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.
Despite many corporates slowing down and packing up this week as we roll towards Christmas, the Australian start-up community has been powering along launching a car made entirely of Lego that runs on air and announcing new partnerships. The big one this week was Tiger Pistol, which is now one of two companies listed as Facebook’s preferred marketing partners. Co-founder and chief executive Steve Hibberd spoke to us about what this means for his company, and how they got in touch with Facebook after 18 months of perseverance. Investment announcements haven’t slowed yet, with an education app start-up announcing a Commercialisation Australia grant of $50,000 and an emergency response system start-up that planned to raise $500,000 but ended up raising $1.2 million after tweaking its pitching material. Also in investment news, an angel investor expert has warned the Australian angel networks to develop slowly, and the director of new ventures at NICTA, Andrew Stead, crunched the numbers of 71 investment deals made in 2012 and shared his findings about what Australian investors look for with us here. For every start-up that receives funding, there are plenty that don’t. This start-up decided to pursue their dream to go global with no extra capital, and all of their friends telling them it was a bad idea. They made it work after working through the overwhelming stress. The government announced it was abandoning two tax reforms that would have boosted the start-up scene, but it’s been a rougher week for workers at car maker Holden. The local start-up community in Adelaide has thrown open their doors to welcome any aspiring entrepreneurs among their number. Many local entrepreneurs are exploring ventures in the outsourcing and freelancing market, so the merger of international outsourcing giants Elance and oDesk is sure to change the playing field a bit. In other international news, an Australian start-up has returned from the 10X accelerator based in Ohio and another entrepreneur shared his insights after attending the Lean Startup conference in San Francisco. Closer to home, we shared tips to get the best work-life balance you can over the summer holidays, how much the average freelancer is charging, and three tips for creative entrepreneurs who can struggle to sell their work without selling their soul. Finally, we heard from a start-up tapping into the power of the crowd to compete with roadside assistance heavyweights, an award-winning education platform enabling anyone run an online course, and shared an infographic on how to master your fears as you move forwards as an entrepreneur.
After a year of significant growth in the ecosystem and local start-up investment improving, the Australian investment ecosystem is maturing to a point where it needs to start asking itself serious questions, says serial entrepreneur and investor Brian Dorricott. Dorricott, who’s worked as an investor and start-up consultant in the United Kingdom and Australia, told StartupSmart the emerging angel networks in Australia should avoid the temptation to rack up deal numbers and focus on thorough due diligence to ensure exits. “In the UK, and here too, all the angel networks measure their success in how many deals they’ve done,” Dorricott says. “One hundred-plus deals sounds great, but what matters to investors, and entrepreneurs too, is exits. So the real question is how many members of each gang have actually got their money back with more.” According to Dorricott, the focus on quantity of deals rather than the success of investments can encourage the wrong focus for angel networks. “If you’re looking to maximise the number of deals you’ve done, you’ll do smaller deals, and less due diligence. It’s risky for the whole ecosystem,” Dorricott says. He adds when angel networks look to grow their number of investors and deals, it can easily lead to inexperienced angels being inducted and investing before proper education or due diligence is carried out. “We do need more investors. But when you’re getting new people in and don’t invest the time in educating them, it causes a lot of damage. They put $100,000 in, and they damage two lots of people: the angel who probably won’t make the investment and also possibly the entrepreneur who got backed who may struggle with self-doubt and debt,” Dorricott says. In order to prevent Australian angel networks regularly doling out “double whammies to the ecosystem”, Dorricott says the ecosystem needs to take its time to grow and develop the networks. “If you’re looking at engaging with a fund, either as a founder or investor, you need to be looking for a long-term business prospect that’s okay with growing slowly. You want your fund to take the time to make really good deals, and get successful exits because then you get two people back – the original angel who did the deal and the entrepreneur they backed successfully.”
A new initiative called Crowd Valley says it wants to increase the level of democracy in the crowdfunding market, potentially offering a new path to funding for Australian start-ups.
Tech start-up networks Pollenizer and Innovation Bay have rolled out a new open-source platform that allows start-ups to pitch their concepts to a wide range of investors.
You have an awesome business model, have prepared your investment documentation and are all set to raise capital. Just one small hitch – where the hell do you find investors?