In my last article I responded to an interview in Vox with Marc Andreessen. Andreessen lamented that, in spite of a historic gold rush in technology companies, the IPO is dying in the United States due to zealous over regulation in the form of Sarbanes–Oxley, for example. As a result, the general public is missing out on the incredible gains that were experienced in the listed US technology companies of yesteryear. Yes, the regulators have gone too far and it is creating serious friction in the IPO pipeline. However I argued that perhaps the real reason that technology companies appear to Marc to be listing later and later is because, not surprisingly, the top venture capitalists are keeping these returns all for themselves. It's been a relatively recent phenomenon that US technology companies have been waiting longer and longer to go public. In the US, technology IPOs of yesteryear companies went public much earlier, with market capitalisations in the hundreds of millions of dollars instead of the tens of billions. As a result, the general public had the ability to share in the spectacular returns that technology companies can generate over time as software eats the world and industry after industry is being wholesale remapped and reshaped, with revenue growth at a speed unprecedented in history. Even though eBay's share price went up a spectacular 163% on opening day, if you bought shares on market after this rise and held on until today you'd have made over 3500%. If you bought Amazon the day after it listed, you'd be up over 27,000%. If you'd bought Microsoft at IPO in 1986, you'd be up 66,500% today and 3000% in the first eight years alone. Unfortunately for investors in the US, the general public is missing out. You only have to look at Facebook listing at $104 billion and Twitter listing at $24 billion to get a feeling for just how late these companies are going to market. So who is making all the money as the stocks go from the tens of millions of dollars in market capitalisation to the tens of billions? The answer, not surprisingly, are the venture capitalists. You can't blame them for doing so, because of course their business model is to make as much money as possible for their limited partners. There is another stock market, however, outside the US that is not subject to Sarbanes–Oxley and where technology listings are about to boom. This market is already quite a large market for equity capital issuances. In fact, as much money was raised there in the last five years as NASDAQ. The only problem from a technology company perspective is that most of the money raised there has been for resources companies. I am, of course, talking about the Australian Securities Exchange. Now let me tell you how this has all come about, and why now. There is a disaster in venture capital in Australia with only around $30 million per annum for the whole of seed stage investments, $40 million in early stage and $20m in late stage. AVCAL reports there were 16 "investments" done with this grand sum of $20 million in late stage venture capital in 2013. I am quite perplexed about how they defined "late stage" here, because the very definition of a late stage round size is usually greater than $20 million in one single investment, let alone 16. The only conclusion I can make is that these investments were triaged into bleeding zombie companies – hardly a sign of a successful late stage industry. Either that, or AVCAL has now taken up reporting of late stage investments to include lemonade stands. Atlassian, one of Australia's most successful technology companies, just raised $US150 million in a late stage round. The entire Australian venture capital industry simply isn't big enough to fund that single round. In addition to the lack of venture financing, a major terraforming of the economy is needed. Although we have $1.5 trillion dollars in the fourth largest pool of retirement funds (superannuation) in the world, these funds don't invest very much in Australian venture capital because none of the VCs to date have demonstrated that they can generate a return. It's hard to claim that venture capital is even an asset class in this country, as it's missed every single major technology success story this country has produced all the way back from Radiata: Atlassian, Kogan, Big Commerce, RetailMeNot, Campaign Monitor, OzForex. The list goes on and on. For the life of me, I can't think of one they actually invested in. The funds being invested into Australian VC come roughly equally from corporates, government and high net worth individuals. Corporate investment in VC in Australia is in decline, and with the government recently turning its tap off with the cancellation of the IIF program, I don't see a path to resurrecting a domestic venture capital industry any time within the next decade or two without a serious change in philosophy, which is not going to come from either of the two major political parties. The incumbent Liberal party is currently implementing a program of austerity, and the previous Labor government was, at best, only interested in trying to win union votes from bailing out the inefficient and dying local manufacturing sectors. The biggest impact Labor had on the sector during their tenure was to change the laws on the taxation of option schemes, which wiped out the primary incentivisation mechanism for the technology industry (and, ironically, the primary means by which wealth is redistributed from owners to workers). While I personally was not sorry to see the IIF go, I was hopeful that the axing of the program would be replaced with something more effective for financing technology companies down under. A better way would be through taxation reform for investors in qualifying risky technology ventures –front-end relief in the form of tax credits or a reduced rate of tax and back-end relief in the form of capital gains tax reductions or exemptions like the UK's Enterprise and Seed Enterprise Investment Schemes. At the end of the day, the Australian government only provided $25 million a year into the IIF program, which is paltry when you consider Singapore, with a population of 5.4 million, has committed $SG16 billion ($US12.8 billion) into scientific research and development over a four year period from 2011 to 2015. So how are Australian companies getting financed? Whilst the big US VC brands like Accel, Sequoia, Spectrum and Insight are actively prospecting down here, they are mostly just looking for cheap deals by value investing in late stage companies outside the hot money Silicon Valley market. The investments that they have made to date, and which have been trumpeted in the media, have for the most part been majority buyouts or exits (Campaign Monitor, 99designs, RetailMeNot, etc). A notable exception to this has been Accel's investment in Atlassian. However, the lack of funding has not deterred Australia's entrepreneurs from building world class technology companies. Instead, they have focused on raising funds from the best source possible: selling something valuable to their customers. This story continues on page 2. Please click below. Almost all of Australia's best technology companies have bootstrapped all the way through. Those that did take outside funding, for the most part, didn't take it until they reached quite a late stage. As a result, we have some very well run technology companies, and some world class companies in the making. Although I am pretty active in the startup community, every second week I am shocked to discover yet another Australian technology company that I have never heard of generating $10 million, $20 million, $50 million or more in revenue per annum. Until recently, I had never heard of companies like RedBubble, Nitro, and Pepperstone. The latter of which has, in just three years, become the 11th biggest forex broker in the world, turning over $70 billion a month through their online platform). Because the Australian technology industry is mostly bootstrapped, it took longer to get here, but coming down the pipeline are an incredible number of great technology companies. So if the Australian VC industry is dead, then how are these great companies going to raise funds when they need them? Well, I believe the answer is staring them right in the face. It's called the Australian Securities Exchange (ASX). After all, what better way to fund a company than by crowdsourcing it? This is what the resources industry already does today, via the ASX. If you have an early stage speculative mining company, you don't go begging down Coal Hill Road pitching to mining VCs and spending six months negotiating a telephone directory thick preferred stock structure. No, you write a prospectus detailing what you're going to do with the money and list it on the ASX. Likewise if you're BHP or Rio Tinto, you can go to the ASX and the market is deep enough to raise billions. Crowd sourcing equity from the public has been done successfully for decades in resources. The ASX is in the top five globally for the total amount of money raised for equity issuances from 2009-13. There is no Sarbanes–Oxley in Australia, and listing costs are quite low. (In Freelancer's IPO, the underwriting fees were $450,000, legal fees were around $100,000, and investigating accountants cost about $50,000.) Why go to a venture capital middleman unless they are a rockstar with solid operating experience that can add demonstrable value in some way? I believe that Malcolm Turnbull will bring in legislation to allow the general public to crowdfund early stage ventures without a registered offering document, as is starting to happen elsewhere around the world. This will generate further interest and appetite in investing in technology companies from the general public which already actively takes a punt on speculative, early-stage mining companies (not to mention the Melbourne Cup). At the moment, to invest in companies without a registered offering document you need to be a "sophisticated investor", which is curiously defined as a person having income of $250,000 per annum in each of the last two years, or net assets of $2.5 million. I don't know why being rich makes you automatically sophisticated, and being poor means you’re incompetent with your money, but I'm sure that something sensible will happen here. If, by miracle, we see some taxation relief for technology investments, then this will be accelerated. But I'm not holding my breath, even though the Australian government used to provide some form of taxation relief for investors in the mining industry. When we were considering listing Freelancer on the ASX, many people gave us the usual regurgitated responses as to why it wouldn't work; investors here don't understand technology and that we would trade at a discount compared to US markets. Professor George Foster from Stanford Graduate School of Business showed some time ago that country specific factors were a lot less important than company-specific financial statement-based information in explaining valuation multiples in an international setting. Markets are increasingly globalised. It's almost as easy for a US investor to buy Australian shares as US ones. Money flows to where it gets the greatest return for a given risk profile; basically if arbitrage exists, someone will take it. Our stock going to $2.50 from a 50 cent issue price in the biggest opening in the last 14 years and third biggest opening ever on the ASX for an issuance larger than seed size is testament to the amount of pent up interest amongst the general public to invest in technology. We took a calculated risk – nobody wants to be the first to try something new. But so far it has paid off. It’s great to see the sector now heating up with recent listings from companies like Ozforex, iSelect, iBuy and MigMe (up 95% yesterday on their IPO, and like I did, broke the bell), and with WiseTech Global, Vista Group, 1-page, Covata, BPS Technology, Grays Australia imminently coming down the pipeline. I suspect Ruslan Kogan will also be considering his options given the tremendous effort he has done bootstrapping Kogan to date. What surprised me is that the process was significantly easier, quicker and resulted in a more equitable and transparent capital structure than what I have experienced in any of the dozen venture capital financings I have been involved with in the past. Projecting forward, I think that the ASX will be the primary way in which technology companies raise equity in this country in the future. The ASX realises this as well, and is moving to position itself as a regional hub for the Asian technology sector. If it is successful—and I think there is a good chance it will be—it will cover a massive market. There are significantly more people in Asia (with dramatically rising incomes), significantly more micro, small, and medium enterprises (MSMEs). It’s a much bigger market for many industries, and there are a lot more mobile phones than the US, to draw comparison to just a few metrics. The ASX is in a fantastic position to capture this opportunity. In the second half of 2013 a total of 14 technology companies listed on the ASX. Since January 2014 there has been 55. In the entirety of 2013, a total of 59 companies were financed by Australian venture capital. This is the future for financing technology companies in Australia. Matt Barrie is chief executive at Freelancer.com
Kapcher, an online community marketplace for photographers and videographers launched just over two weeks ago, is in the running to take out top honours in the eCommerce category of the Global Startup Battle. The Global Startup Battle is an international start-up competition of Startup Weekend graduates. Currently, start-ups are vying for popular votes to make it into the top 15 start-ups, which will then be assessed by a judging panel with the top three accessing prizes. The eCommerce category is led by the founders of BigCommerce, and the overall winner will be able to be mentored by their team in the US for a month. Kapcher founder and chief executive Thai Huynh pitched the idea at the recent Sydney Startup Weekend after realising he wanted to get involved in the start-up community. “I realised that my start-up dreams required action. If I wanted to get into that world I needed to get involved. I went to the weekend in order to learn and network, but we got into the second round, and suddenly I had a team and we decided to go for it,” Huynh says. Huynh is currently recruiting developers to build a minimum viable version of the outsourcing platform which he plans to launch within three months. He adds a challenge will be differentiating between Freelancer.com and oDesk, which include photography offerings. The platform will include the functionality for photographers to showcase their portfolio. “The main difference is these platforms don’t focus on photographers and videographers. We want to focus on a niche market,” Huynh says, adding the idea for the platform emerged from his own struggles to use the larger platforms effectively for his own photography practice. Kapcher will trial a transaction fee as their primary revenue source when they launch. They’re currently recruiting the talent side of the marketplace, as Hunyh says getting this part right is critical to their chances of success in a crowded marketplace. “Our strategy right now is to get in touch with as many photographers as possible as better suppliers are key to our success,” Hunyh says. “My first step is to reach the small to medium businesses and these are the ones with needs and a little bit of money. They need corporate shots and introductory visits but they’re not ready to fork out thousands.” There are already two customers using the assembled freelance photographers. He adds they’re not counting on a win to make the start-up work. “Our main purpose is to use the competition as leverage, to get ourselves out there and to test the idea and see how far we can go with it. Our goal right now is to get beta users signed up and to start contacting businesses to get our first users,” Huynh says.
New stats reveal creative freelancers are struggling: Are platforms such as 99designs and Freelancer.com to blame?12:24AM | Tuesday, 3 December
Independent consultants hoping to earn a full-time livelihood from their creative talents are facing steep challenges sourcing demand and staying financially viable, according to new research. Commissioned by The Loop, an online networking platform for professional creatives, and conducted by the Lonergan Research group, 1127 creative sector freelancers in Australia were interviewed earlier this year about their work challenges. Almost all freelancers (97%) had worked more hours on a project than they costed for, and more than half (56%) have taken on more junior freelancing work in order to stay afloat. Almost half (47%) have not been paid in full for their freelance work at one time, and for the average freelancer interviewed, incomplete payments occurred 11.5% of the time. The co-founder of The Loop, Pip Jamieson, told StartupSmart they launched the research project after spotting a growing divide between businesses and freelancers. “We noticed that there was a mismatch between what clients wanted and the freelancers they were getting. Price is always a significant point in any deal, but clients increasingly want someone they can rely on,” Jamieson says. “We also were hearing more and more stories from freelancers who were having a really tough time.” Jamieson says the rise of outsourcing and crowdsourcing platforms has transformed the environment for creative freelancers, not necessarily for the better. “Businesses really love platforms like 99designs and Freelancer.com, but a lot of our freelancers find them very hard to make a living from,” Jamieson says, adding the fact so much creative work gets discarded debases the design industry. With outsourcing and crowdsourcing platforms continuing to grow rapidly as customer demand increases and these new models strengthen and consolidate their offerings, it will ultimately come down to creative freelancers to create the careers they desire. “For creatives, there needs to be a bit of a movement where they value themselves better, and ask for what they’re worth. They need to set a benchmark within the community about what they’re worth, and people don’t know how much to charge as a designer and producer,” Jamieson says. 99designs spokeswoman Emma Maidment told StartupSmart they pay out over $US2 million a month to designers and the platform processes were designed to address many of the issues that emerged in the research. “The scope of every project is defined up front. It is managed through a group discovery process, followed by a clearly defined project completion workflow,” Maidment says. “Our 1-to-1 project tool allows a designer to engage in project work with a customer, agree to the scope upfront and have 99designs take the prepayment, which is then released to the designer once the customer indicates that the agreed project deliverable has been received.” Freelancer.com’s regional director of North America and Oceania, Nikki Parker, told StartupSmart Freelancer firmly believes they are opening up new opportunities for freelancers and notes the way people work is evolving rapidly. “Creative freelancers need to think differently in today's world and turn everything on its head. Our power users on Freelancer are actually western world graphic designers and web designers. They are using our site to move up the value chain,” Parker says. She adds creative skills are highly valued in the start-up and tech industries, and that the location of creative talent still matters. “The difference between Airbnb and a website that makes no money is design, plain and simple: it's all about user experience, interface design, usability, behavioural psychology, and so on,” Parker says. The research also found that, on average, creative freelancers work on 2.2 projects at any one time, 69% of freelancers feel they’re a valued part of their client’s team and 60% said they were happier freelancing than in full-time employment.
It often surprises casual observers that the annual BRW Young Rich edition counts the 100 youngest self-made entrepreneurs under 40. After all, in most industries, awards for ‘rising stars’ and the like cut out at 25 or 30. The reason BRW has to give people 40 years to shine is simple: hardly any businesspeople make a killing by 30. A list cutting off there would be dominated by sports stars and celebrities. And for a business publication, that wouldn’t interest its readers as much. Almost all of the Young Rich 2013, unveiled in the magazine’s flagship edition out this morning, are aged from 30 to 40. The youngest person on the list, MotoGP rider Casey Stoner, is aged 27. SmartCompany spent a fascinating morning dissecting the latest list. Here’s what Australia’s youngest millionaires have in common. Life’s work Most of the Young Rich are entrepreneurs, who started companies and over years helped grow them. Apart from the sports stars and celebrities, there are few employees on the Young Rich. Thanks to Nathan Tinkler dropping off the list this year, there are now two more. Todd Hannigan and Tom Todd made their $84 million joint fortune by leading Nathan Tinkler’s Aston Resources before it listed. In 2011 they lost their jobs, but were given six months’ pay and a whole lot of stock in the process. They sold their stock before things got rocky for the sector. This must be especially galling for Tinkler. BRW doesn’t think his assets exceed his debts. He didn’t make the $18 million cut-off, leaving him entirely off this year’s list. Around this time in 2011, Tinkler was valued at $1.13 billion. Most of the Young Rich have had a good year. Exactly half increased their wealth this year, while only 16 lost wealth. The rest were more or less steady. Tech tricks The full Rich 200 list, for which there is no age limit, is dominated by property developers. But the Young Rich has few of those. Over one in three (34) of the Young Rich made their money in technology, of which 22 were web entrepreneurs. In the top 10, eight started technology companies. These include Atlassian founders Mike Cannon-Brookes and Scott Farquhar, steady at number one with a joint fortune of $550 million. They were pegged at $480 million a year ago. The fastest-rising names in the top 10 are Ruslan Kogan, of Kogan.com, who more than doubled his fortune to $315 million, and Freelancer.com chief Matt Barrie, who’s risen into the top 10 with $185 million (he was pegged at $50 million last year). Both companies are looking at listing on the ASX in the near future, which could see their founders get a lot richer if all goes well. Reinvesting the profits If so, they’d be some of the few Young Rich-listers to turn their business success into serious disposable income. For most of the Young Rich, their wealth is ‘paper money’. They own large stakes in highly successful businesses. If those businesses list or are sold, they can cash in some of that ownership. Until then though, many of the Young Rich are fanatical enough to keep most of their wealth tied up in the one thing. For example, at Kogan.com, the online electronics retailer, shareholders Kogan and David Shafer reinvest the profits every year. Shafer told BRW their remuneration was on an “as needs” basis. “Building something is much more exciting,” he said. Perhaps this need to reinvest profits is driven by Australia’s low venture capital spend. According to a recent PwC report, there is less venture capital available in Australia, relative to our population, than in Israel, the US, Norway, Switzerland, Demark, Britain, or France. When capital to expand isn’t readily available, revenue can be the best source of funds. Slim pickings for women As always with Australian rich lists, there are few women wealthy enough to make the cut-off. Only seven women make the Young Rich, of which the wealthiest is Carolyn Creswell ($55 million), of Carman’s Fine Foods. The next wealthiest is Erica Baxter ($40 million), who is in the process of finalising her divorce from rich list-fixture James Packer, which could see her secure another $100 million according to recent reports. Other women on the list are Lilly Haikin ($40 million held jointly), who bought chocolate café chain Max Brenner to Australia, PageUp People founder Karen Cariss ($25 million held jointly), golfer Karrie Webb ($22 million), MyBudget founder Tammy May ($20 million), and model Miranda Kerr ($18 million). This story first appeared on SmartCompany.
Online beauty retailer Lust Have It has outlined three distinct models of subscription commerce, or sCommerce, after revealing its subscriptions have grown more than 1000% over the past year.
The University of Sydney Union’s Incubate program has selected the eight successful start-up teams who will use $5,000 grants to develop their ideas over the university’s summer break.
Global Entrepreneurship Week has kicked off with a bang in Australia, with a lengthy list of events tipped to provide plenty of inspiration for aspiring entrepreneurs.
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.
The University of Sydney Union has launched a development program in the hope of identifying high-potential start-ups on campus, securing entrepreneur Matt Barrie as a mentor.
Australian Christian youth website Fervr.net has won the religion and spirituality category at this year’s Webby Awards, while Freelancer.com and Huaweimobile.com.au were also recognised.
Eight Australian websites have been nominated for the 16th annual Webby Awards, which attracted 10,000 international entries, including Freelancer.com, Fervr.net and StreetAdvisor.com.
iiNet founder and chief executive Michael Malone has told Australian start-ups “it’s all about the product”, after being named 2011 Australian Ernst & Young Entrepreneur of the Year.
Perhaps ironically for someone whose business relies on outsourcing tasks Matt Barrie has a very do-it-yourself approach to entrepreneurship.
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.