In a true, thriving startup ecosystem, venture capitalists understand failure, according to Steve Blank, the academic and entrepreneur who popularised the lean startup movement. “In the US, this is kind of funny. When I used to get asked that question I’d change the subject by saying isn’t that Bill Gates over there? And maybe change the topic,” Blank says. “In the last three or four years every VC in Silicon Valley needs to give lip service to lean startup. It’s changed dramatically. “Whether they explicitly believe that failure means experience, I say hell yes. I think that is the nature of an entrepreneurial cluster. Now if you fail three or four times in a row they stop returning your phone calls. But a single failure, does not put you out of business.” According to lean startup methodology, startups are able to “fail quickly” and learn from those mistakes to make the necessary pivot required to find a successful business model. Blank was speaking at the Australian Sports Technology Network’s annual conference in Melbourne yesterday. He says when he created his seventh startup, Rocket Science Games, he had his own experience of failure. “I made it onto the cover of Wired magazine. There I am, hot stuff: ponytail, baseball cap, kind of embarrassing my kids, still cringe when they see it. I was riding high – 90 days later I realised I’m going out of business,” he says. “I’ve raised $35 million. Still the world thinks it’s great. Heading to the ground, I call my mum and I say, ‘Hey mum, I just lost $35 million’.” He went on to tell his mother, a Russian immigrant, the two venture capitalists who had invested that money gave him $12 million to start his next venture. “She said in Russian, ‘They told us the streets were paved in gold in America, it must be true’,” Blank says. “I tell this story only because what happened was the VCs really did believe failure equals experience, and I returned a billion dollars each to the two VCs who gave me that $12 million. “And by the way, that’s not a Steve Blank story. That’s a Silicon Valley story. That’s an entrepreneurial cluster story. “Smart VCs, when you have a cluster, believe that entrepreneurship is not just execution. You’re betting on the team, on the people, on the passion, on the vision and sometimes on the circumstances. “When you can’t get them to believe failure equals experience, you don’t have the right culture yet.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Innovation is putting yourself in the path of change, according to startup academic Jerome Engel. He believes those best placed to do that are the young, and Australia needs to do all it can to encourage young people to become entrepreneurs. Engel is the founding executive director of the Lester Center for entrepreneurship, at the University of California, Berkeley, and was speaking at the Australian Sports Technology Network’s annual conference in Melbourne on Tuesday. “You don’t create change, but you can ride change and turn it to your advantage, to society’s advantage, to your business's advantage,” he says. “Put your effort into it, and harvest the process of change, or get run over it.” Engel has worked in the venture capital industry in Silicon Valley for a number of years before turning to academia and remains active venture capital investor today. He says it’s that experience, working in Silicon Valley for Ernst and Young specialising in venture capital and high growth startups, where he was able to learn a great deal about what it takes to create a successful startup cluster. He describes that period of learning as “drinking from a fire hose”. “I got to see a lot of cases, and recognise a lot of patterns,” he says. He says the challenge for Australia is to figure out its identity and, with the right conditions, it will be defined by entrepreneurs that are currently in university or high school. “The idea of being an intellect, but not just an intellect, a doer, someone who takes ideas and puts them to work, and creates new ventures around ideas, that’s cool,” Engel says. “That wasn’t true 20 years ago, it’s true today. These are the people that are going to shape (Australia’s) cluster of innovation. We have to find them, help them, energise them, give them the tools they need so they can help us, and we can help them succeed. “Those of us over 40 know what the world is. But it’s not clear to us where the world is going. Find somebody who’s 18. They’ll tell you what the world is going to be like with some clarity.” Engel suggests that what he saw in Silicon Valley was the development of industries in a context in which it didn’t belong. “What you are is not what defines you, but its what you can be,” he says. “We want to engage with those who take knowledge and put it to work – the entrepreneurs. We have to give them the support that they need, I’ll call that venture capital, you can call it financial services, it can come from any source, not necessarily organised venture capital. And we have to engage the major corporations to be the partners with entrepreneurs. “Typically we look at major corporations as stakeholders, as incumbents, who will see the insurgents – the entrepreneurs, as the enemy. No longer. The incumbents need to help capture value from the entrepreneurs and they can only capture that value if they share that value with them. “That’s a secret ingredient. Other ingredients are management teams, professionals and governments that are enabling.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Adviser Ratings, a platform that lets users review their financial planners has launched, hoping to rebuild consumers’ faith in the sector. The startup, armed with a database of 18,000 financial planners, is offering a Rotten Tomatoes-like service for people wanting to find a financial planner, and those who want to review one. It’s currently limited to Australia, but co-founder Angus Woods says the team is looking to take the platform overseas as soon as possible. Adviser Ratings will give each of its 18,000 financial planners an ‘adviser’ rating, which will be based on their qualifications, experience in the marketplace, and compliance. In addition advisors will also be given a customer rating, which will be based solely on customers’ reviews. Woods says there’s been a need for such a platform since the global financial crisis. “There’s a crisis of confidence in the financial planning space,” he says. “Adviser Rating is about rebuilding the trust and confidence in the industry. The number of people that use financial advisers in Australia in dwindling. It’s our aim to help grow that pie.” The platform conforms to Australian Competition and Consumer Commission guidelines, and as such it has a number of mechanisms in place to prevent astro-turfing and similar practices. That’s achieved by a combination of manual and automated checks of things like email and IP addresses. Whenever a negative review is posted the subject of the review is given a period of time to respond to the criticism, before it goes online. Customer reviews aren’t your typical one out of five, with a short spiel, like you might see on the Apple App Store. Woods says the startup worked with economists and psychologists to develop a survey of three to four minutes for reviewers. The platform will continue to be available for free to users looking for a financial advisor, or wanting to review one, and monetisation will centre on building “value adding” products which can be offered to financial planners. Woods says he and his co-founder Christopher Zinn have funded the startup themselves, but they’re currently finalising an investment proposition, which they’ll be taking to investors in the near future. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Every parent of school-aged children is familiar with the dreaded permission slip. Melbourne-based startup ParentPaperwork wants to remove those paper-based permission forms from education altogether. It has developed a platform that allows schools to create an unlimited number of customisable forms and uses a combination of email and secure webpages to capture parents’ responses. Co-founders Fiona Boyd and David Eedle came up with the idea in 2007, but back then, it was met with little enthusiasm from schools. Last year, when Boyd was fed up with the amount of school permission forms they needed to complete for their three children, 32 in an eight-week period, they decided to try again. After a soft launch in June, ParentPaperwork has 14 schools signed up as paying customers and another 38 signed up as part of a 30-day free trial. Boyd says the feedback from customers so far has been great. “One of our customers, Melbourne Girls Grammar, tracked very carefully the parent responses, and during their first week of using the platform, they sent a notification out at 9am on Friday. They had a 56% response on that activity by lunchtime and they said there’s no way we could achieve that with a paper-based system,” Boyd says. “On average we’re seeing half of the parents completing and submitting their online forms within 24 hours.” Getting a quick response isn’t the only advantage of the system. Boyd says a school with around 600 students would save between $27,000 and $32,000 in teachers’ and administrators’ time, as well as the cost of printer paper and toner. The startup is also about to launch a new platform, targeting the aged care market, which they see as another industry where permission forms are a pain point. That platform is being trialled with Homestyle Aged Care, which operates 10 facilities in Victoria. Boyd and Eedle have bootstrapped ParentPaperwork, with about $60,000 from friends and family. They’re currently searching for seed investors. Boyd says that capital will be necessary to help accelerate growth; although she’s confident with some more of their own funding the duo can bootstrap it to a point where it’s cash flow neutral, and eventually cash flow positive. In August, Parent Paperwork won Startup Victoria’s first pitch event and scored a sit down with Gavin Appel and Dan Krasnostein from Square Peg Capital. Boyd says it was a great experience and loved working closely with other startups. “Getting insight from other startups is really, really valuable and so much more credible than from those not doing the journey themselves, well at least at the very early stages when the going is tough,” she says. “This is really significant to us as the whole pitching thing is something we didn’t feel so comfortable with and the four training sessions we did with Nic Hodges and Nick Rakis were brilliant in helping us refine our message to talk about what matters to an audience in a pitch. (Startup Victoria’s) Thomas Anbeek did a great job pulling the training sessions together and encouraging all the companies.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Venture capital firm OneVentures has announced the first close on its Innovation and Growth Fund II, which is set to inject $100 million into the Australian Series B and Series C venture capital landscape. The company has raised $60 million to date on this round and is ready to start investing. OneVentures managing director and chief executive officer Michelle Deaker says it’s well on the way to its $100 million target. The fund will focus on startups in the fields of healthcare, education, mobile, media, cloud computing and data, sensors and robotics, and food security, that are looking to raise between $5 and $20 million. The investors, high net worth individuals and family offices, are mostly from Australia. Deaker says that is evidence that these types of investors are acknowledging a “dearth of capital” in this section of the market. “The rapid rate at which the fund has attracted investment from high net-worth individuals and family offices reflects the strong appetite for opportunities in high growth-technology companies in Australia,” Deaker says. “What often happens in Australia is family offices and high net worth individuals; they go where they see a market opportunity left behind by someone else.” The market opportunity, she says, is created by the fact that there are barriers to superannuation funds investing in venture capital. She adds that investors were also attracted by the results of OneVentures first fund, the OneVentures Innovation Fund. “The carrying value of the investments of that fund is two-and-a-half times (initial investment) and that doesn’t include the fact we have a likely exit for one company, that will likely return whole of investment,” Deaker says. That fund, worth $40 million, differed slightly from this latest fund, focusing on earlier stage companies. “OneVentures is intent on supporting innovation beyond the startup stage where there is a significant structural gap in the market caused by a lack of capital; meaning value investing is still possible,” Deaker says. “Capital raised by Fund II will be focused on investing in Series B and C stage funding where businesses are generally approaching profitability but need capital to build scale and fuel growth. “Often the entrepreneurs who run such companies are forced to move offshore in their search for this funding. At OneVentures we want them to have a quality onshore professional investment alternative.” According to the Australian Private Equity and Venture Capital Association Limited, venture capital and private equity funds have invested $30 billion into Australian businesses over the past 10 years. Deaker says that’s a small fraction of the money sitting in superannuation funds and with high net-worth individuals. “There is huge potential for Australia’s economy to enter a new and innovation-based era of growth as more of the money is mobilised through vehicles like Fund II.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Australian online fashion brand GRANA has just closed a $1.1 million seed financing round from Bluebell Group and a group of respected strategic and angel investors in Australia and Hong Kong. GRANA operates online only and deals directly with fabric mills, cutting out all middlemen, plus it ships direct from its new warehouse in Hong Kong where the entire team is based. Investors in the recent $1.1 million seed financing round include Bluebell Group – a large multinational retailing group that has been operating for over 50 years and represents over 100 luxury brands in Asia including Dior, Paul Smith and Jimmy Choo. Luke Grana, the startup’s 30-year-old founder, told Private Media that during a beta launch in May GRANA sold out a run of 2000 pima cotton t-shirts at $14 each, with the ‘prove points’ playing an important part in securing investment. “I reached out to investors and said ‘if I can sell 2000 t-shirts will you invest?’, and most said yes. We came off a beta launch and proved we could sell 2000 t-shirts, and then it’s just about closing the deal,” Grana says. In October last year, Grana moved from Manly Beach to Hong Kong to launch the company, with $150,000 in capital from previous ventures. “I’ve been working on the concept for over a year – it’s my fifth business. I thought of the idea when I was back in Australia. I was really annoyed at the quality of fabric in Australian stores and the prices were high. “I was visiting my brother in Peru and found out a lot about Peruvian pima cotton – a special type of cotton people say is the best in the world. It’s extra-long staple, making it more comfortable and durable than regular cotton. “I came home with pima samples and gave them to friends and family to wear. I didn’t know a lot about fashion so I worked for Zara for three months and took a job at French Connection.” The cost of shipping packages in Australia was a key factor in the move. “Selling online-only meant I could sell good quality fabrics at a low price. I was annoyed with the prices Australia Post were quoting for shipping a 1kg box within Australia,” he says. “I always knew Hong Kong was a global manufacturing and mega-hub for logistics so I reached out to DHL in Hong Kong to form a partnership. “DHL offered us next day delivery to Australia at prices lower than Australia Post. They also have five planes going from Hong Kong to Australia everyday so they can offer us discounted rates due to their sheer volume. “Also, DHL were very interested in supporting GRANA as a new online only e-commerce brand. The other major draw card to move to Hong Kong is that we have the potential to ship to a global market.” GRANA currently ships products to eight countries and plans to open up shipping to over 20 countries soon, all direct from Hong Kong. Over the past two months, Grana has also hired a team of seven people to help scale the brand globally. Aside from expanding into new markets, GRANA will soon be releasing a full range of fabrics including Japanese denim jeans, French poplin shirts, Mongolian cashmere sweaters, English Oxford shirts, Irish linen shirts and USA twill chinos. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Aeeris, the company that operates Australia’s only national location-based weather and hazards early warning service, is seeking to raise $6 million through an initial public offering (IPO) on the ASX. Aeeris executive chairman and chief executive Kerry Plowright told Private Media the original idea for the company and its Early Warning Network (EWN) came in 2006, while he was working on an e-commerce collaboration project. “I looked out the window at storm clouds – this was a year that was a bad one for bushfires and natural disasters – and I asked ‘why doesn’t anyone warn people about disasters based on location’,” Plowright says. “So we spent the year in development and rolled it out at the end of 2007 with an operational system. It was the first system for severe hazards in the world, and it’s been in operation since then. Since launching, Plowright says there have been over 20,000 separate events the company has sent alerts for, covering everything from solar flares and bushfires to floods and cyclones. “No one understood what we were doing at first, so we made it free for the first two years. Brisbane City Council was one of our first customers. They piloted it for a year and then tendered that out. We won the tender to provide services for their residents,” Plowright says. The company now boasts 185,000 subscribers, over 43,000 app and Facebook users and over 100 paid corporate and government clients. It provides bespoke services across a number of industry verticals including local government, construction, mining, containers, heavy haul/freight and rail. The system delivers warnings through SMS, voice, email, push notifications, Twitter, directly into the client’s own IT systems. Aside from preventing loss or damage, this allows businesses to save money by continuing operations without being overly cautious. With company directors increasingly liable for the safety of their employees, it’s unsurprising the EWN has attracted interest both at home and abroad. “Initially, an IPO wasn’t on our mind, but with our company growing internationally and piloting successfully with a company in North America. We have huge opportunities, and we needed to resource those opportunities appropriately,” he says. “You could potentially go down the route of bringing in new investors, but [an IPO] was the cleanest opportunity for us.” Plowright says while he would not have been comfortable with taking a company to an IPO three or four years ago because it would have been a speculative investment, he now feels he has a mature business model. “We’re different to a lot of the tech companies you see out there, because we’ve got a rapidly growing revenue base. We have a mature and proven business model and over 100 customers,” he says. He also says assembling the right team and accurate costings going into the IPO has been “most important” as it has prevented a cost blowout. The IPO is being managed by Veritas Securities and the listing application for the ASX will be lodged in the next few weeks once the prospectus has approval from ASIC. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
ScriptRock cofounder tells entrepreneurs to “have an open mind” at startup events as Tech23 approaches10:13AM | Friday, 17 October
The cofounder of Australian IT DevOps company ScriptRock, Mike Baukes, says an open mind is the key to getting the most out of startup events such as Tech23, which can be an important networking opportunity for emerging entrepreneurs. Recently, ScriptRock successfully raised a $US8.7 million ($A9.8 million) in a series A round led by August Capital. Also participating in the round were Peter Thiel's Valar Ventures, Square Peg Capital and Scott Petry. Coming on the heels of the Tech23 being named for 2014, with the event taking place next week, Baukes told Private Media ScriptRock first attended Tech23 back in 2013. “We were invited to Tech 23, and we went there without really knowing too much about it at first. There were lots of people around – especially corporates – and many of them didn’t know about us. “So we were able to solidify our product, and we were also able to meet a couple of potential customers. We were introduced to AMP – who still use our product – and Telstra – nothing much happened with them – and it really lifted our profile. “From there, we went on a long journey using our existing customer base in Australia and then moving to the US, before launching a final version of our product in October last year.” An important step in that journey was being accepted into a startup accelerator program run by US virtualisation software company Citrix, a relationship fostered in part through Tech23. “What Tech23 did for us is facilitate a good relationship with Citrix. Before we went in we had won a Citrix Award and had been in talks about their enterprise-focused accelerator. But it was only really at the event that we were able to talk and then a few months later we ended up joining their accelerator. Baukes also has some advice for the startups at Tech23 in 2014. “From a personal development perspective, getting in front of a group of people you don’t know is one of the fastest ways to get validation for an idea,” he says. “The three keys are to identify the product, the market you are targeting and your point of differentiation. Your product or service needs to be well-defined – it needs to be something that is unique and different. It’s a point a lot of entrepreneurs and founders tend to forget. “Always go into these events open minded. Being open and candid can lead you to opportunities you didn’t expect.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Toowoomba hosting its first Startup Weekend: The challenges of building an ecosystem in regional Australia10:28AM | Friday, 17 October
The regional city of Toowoomba, in Queensland’s Darling Downs region, is set to host its first Startup Weekend event as its local startup ecosystem gathers momentum. The event is set to take place at The GRID hybrid arts collective at Level 1, 488 Ruthven St Toowoomba on November 14 to 16. It is one of 230 events set to take place worldwide between as part of Global Entrepreneurship Week, between November 17 and 23. It follows the formation of the Toowoomba Startup Group earlier this year, which was cofounded by local entrepreneurs Leanne Griffin and David Masefield. Aside from fostering innovative tech startups, the group also aims to foster social entrepreneurs who are working towards environmental, social and cultural outcomes. Masefield told Private Media the Toowoomba Startup Group is still in its baby stages, but has already attracted a strong response from the local community. “Startup Toowoomba came about through my own transition of an offline business to online. I looked online and noticed in the capital cities there were all these tech scenes and events for startups… I realised all these events were taking place where I wasn’t,” he says. “I noticed a lot of these tended to be focused around a coworking space. I recognised the one thing Toowoomba lacked was a coworking space and an easily recognisable ecosystem.” Masefield says he went along to GovHack and Startup Machine in Brisbane earlier this year, and organised to attend a few Startup Weekends. It prompted him to organise a few town hall-style meetings at the Toowoomba Chamber of Commerce for local businesses, entrepreneurs, councillors, and anyone else who was interested in fostering local startups. “I spoke to the chamber of commerce and they said they had a meeting space, so I made a date. Then I met people in the mentor space around town, explained what I wanted to do and invited to a meeting and set the meetings two weeks apart. “We also concede not everyone understands the startup world. The big innovations over the past decade mean people can start a company for a few hundred or thousand dollars that can become a global brand, and we want that to rub off on people.” The group now holds regular meetings with guest speakers on the last Wednesday of each month at 5.30pm at the Toowoomba Chamber of Commerce meeting room. It also hosts less formal get togethers at the Engine Room Cafe on every second Tuesday at 7.45am. According to Masefield, there is a lot of innovative work going on in areas such as agriculture and remote sensing in the local startup community. Looking to the future, he hopes to establish a coworking space in 2015. It comes as the district’s economy is set to boom as a result of major infrastructure projects such as the new Range Crossing, a planned high speed rail link, a new airport and a large new business park. “Toowoomba is set to explode – there’s over $11 billion of infrastructure projects planned for the district. That’s including a new private airport, which will be the first new greenfields airport in 50 years. It’s the first one since Tullamarine.” “We see it’s vitally important to focus on new technology and innovation in parallel to those projects. After construction finishes on major projects it can lead to a downturn. We want to have a plan in place for what we do afterwards,” he says. Masefield’s advice for those in other regional communities looking to get a startup group off the ground is “to just go out and do it”. “Do what you say you’re going to do, when you say you’re going to do it. If you promise three meetings, hold those three meetings… Those meetings will introduce you to likeminded people, who in turn can introduce you to other people who are interested.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
In order to help throw the spotlight on indigenous entrepreneurship, Indigenous Digital Excellence (IDX) is teaming up with Web Directions for a program that will showcase the work of seven indigenous entrepreneurs at the conference in Sydney on October 30 and 31. Over the past year the Indigenous Digital Excellence (IDX) program has been working to support the development of indigenous entrepreneurs. The initiative is a partnership between the National Centre of Indigenous Excellence and the Telstra Foundation, and its goal is to help Aboriginal and Torres Strait Islander peoples leverage digital technologies to increase their own and their community’s wellbeing. While support for the entrepreneurial community more broadly has increased over the last few years, IDX innovations and programs producer Angie Abdilla says there’s no real support structure out there at present for indigenous entrepreneurs. “There are so many reasons why it would be easier to just go and get a job,” she says. “Being able to create a support structure is really primary for us to able to ensure that these people are able to succeed and then become role models for our young ones.” Currently IDX operates a co-working space called the IDX Hub in Sydney which provides indigenous entrepreneurs with a space to collaborate and work on startup ideas. In the next few weeks IDX is running a robotics workshop for roughly eight to 12 children from Sydney’s inner west. “What we’re trying to do is create those long-term pathways,” Abdilla says. “And we have a cultural framework that we work from. We’re instilling a sense of culture, and being able to create those connections to new technologies through that. “It’s also being able to remember the wealth of knowledge we have as Aboriginal people ourselves, which is often something that’s completely been left out of the discussion. “We’re regarded highly for arts and culture but often our longstanding history of innovation goes unnoticed. We’ve been mapping the stars for 80,000 years.” When the first Web Directions conference was held 10 years ago, its organisers noted a distinct lack of diversity among its speakers, co-founder John Allsopp says. They were all male. Ever since, its organisers have worked hard to ensure the conference is as inclusive as possible. “Nobody called us out on it, but it’s something we thought was really important and subsequently have worked very hard to ensure there’s a good representation of diversity,” he says. “Part of the message is let’s showcase the work of indigenous entrepreneurs and let’s help build stronger relations between them and the broader industry. “It’s also to help let our industry know about IDX, and work out ways they might be able to support that.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Brisbane-based bitcoin BPAY startup Living Room of Satoshi has suspended operations, after the Australian Tax Office’s decision to treat bitcoin as property made its business model impractical. The startup offered a service free to users which allowed them to pay BPAY bills using bitcoin. It made a small profit based on the price movement on bitcoin exchanges. Now that Australian exchanges must charge users that buy bitcoin 10% of the amount being purchased, that is no longer possible. Co-founder Daniel Alexiuc says that development gave users strong reason not to use the service. “If an electricity bill costs either $100 in Australian dollars or $110 in bitcoin, there is a huge disincentive to pay it in bitcoin. It is basically economically infeasible to run the service in this way,” he says. “Or any Australian-based GST registered business for that matter.” The company had been growing steadily and was getting about $20,000 a week in bills up until the ATO’s bitcoin guidance announcement. Alexiuc says he’s not ruling out Living Room of Satoshi returning should the regulation of bitcoin in Australia change. “My primary goal was to build a useful and innovative startup for bitcoin-using Australians. We have only been open for a few months, and have been cut short from reaching our full potential,” he says. “So of course I invested a lot of time and money into the venture and it was not profitable yet. “I’d love to see Living Room of Satoshi make a comeback, but for bitcoin to be truly useful by business in Australia, it needs to be treated as money for GST purposes. “I plan to continue improving the service in the background and figure out a way to get it running again in anticipation of a change in regulation.” He’s hopeful the changes might not be too far off. “Bitcoin is a new concept that didn’t exist when the laws were written, so I am hopeful that regulators will treat it as something different, and not try to shoehorn it into existing definitions of money.” Despite the impact regulation has had on his startup, he’s still bullish about the future of bitcoin. “Bitcoin will not be affected by Australian regulations like these, it is an international currency that will continue its rise unabated,” he says. “But innovation in Australia will be affected, and innovative startups and companies may find it easier to just head overseas.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
A number of high profile data breaches will lead to a safer more secure cloud-based IT industry, according to ARKpX chief executive officer Andrew MacDonald. Earlier this week Dropbox confirmed that account details were compromised, not directly, but through “unrelated” third part services. It followed a similar situation for disappearing message startup Snapchat. Third party application Snapsaved.com, which asks users for their Snapchat accounts and passwords and allows them to save their snapchats, had 500MB worth of images stolen. Those breaches come at a time when the federal government is encouraging public service departments to take up the cloud. It released a new policy statement on the adoption of cloud computing services, which says government departments must adopt the cloud where it is fit for purpose. MacDonald says the rapid rise of the cloud computing, meant as businesses scrambled to take up the efficiencies offered by such services, they often did so at the expense of security. “The level of awareness in the marketplace about the importance of security is gradually rising,” MacDonald says. “About 12 or 18 months ago people were trading off usability and flexibility with privacy and security, and many cases were not realising the risks they were taking.” ARKpX, formerly Lockbox, was founded in Australia in 2008 and released a commercial cloud services product last year with security as part of its key offering. It has around 12,000 customers. MacDonald says many companies are now starting to realise that the encryption landscape is important. “I think you’ll find that in the marketplace in the next 12 month we’ll see a re-think,” he says. “A lot of the data out there on other platforms is to a large extent fairly poorly secured. Most of the encryption is minimal, relying on link encryption SSL: protecting the infrastructure rather than the data.” That’s where ARKpX sees its key difference. It offers client-side encryption of data. “For us, privacy really matters. If someone else holds the keys to your data then there’s no way you can be sure your data is secure.” If MacDonald is correct and customers start expecting higher security standards, then the big companies will start to enter ARKpX’s space. But he’s confident the startup has enough of a head start on its competition. “We’ve built up a fairly strong patent portfolio and we believe what we have is quite unique in terms of full client-side encryption,” he says. “Not only do we have a market advantage having already built a customer base, but we have protected IP, which is very important.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Australian startups and small businesses will generally be pleased with the proposed changes to the taxation of employee share schemes announced yesterday, but there are still a number of issues to be resolved before companies can start implementing new share and option incentives. Those involved in the startup sector will be well aware of the problems that the 2009 tax changes caused, especially for early stage companies for whom incentivising their employees with equity is critical, due to limited cash flow. The current rules impose income tax on employees ‘up front’, at the time they are granted shares or options, rather than when the options are exercised or when the shares are sold. There are some exceptions which can defer the tax, but many arrangements don’t meet the requirements for tax deferral. Yesterday’s announcement recognises the problems faced by startups and the fundamental difference in remuneration strategy for many startup employees, who accept a below-market-rate salary in exchange for a share in the potential upside of the business they are helping to grow. 10 key points from yesterday’s announcement 1. For all companies, employees will generally pay tax on options when they are exercised, not when they are granted. 2. For employees of ‘eligible startups’, tax on shares and options issued at a ‘small discount’ can be deferred until sale. The maximum period for deferral will be extended from 7 years to 15 years. 3. Yesterday’s announcement does not confirm what will constitute a ‘small discount’ and this will be a critical part of the details of the new rules. 4. To be an ‘eligible startup’, the company must meet three criteria: have under $50m turnover. be in its first 10 years. be unlisted. 5. Startup employees will need to hold their shares or options for at least three years to qualify for tax deferral. The new rules will need to allow for situations where employee equity is returned by later-round investors or an acquisition of the company within the three years. 6. It appears from the announcement that when employees sell tax-deferred shares or options they will be taxed at individual tax rates and will not be eligible for the 50% CGT discount. 7. The new rules won’t come into effect until 1 July 2015. Companies still need to be careful about promising shares or options to an employee. If a company gives an employee, today, the right to get shares or options in the future (even after 1 July 2015) that could trigger a tax liability under the existing rules rather than the new rules. 8. There is no indication about a cap on the amount of equity that a startup employee can hold and still be eligible for tax deferral. If the current cap of 5% is carried over to the new rules, it could cause issues for key early-stage employees and co-founders. 9. The tax valuation methodology for employee options is to be ‘updated’ - but it is not clear whether this will result in more favourable or less favourable tax outcomes. 10. The new rules should include an approved valuation mechanism for early stage startups, to avoid the cost and complexity of formal valuations. Yesterday’s announcement is good news, but there is still a long way to go. The startup community needs to work with government to make sure the final version of the changes allows Australian startups to retain and incentivise employees without the significant tax and compliance costs they currently face. Reuben Bramanathan is a senior lawyer at Adroit Lawyers. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
The Melbourne-based co-working space for game developers, The Arcade, is opening to the public for the first time at the end of the month. The not-for-profit co-working space was created about a year ago with the help of the Game Developers’ Association of Australia (GDAA) the Victorian government, Film Victoria and Screen Australia, to service the growing number of independent game developers looking for space to work. Founding member Liam Esler says it’s the perfect opportunity for the public to check out some of the exciting projects a number of Melbourne game studios are working on. It’s also a great chance for indie game developers looking for office space to check out The Arcade. Esler says the Melbourne game development scene has grown strong over the past few years, evidenced by the success of games like Framed and Antichamber, and the growth of The Arcade. “We went from four or five companies to about 19 now, just over a year later,” he says. “It started out as very informal and very community-driven, with the GDAA helping to providing funding from government sources.” Before moving into the co-working space, Esler had been working from home for Canadian-based developer Beamdog, and says the benefits of joining such a space are enormous. “I was working from home, going insane. I found out that this space was starting up, it was still relatively quiet at the time, and I joined on day two along with a couple of other companies,” he says. “It’s been incredible. If I’ve got a question from a tech perspective, if I’m working in Unity, I can just go and talk to some of Australia’s foremost experts in Unity at Tin Man games. “That kind of expertise is just invaluable as a developer. There’s also lots of knowledge when it comes to marketing and PR, which can be a huge problem, particularly with indies. Once they get to the finish line they think it’s all going to happen, but the reality is that’s just when it starts.” The Arcade open day will be held on October 30, between 1pm and 3pm. For tickets, head over to its Eventbrite page. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Sydney-based startup Blrt wants to change the nature of collaboration. Blrt is a communication and collaboration app available on iOS and Android that allows users to talk, point and draw over websites, images, and documents. Founder Anu Chakradhar says for too long startups wanting to facilitate collaboration have focused on collaboration in real-time, which he believes is the wrong approach. “The real problem is availability,” he says. “We want to recreate what happens in a face-to-face meeting, but not at the same time.” What that means is the conversation can be ongoing, with participants responding when they get the chance, with a higher level of interaction than email. Another advantage is Blrt conversations are tracked, which means people that are added to a project and need to get up to speed can be added to a Blrt conversation, and pretty quickly be on the same page as those who have been working on the same project since its beginning. “Think of it as a phone conversation. If we were just starting a project and talking about it, a month later someone new is added to the conversation, someone would have to sit down and write an email and explain the project to them,” Chakradhar says. “We could just add that person and they could hear and see what each person was seeing and their current thinking about what the project involves.” The startup recently introduced a new feature, Blrt requests, that allow people to set up Blrts on a computer, before continuing the conversation through the mobile app. Chakradhar says Blrt is targeting graphic designers, engineering, advertising and architecture firms, as well as the education and training sector. “Say you’re a graphic designer and want to send five images to a customer for feedback. Clients, especially in the small business space where they might be designing their website once every five or six years, don’t know exactly what they’re looking for,” he says. “They’re able to point and explain what they’re talking about, and it is much better for a graphic designer.” The startup has just opened a capital raising round and is looking to raise about $2 million to funds its growth. It has already raised investment from Sydney-based angel investors and is looking to bring the right investor on board, someone who might be able to help them break into some of those verticals. “It’s not just another way to communicate,” Chakradhar says. “There’s a fundamental difference in the thought process that people go through when creating Blrts.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Startup figures got the chance to lobby Prime Minister Tony Abbott to encourage superannuation funds to invest in venture capital, as well as open up equity-based crowdfunding, when he visited The Hub co-working space in Melbourne on Wednesday. While at The Hub, Abbott officially announced reforms to employee share option schemes and met with startups HealthKit and School of Life. Hub Australia founder and chief executive officer Brad Krauskopf was granted an audience with Abbott and Minister for Small Business Brice Billson, along with representatives from the venture capital industry, Startup Grind, Silicon Beach, That Startup Show, AngelCube, and the Founders Institute. During the meeting, the group congratulated Abbott and Billson on the changes to employee share option schemes that have been implemented as part of the government’s Industry Innovation and Competiveness Agenda. They also lobbied the government for more support. “How do we make it so that it’s easier for super funds to invest in venture capital? How can we get (equity-based) crowdfunding going as well,” Krauskopf says of the group’s concerns. “All these things are known issues. So in that sense it wasn’t new stuff, but we got the opportunity to communicate it.” Krauskopf says changes to employee share option schemes are an important first step from the government to support startups. Pollenizer chief operating officer Clare Hallam explains how the system currently works, illustrating why the changes are so important. “For a startup that has raised some angel money and now has a valuation of $1 million, it’s a challenge to motivate a new employee with equity. If you issue the shares the employee has to pay for them, you can give a payment summary for the value of the shares, but the employee will have to pay the tax at the point of issue. Not very attractive to the employee to pay tax on something that may never reach its proposed value,” she says. Australian Private Equity and Venture Capital Association chief executive Yasser el-Ansary is thrilled such a problem will no longer exist when the proposed changes are implemented next year. However, he adds while it’s a step in the right direction, more work needs to be done if Australia is to catch up to other developed countries and compete globally in key growth innovation over the long term. “Part of that will be ensuring that innovative businesses have access to venture funding at all stages of growth and that Australia improves its ability to translate and commercialise basic research into real products and outcomes,” he says. “We will be continuing to advocate for more policy changes to encourage greater private sector investment into this critically important part of the economy.” The government’s commitment to invest $12 million in improving the focus of science, technology, engineering and mathematics (STEM) subjects in primary and secondary schools was also announced as part of the agenda. That $12 million includes $3.5 million that will go towards providing greater exposure to computer coding in schools. Australian Computer Society chief executive officer Alan Patterson says that’s “most welcome” but much more needs to be done. “We must recognise basic coding as a foundation skill and build it into the national curriculum,” he says. “This needs to start at a young age, so that our students are better prepared and equipped to compete globally, as other countries such as the UK have these programs in place. “A focus on technology for students in schools means we need better professional development for teachers in the technology space. “ICT is uniquely dynamic – and will remain that way for the foreseeable future. Many of today’s young people will work in jobs nobody has even heard of today. This requires a lifelong approach to skills and education in the technology area.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
An Adelaide-based startup is looking to make it easier for businesses to turn regular customers into recurring revenue. Payhero, the latest product to be launched by software startup Getyo, is aimed at helping companies start their own recurring billing and subscription services. Co-founder Chhai Thach told StartupSmart Payhero is “filling the gap” left by services such as PayPal, Etsy and others by allowing businesses to set up and manage a subscription or recurring billing service. Thach says he has experienced first-hand how difficult and time-consuming it is to send out membership or subscription renewals. In a previous job he would first customise the invoice, generate the PDF from the members’ database and then somebody else would print it out and post it in the mail. In all, it was a very laborious process. “It’s an expensive task and for them to automate something like that would cost them thousands,” he says. “This automates the processes for the business as well as the customer. It frees up your time so you can enjoy things you want to do with your friends and family instead of worrying about the little things.” The startup is in an early stage beta and plans to build up “a really strong brand” before scaling accordingly. Thach says while smaller businesses and sole operators would benefit greatly from Payhero, the product is not aimed at a particular sector – big or small. “All sorts of businesses can take advantage of this,” he says. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
The likely end-point for Twitter’s “buy” button will be making it available to small and medium businesses around the globe, including Australia, according to the company’s vice president of global online sales Richard Alfonsi. The company launched its Twitter Ads service for small and medium businesses (SMBs) in Australia on Wednesday, allowing Australian companies of all sizes to advertise on Twitter for the first time. Last month Twitter rolled out its Stripe-powered “buy” button to select US retailers. “Right now it’s the early test phase. But it is another important format or call to action that an advertiser can use, giving consumers the chance to complete the transaction without leaving Twitter,” Alfonsi says. Small and medium businesses in Australia are already using Twitter to connect with customers. According to an internal study by Twitter that polled 1000 Australians who use Twitter at least once a month and follow a SMB, 61% said they discovered a new SMB on Twitter, and 31% went on to make a purchase from that business. Alfonsi says there are around two million SMBs in Australia, many of whom are already using Twitter, and the company’s advertising service is meant to compliment that natural engagement. “We think it’s a vibrant market and we’re excited about expanding our presence here,” he says. “Globally we’ve got millions of businesses on the platform, using it for free, and we’ve been working to convert them to Twitter advertisers. They can amplify the presence they already have. “I always advise clients, the folks who are working with us directly, that you need to be able to develop your own presence on Twitter. Find your own voice, be authentic and engaging in an active way. The next step is amplifying that with Twitter Ads. “There’s no real commitment, you put in your credit card, try the platform as a self-service. Decide what’s your goal, to get more followers? Drive traffic to a website? App Installs? Drive engagements on the Twitter platform. There’s a campaign flow that helps you do all of that in a really seamless way.” Advertising makes up a large portion of the company’s revenue. In its second quarter of 2014, revenue for the company totalled $US312 million, of which advertising made up $US277 million, an increase of 129% year-on-year. The launch of Twitter Ads in Australia continues the social media giant’s push to expand its advertising offering into international markets a space that’s important to Twitter’s growth. Markets outside the US account for 33% of the company’s total revenue. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
The federal government has announced funding for improved STEM offerings in schools, changes to employee share option schemes and 457 visas, as part of its Industry Innovation and Competitiveness Agenda. The government will unwind the changes made to employee share option schemes by the Labor government in 2009. The change, proposed to come into effect on July 1, 2015, will apply to all companies and will mean that discounted options are generally taxed when they are converted to shares, rather than when the employee receives the options. The government also says, in order to give startups more time to be competitive and succeed, it will extend the maximum time for tax deferral from seven to 15 years. In addition the government will allow employee share scheme options or shares that are provided at a small discount by eligible startup companies to not be subject to upfront taxation, so long as the shares or options are held by the employee for up to three years. Ingogo founder and managing director Hamish Petrie says the reform will resolve a problem that’s been a “huge headache” for Australian startups. “Under the old structure we’ve had to spend a ton of money on legal and accounting fees to put a legal scheme in place for our employees,” he says. “And it’s not just the money; it’s the management time that was basically being wasted on red tape. Having logical regulations in place mean startups and early stage companies like ingogo can use more time and resources to build new products and drive more growth. “Our international competitors in other markets haven’t had to grapple with this wasted time and energy. If Australia is serious about competing globally against other countries in this space, we need to get rid of these kinds of barriers.” The government also announced it will invest $12 million to improve the focus of science, technology, engineering and mathematics (STEM) subjects in primary and secondary schools across the country. Of that $12 million, $7.4 million will go to providing innovative mathematics resources for primary and secondary schools teachers, while $3.5 million while go towards providing greater exposure to computer coding across different year levels in Australian schools to expand the pool of ICT-skilled workers. In addition $500,000 will be spent on innovation focused Pathways in Technology Early College High School pilot program to “help develop the next generation of innovators and job-ready graduates”. StartupAUS board member Dr Jana Matthews says while $12 million doesn’t seem like much of an investment, she believes it’s important to celebrate the government moving in the right direction. “We’ve taken several steps forward, of course we can do more, and we will do more, but we need to celebrate successes,” she says. The government will also reform the 457 program for skilled migrants. Changes include streamlining the processing of sponsorship, nomination and visa applications to reward low risk applicants, and increasing sponsorship approval from 12 to 18 months for startups. Matthews says it’s hard to be sure what sort of impact those changes will have on startups, and says what’s really needed is a startup or founder visa, similar to the ones offered in Canada and the United Kingdom. She suggests that founders applying to approved accelerator programs could be provided with a pathway to permanent residency through such a visa. “I think those are exactly the type of people you want to see coming into the country,” she says. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Four health tech startup competition finalists take home a $10,000 prize, as local sector gains critical mass10:09AM | Tuesday, 14 October
The four finalists for the inaugural Janssen Health and Technology Challenge (HaTCH) have been named, with one of the judges saying Melbourne, in particular, is close to developing “a critical mass of ideas”. Each of the four finalists receives $10,000 to go towards the further development of their concepts. They will further workshop their ideas with the judges in a full-day session on October 30, before pitching their ideas to the independent judging panel on December 2 for a chance to win $100,000 to commercialise their idea. The judging panel includes World Medical Association council chair Mukesh Haikerwal and former General Practice Registrar Australia chief executive Amit Vohra. They are joined by Strativity Group Australia and New Zealand partner Cyrus Allen, Janssen Australia/New Zealand managing director Chris Hourigan and Muru-D’s Mick Liubinskas. Vohra told Private Media health tech and biotech sectors have the potential to create a long-term home in Australia, but warned it’s still early days for the sector. “For the first time, Australia is creating an ecosystem around health startups. A lot of innovative stuff comes out of Silicon Valley because you have a lot of startups in a small area,” Vohra says. “As with most entrepreneurial activity, it needs a critical mass of ideas and Melbourne for the first time is starting to experience this.” Vohra explains Australia has never been a natural hub for robotics because it never had a strong local robotics industry, and that much of the early use of devices such as Google Glass for therapeutic purposes has been in Silicon Valley. Instead, he says the key strengths of the local health tech and biotechnology sector centre around data systems, data analysis, information sharing, wearables and nanotechnology. “There’s a whole space around consumer wearables that kicked off in the past two years. Before that, there was the app revolution, and now we’re in the next phase of that, with wearables that log that information,” Vohra says. “The next phase gets more sophisticated, where the information gets sent back to your medical practitioner, rather than just collected for lifestyle purposes.” Vohra says another area Australian health tech startups are strong in is information sharing systems, which allow a patient’s electronics records to be stored in a single repository. “Another area, and not just in Australia, is around information exchange. There’s a huge amount of fragmentation in information sharing across the health system,” he says. “Your local general practitioner has a raft of information. But if you go somewhere else for a procedure, that information is sitting in a different silo.” Storing information in a single repository allows for better quality of care at a lower cost, according to Vohra. This is because each intervention, whether it is delivered through a general practitioner, a hospital or a nursing home, will be logged in a single system, allowing medical professionals access to more accurate and complete data about a patient’s health. The four 2014 HaTCH finalists, chosen from 40 entrants, are as follows: 1. Footprints: Falls in the elderly are often result to a deterioration of gait. The Footprint sensor will improve monitoring of gait levels and thereby allow intervening before a fall happens. 2. Life Picture: Chronic diseases involve changes to the molecular pathways of individuals. The Life Picture health monitoring system uses biomarkers and smartphone technology to improve early disease detection. 3. Respiro Flu Test: Seasonal influenza kills more Australians than car accidents. The Respiro Flu Test is the first non-invasive ultra-sensitive test for influenza infection in children and adults. It takes less than 20 minutes and detects all strains of human influenza including H1N1 and bird flu. 4. Track Active: Exercise is considered to be the single most important treatment modality for addressing chronic health and musculoskeletal problems. Track Active is a cloud based platform for health and medical professionals to efficiently prescribe customized, evidence-based exercise programs to assist patients in recovery. Follow StartupSmart on Facebook, Twitter, and LinkedIn.