulations which have side effects that damage startups, for example employee options and superannuation disclosure.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Local investors largely disagree with Labor MP Ed Husic’s characterisation of Australia as risk-adverse and a country where venture capital funding may not exist in five years. However, they agree more needs to be done to promote a thriving startup ecosystem. In a column for The Australian Financial Review, Husic referred to an American investor who told him not to expect to see Australian-based venture capital operating in the near future. “Were it an isolated, individual offhand remark, it would be easy to dismiss,” wrote Husic, the shadow parliamentary secretary to the shadow treasurer. “But during a recent visit I undertook through the West Coast, I put that claim to other investors and Australians working in Silicon Valley and San Francisco, and they didn't rail against the comment. There was no patriotic surge to counter the claim … is our conservative, risk-averse investment approach strangling capital support for local startups?” So what do Australian investors think of the claim venture capital will not exist locally in five years? Dr Elaine Stead, investment director for Blue Sky Venture Capital, says she doesn’t think this possibility is supported by the data and trends she is seeing. “The total quantum of capital invested last year started to increase for the first time since the economic crisis,” she says. “Over the last couple years several funds closed substantial venture funds including One Ventures, Carnegie and Accumen Ventures. Corporate venture in Australia is more prominent, active and focused than ever, and the angel networks are providing an excellent, sophisticated, structured alternative.” Stead says Australia needs “to find another economy” in the wake of the declining resources boom and downturn in traditional manufacturing, and VC is the answer. “The knowledge and innovation sector is our best bet and, quite frankly, Australia needs us to make that happen.” Sebastien Eckersley-Maslin, founder and chief executive of BlueChilli Group, told StartupSmart he thought the article was aimed at shocking Husic’s colleagues and the Coalition government into action instead of the “snail’s pace of funding and tax reform we’ve seen from successive governments in the past”. “He doesn’t really personally think Australian venture capital is doomed and neither do we, but it’s not being supported adequately and it’s not going to compete in a global innovation capital marketplace until it is,” he says. “It’s early days yet but the signs are there that we can turn the tide of underinvestment and misunderstanding of Australia’s tech sector.” Eckersley-Maslin says if Australia builds “awesome startups”, then venture capital will follow. “At BlueChilli, we know the best thing we can do to build the Australian venture capital ecosystem is to provide opportunities for VC funds to invest in,” he says. “More work is needed and Husic is right in calling for more to be done by government. While most of the dialogue around tax reform seems focused on broadening and raising CGT [capital gains tax], we’d like to see the broadening of the proposed changes to employee share option plan tax treatment, and the introduction of tax relief for those few investors smart enough to see Australia’s tech sector as the great investment it already is.” Rick Baker, managing director of Blackbird Ventures, told StartupSmart he is convinced Australia is already seeing these companies being created. “In recent times I point to companies such as Canva, Safety Culture, Shoes of Prey and Invoice2Go as examples,” he says. “We also have proof that you can create the blockbuster companies venture capital needs to win, examples are Atlassian, Campaign Monitor, Aconnex, OzForex, 3PL, Freelancer, Half Brick Studios and Envato.” Baker points to how new “micro VC funds” have sprung up since 2012 as another reason why he thinks venture capital funds will still be operating in Australia in five years’ time. “These funds are building their track records, and if all goes well, will grow into the next group of full-sized Aussie VC firms.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Ninja Blocks has begun shipping the Ninja Sphere and announced it has signed up as a key partner for Canonical’s Ubuntu Core embedded device operating system, as it opens its first office in the US. The startup launched in 2012, when it was selected to participate the Startmate accelerator program, and also smashed a Kickstarter campaign for its first product, which was also called Ninja Blocks. In January 2014, the startup raised $702,937 against a $115,000 crowdfunding target on Kickstarter for their second product, Ninja Sphere. Then in October, it raised $US700,000 from local and international investors including SingTel Innov8, Blackbird Ventures and 500 Startups. Ninja Blocks chief executive Daniel Friedman told StartupSmart the first 500 units are in the process of being shipped to Kickstarter backers, with manufacturing and production now in full swing. "Obviously, we had wild success with our Kickstarter campaign and that that level – we have orders for 2500-odd Ninja Spheres – we couldn't make them ourselves. We had to get a manufacturing partner. "There are a lot of challenges that come along with a larger order, including supply chain issues, quality control and quality assurance, certification, packaging and trademarks. "For big scale projects – if things go really well on Kickstarter – my advice to people would be to be prepared to find people to give a helping hand. We had experience with our first product – Ninja Blocks – and never underestimated the challenges." The product design also posed some unique challenges, including ground-breaking work mass-producing a device that does gesture control with capacitors. It also set a goal to get wireless control mechanisms certified in all markets simultaneously, allowing it to ship to all parts of the world at the same time. Ninja Blocks has also gained global attention by signing on as one of the first partners for Canonical's Linux-based Ubuntu Core embedded device operating system. "We're really, really excited about this announcement. Ninja Sphere is one of the most advanced smart IoT systems on the market – it's a full Linux system in people's homes. So it needs to be reliable, resilient and secure. "We went with Ubuntu because it's the biggest name in Linux – in fact, you'll find a lot of the cloud runs on servers that are powered by Ubuntu." Meanwhile, Ninja Blocks recently hired a chief marketing officer and opened an office in San Francisco. The office will focus on marketing and funding the company's future growth, with Friedman himself preparing to move to the US shortly. Despite these moves, Friedman says Ninja Blocks remains committed to Australia, with design and engineering set to remain here. "We will still do our engineering and design in Australia and we have strong roots here. So it's really about having people in the places where they'll be the most impactful."
The results from the latest Startup Muster survey indicate Australia still needs work when it comes to diversity in tech, as well the ambition of founders, according to a number of investors. BlueChilli chief growth hacker Alan Jones says it’s “maddening” to see 27% of startup founders estimating their market size is less than $10 million. The figure is so startling that it makes Jones wonder whether or not respondents understood the question and thought they were estimating the current valuation of their startup. “Because if you aim to steal 5% of a $10 million market, even if your net margin is huge, that’s never going to be worth the risk of doing a startup – you’d be better off opening a café or a plumbing business,” Jones says. “Startups should be shooting for the Moon, but it sounds like we’re still guilty of shooting for Moonee Ponds.” That number also had Colin Kinner, the author of the Crossroads report and director of Spike Innovation, wondering whether the survey had picked up a lot of non-startups that are lifestyle businesses. Startup Muster organiser Murray Hurps says in addition to the validation steps, he manually reviewed the companies to ensure they were leveraging technology to create something scalable, the correct definition of a startup, and there didn’t seem to be any misunderstanding of the term. It’s a concerning figure, given startup academic Steve Blank’s advice that startups are either born global or die local and certainly could be a factor contributing to another survey finding – 18% of startups had tried and failed to raise capital. As Jones points out, few investors are going to take on investments with such limited upside. Blackbird Ventures managing director and founder of the Startmate accelerator program Niki Scevak agrees a lack of ambition was the most striking of the survey’s findings. “What sadly stands out is the lack of ambitious founders creating global startups and chasing huge markets,” Scevak says of the survey results. “We created Blackbird and Startmate to provide capital and a network of likeminded founders to help those who dare to make a big impact but there is a long journey ahead. It’s easier in my opinion to build a large ambitious company than a small unambitious one. “It’s harder to get great employees, investors and partners when you are doing something uninspiring. So hopefully in five years’ time the numbers will be flipped. Come on Australia!” AirTree Ventures partner Craig Blair says the figure leads him to believe that this survey is a sample of early stage startups. “The opportunity for the Australian startup ecosystem is to convert these into Series A funded business. This will require addressable markets of more than $10 million, product market fit achieved and distribution starting to work,” he says. Blair was surprised that just 6% of startup founders were under 25, and encouraged that the number of female founders had increased from 16% in 2011 to 19% in 2013. Jones was frustrated at the slow pace of progress. “It’s frustrating to see we’ve made so little progress in changing the gender balance in the Australian startup industry but that might be because we need more girls studying STEM and entrepreneurialism to create more female startup founders, which would mean we won’t see the fruits of those efforts for another 5-10 years,” Jones says. “I’d like to see if the percentage of women in senior exec roles in Australian startups has changed in the near term, and the proportion of women holding equity or options in Australian startups.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
When did salary expectations for some early stage startup founders in Australia reach $150,000? Optus-Innov8 lead principal Alfred Lo found himself asking that question after looking into possible investments late last year. There’s no hard and fast rule for figuring out founder salaries. Last year’s Compass Report highlighted the salaries of Australian founders were relatively high when compared to startup markets like San Francisco, Los Angeles and New York. The recent fall in the Australian dollar has dropped that average to about the same level of the Los Angeles Market – between $US61,000 and $72,000. “The interesting stat however isn’t actually the salary,” Lo says. “It’s the ratio of the salary to the amount of capital raised – rounds in the US and more developed ecosystems tend to be larger for the same life stage and as a result, Australian founder salaries tend to be a larger percentage of the funds raised.” As startups become more and more popular in Australia, Lo says he’s noticing entrepreneurs entering the market that have previously held well-paying jobs and managing their salary expectations can be challenging for investors. AirTree Ventures partner Craig Blair has been on both sides of the negotiating table. In 1999 he quit his strategic consultancy job, one that paid roughly £120,000 ($A220,000), to join a startup – TravelSelect.com, where his salary was roughly a third of that, even after a large Series A fundraising round. “It’s a very tricky conversation, that’s more of an art form than a science,” Blair says. “You’ve got to consider, from the investor’s perspective, almost certainly when someone’s writing a cheque, it’s not worth that today. It could be in the future, but it’s not worth that today. It’s correct that founders have to realise equity is where the upside is coming from, not a big fat salary. “When you’re trying to keep costs low, the founder really sets the benchmark for everybody for how to use capital sensibly. But you also want your founders happy. You want them to be able to live a reasonable life, to be able to take their partner out for a meal every now and then and not be worried about the bills. “In terms of numbers, I would say it depends on the stage. Series B, C and D you’re looking at anything from $200,000 to $500,000. If you’re looking at very early stage then sub $100,000.” Blackbird Ventures managing director Rick Baker says Blackbird has a general rule that early stage founder salaries shouldn’t go above $100,000. The firm expect founders to earn salaries between $60,000 and $80,000 for seed round and from $80,000 to $100,000 for Series A. “In the very early stages of a business before an external funding round, say the first 6-12 months, we often advise founders take no salary, or just enough to scrape by,” he says. “The idea here is that they can take the business as far as possible before raising capital to minimise their equity dilution. “All that aside, at Blackbird we’re very focused on making sure the founder(s) are aligned with us as investors. This is almost always best done through equity. We’ve said no to a few investments where we’ve liked the business, but for some reason the active founders do not own enough equity. In other cases we’ve worked with the founders and other shareholders to increase founder equity to a level we think is appropriate before investing.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
From the continued growth of bitcoin to increased activity by US investors in the Australian startup scene, here are four trends to watch in 2015. 1. Bitcoin Sebastien Eckersley-Maslin, chief executive of Blue Chilli, told StartupSmart “it’s definitely early days” for bitcoin in Australia – however, Asia is an emerging market to watch. “Hong Kong is a bitcoin mecca and there is a lot going on there,” he says. “There is a lot of awesome tech being developed and Australia has a chance to emerge as a fin tech hub as well. All those ingredients point to a future where bitcoin is going to play an important part.” Eckersley-Maslin says as bitcoin becomes more established, we can expect to see people use the “bitcoin structure” to improve things in creative ways. 2. Internet-connected devices Google is reportedly trying to lead the race when it comes to internet-connected devices in the home. The tech giant bought Nest earlier in the year, a thermostat that users can control from their smartphone – along with a number of IoT startups. Rick Baker, managing director of Blackbird Ventures, told StartupSmart we will see more connected devices in our homes “and an emerging need to control them in an intelligent way” in 2015. 3. Peer-to-peer lending networks Peer-to-peer lending networks are also a space to watch, according to Eckersley-Maslin. “I like anything that disrupts an organisation that gets in the way of a transaction,” he says. “SocietyOne in Australia is having some big wins and successes, which is going to drive a lot of interest in that space.” Earlier this month the Sydney-based peer-to-peer lender closed a new funding round of more than $10 million, led by Consolidated Press Holdings, News Corp Australia and Australian Capital Equity. Peer-to-peer lending allows investors to lend a fraction of a loan directly to a borrower without the need for a middle-man such as a traditional bank or financial institution. “Peer-to-peer networks around financial services, real estate, car transactions – wherever… that’s going to be disrupted. 4. US venture capitalists investing in Australia Quite a number of Australian startups have scored investments from American venture capital firms this year. In January, Technology Crossover Ventures invested $US30 million in online hotel distribution company SiteMinder. And in April, a Sydney startup secured $US250 million from Insight Venture Partners. Baker says he thinks we will see this trend continue in 2015. “Many of the top US firms are scouting in Australia for breakout businesses,” he says. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Cisco has become the first major corporate investor in Blackbird Ventures, with the move paving the way for more investments in promising Australian startups. While no official amount has been disclosed, a source told Business Insider the figure was between about $1.3 million and $5.3 million. Fund co-founder and managing director Rick Baker told Private Media that Cisco will be Blackbird’s 96th investor. “For Blackbird, it’s a little more capital to put to work. That means investments in more startups, and more follow-up investment in our existing portfolio of 14 companies,” Baker says. “So what it means is an extra amount of capital in the startup ecosystem. “Aside from the investment, Cisco is also keen to be more involved in the startup ecosystem. They have a number of different projects in the startup space currently in the pipeline.” Earlier this year, Cisco organised an Internet of Things (IoT) Innovation Grand Challenge, with IoT a key part of the company’s growth strategy. Meanwhile, Blackbird has already made investments in high-profile IoT startups LIFX and NinjaBlocks. Given Cisco’s interest in IoT, its decision to invest in Blackbird could be seen to be an endorsement of Australia’s burgeoning IoT scene, according to Baker. “I think Australia is developing an international reputation in IoT and there’s a lot of action in the area. We currently have two investments in this space, and are looking at more,” he says. Looking towards 2015, Baker hopes the trend of corporate investment in the Australian startup scene continues from two directions. “There are global tech companies that already do venture startup investments that are starting to see Australia as a worthwhile place to invest. And hopefully we’ll see Australian companies continue and increase their investments in the startup community too.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Online retailer Shoes of Prey secured $US5.5 million ($6.5 million) in venture capital this morning to fund its bricks-and-mortar expansion. The retailer, which enables customers to design their own shoes, started off as a pure play online offering. But Shoes of Prey’s founders, Jodie Fox, Michael Fox and Mike Knapp, have realised the value of having a physical store presence after the success of Shoes of Prey’s David Jones concession stores. The funding round was led by US-based Khosla Ventures after the Shoes of Prey team got in touch with Ben Ling, the investment partner at Khosla, through a former Google colleague. Michael Fox told SmartCompany the deal came together fairly quickly after first reaching out to Ling in July this year. “That seems to be how venture capital in the US works, warm introductions always seem to help,” Fox says. New investors alongside Khosla Ventures include Bonobos co-founder Andy Dunn, and ThirdLove co-founders David Spector and Heidi Zak. Existing investors also took part, including Blackbird Ventures, Atlassian co-founder Mike Cannon-Brookes and Bill Tai from Southern Cross Ventures Partners. The deal leaves the co-founders with “just under” 50% in equity while Shoes Of Prey’s employees retain 15% equity in total. In order to “get the deal done” Shoes of Prey’s co-founders had to agree for one founder, at this stage Jodie Fox, to step down from the board. “US venture firms generally have much smaller boards so we reduced the board to three, so only two of Mike, Jodie and me could be on the board,” Fox says. “We might set up a rotating structure”. Fox says “it’s not ideal” but the business should be able to work around the limitation. Shoes of Prey will use the funding to open more bricks and mortar stores, including in the United States, hire some more key staff and increase its manufacturing facilities. “We have signed a deal with Nordstrom to open six stores in the US. The first one opened two weeks ago in Seattle and we are opening a store in Westfield Bondi Junction and funding will help with all those stores rolling out,” he says. Shoes of Prey will roll out another seven stores over the next few months. “We still sell most of our shoes online but we have realised that there is life left in physical retail,” Fox says. “It offers a great opportunity for customers to come in and interact with the brand.” Expanding Shoes of Prey’s manufacturing in China will also reap rewards for the business. “We have maxed out the size of the space of our factory in China, so we have leased a new three storey 4000 square metre factory and that will give us a lot of room to expand,” Fox says. “The key thing is that it will bring our delivery time down to deliver shoes within two weeks of the consumer ordering”. Shoes of Prey previously raised $3 million in Australia in 2012 with further fundraising in 2013. This article originally appeared on SmartCompany.
Rich Lister and co-founder of tech giant Atlassian, Scott Farquhar, has invested $750,000 of his own cash in Townsville-based app developer SafetyCulture. Speaking to SmartCompany this morning, SafetyCulture founder and chief executive Luke Anear said Farquhar led a $2.1 million investment round in his company, with the venture capital fund he backs, Blackbird Ventures, also contributing $750,000. The remaining $500,000 was raised from existing shareholders. The raise follows a $3 million fundraising round in November last year, which included $1.79 million from Commercialisation Australia and $1 million from Blackbird Ventures. “Scott has been involved with SafetyCulture for around 12 months as an adviser with Blackbird and he got to the point where we he wanted to invest himself,” says Anear. “We didn’t need to raise more than $2 million but we needed to give our other shareholders the right to participate in the raise.” Farquhar is taking an active interest in SafetyCulture, spending last weekend working with the team at their offices in Townsville. “Normally I would meet up with Scott in Sydney and with the launch of our Sydney office on December 1, it means we will be even closer to him,” Anear says. And there is a chance Farquhar could become a more permanent fixture at SafetyCulture, with Anear open to the possibility of the entrepreneur taking a seat at the company’s board table. “It’s quite possible, it just depends on what we need at each stage of our growth,” he says. SafetyCulture is the developer of a number of workplace safety and management apps including iAuditor, which allows workers and employers to complete mobile safety audits. To date, more than 10 million audits have been completed by users. The company now employs 45 people, including former Atlassian senior engineer Anton Mazkovoi, and Anear says the team is close to “turning on our revenue model”. Anear says the latest round of funding will give the company “a little more time” to work on rolling out its revenue model, as well as support the release of its next accident management app and expansion of its cloud-based services. “Anton Mazkovoi has recently joined us, and as the fourth employee at Atlassian, he has seen the whole movie before,” Anear says. “Having someone like that helps us to focus on the areas that matter the most. Having a great engineer attracts other great engineers.” Anear says the support of entrepreneurs like Farquhar can put a new business “on the right track”. “Certainly when you start getting traction, a lot of people want to give you advice and it can be overwhelming,” he says. “But the advice you get from someone who has built a $1 billion company is different to the advice you get from other people … what Scott says resonates on a fundamental level.” This article was originally published at SmartCompany.
For the last decade the startup industry has been “envied, pilloried and lots of other things but it hasn’t been understood”. It’s a lament that led to angel investor Alan Jones, also chief growth hacker at BlueChilli and investor at Startmate and Blackbird Ventures, to invest in the popular web series That Startup Show, which he believes has the potential to play a major role in making the startup industry more accessible to the wider population. Jones participated in That Startup Show’s first round of investment as it negotiates with online media channels about possible distribution deals. “I believe in the team’s ability as great storytellers, and that’s fundamentally what I’m backing,” Jones says. “It’s not my first entertainment product investment, I’ve also invested in some documentaries and short films, but for me this combines two of my great passions: startups and great storytelling. “Engaging with the broader entrepreneur community is vital if we’re to continue the momentum we now have in Australia’s startup industry.” Joining Jones as an investor is Digital4Age, a startup accelerator run by entrepreneur and angel investor Jamie Pride. “Digital4Age is excited to be involved with That Startup Show,” he says. “We love the concept and the energy of the team, and it’s great to be playing a part in the startup community in Australia with a media platform that has a great deal of potential in the media space.” That Startup Show co-founder Sally Gatenby says the funding will be used to complete the remaining four episodes in 2014, set to be filmed on the November 24, 25, 26 and 27, and to build out its platform of online and event content. "There’s been a lot of interest internationally to replicate this overseas on a local level, and creating events around it too," Gatenby says. For tickets to That Startup Show, head over to its Eventbrite page. Follow StartupSmart on Facebook, Twitter, and LinkedIn.