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Five tips to help entrepreneurs find a great co-founder

4:09AM | Tuesday, 21 April

General wisdom among tech entrepreneurs is that the ideal number of co-founders is two or three.   There is a good reason for it – an analysis of a dataset of 100,000 startups by Startup Genome shows that solo founders take 3.6x longer to reach the scale stage, compared to a founding team of two.   However, taking a co-founder on board brings its own risks. Here’s a short guide to picking the right person. 1. Find someone with a complementary skillset According to serial tech entrepreneur and Stanford lecturer, Steve Blank, startups are inherently chaotic, and finding a product/market fit in that chaos requires a team with a combination of skills.   The skills you need depend on the industry you’re in but, in general, co-founders should have complementary skills. In mobile and web startups, that usually means great technology skills, great business and marketing skills, great UX design and product skills. Most people are good at one or two of these, but it’s very rare to find someone competent in all areas. 2. Find someone who shares your vision and values Co-founder disputes are very common and are a frequent cause of startup failure. A lot of these disputes stem from founders having different ideas about how to run the company and where it should go. One thing is to put your vision and priorities on paper; another is to live it day by day, especially when your original idea proves wrong and you need to change direction.   Likewise, the values you live by will plant a seed for what becomes a company culture. The reality is that co-founders will have different values but, together as team, you have to define a common value system. Having done so will likely play an important role in taking your startup forward. 3. Find someone with grit Once you have an idea, you need to be able to pursue it, even in the face of adversity, if you want your startup to succeed. Frankly, entrepreneurship is extremely challenging, and to persist through those challenges, you need grit.   Professor Carol Dweck, of the Stanford Department of Psychology, has done extensive research on the subject of grit, which she defines as ”the disposition to pursue very long-term goals with passion and perseverance, stamina and ability to win things over the long-term and work very hard at it”.   According to her research, the key to grit is having the right mindset. Dweck observed two different mindsets among people:   Fixed mindset: A belief that you either are talented or not. Failure is proof of your inability. Intelligence and talent are just fixed traits. Growth mindset: A belief that abilities are developed. Setbacks and criticism are a sign that you need to improve. You learn and grow yourself and think long-term. People with a growth mindset are more resilient to challenges related to their abilities and performance than those with a fixed mindset. 4. Find someone who stands out Founder personalities are important and often popularised. Many companies end up looking like founder cults – Steve Jobs is a great example. Peter Thiel, investor and founder of two billion-dollar companies (PayPal, Palantir), believes there is a connection between being a founder and having extreme traits. According to him, the key to PayPal’s success was the eccentricity of all founders:   “Four of them were born outside of the United States. Five of them were 23 or younger. Four of them built bombs when they were in high school. Two of these bomb-makers did so in communist countries: Max in the Soviet Union, Yu Pan in China. This was not what people normally did in those countries at that time.”   According to his observations, if all traits distributed in the population were aggregated on a normal distribution chart with extreme traits on the right and left side of it, you will find most founders on both ends of the curve, rarely in the middle of it.   True or not, entrepreneurs like Richard Branson, Bill Gates, Warren Buffett or Larry Ellison certainly add a little substance to this. 5. Find someone with whom you have a history of working together In the case of startup ‘unicorns’: 90% co-founding teams of $1 billion+ startups comprise people who have years of history together, either from school or work; 60% have co-founders who worked together; and 46% who went to school together. Further findings reveal that teams that worked together have driven more value per company than those who went to school together.   Only four teams of co-founders didn’t have common work or school experience, but all had a common thread. Two were known and introduced by the investors at founding/funding; one team were friends in the local tech scene; and one team met while working on similar ideas.   The take-away? The most successful co-founder teams are the ones where the people have known each other in other contexts, prior to the company at hand.   Sources: TechCrunch, Peter Thiel’s CS183: Startup – Class 18 Notes, Stanford University.   This piece originally appeared on Appster’s blog.

The taxation of employee share schemes explained

2:12AM | Tuesday, 10 February

  Building a technology company isn't easy; a huge range of specialist skill sets are needed – software developers, data scientists, designers, product managers and engineers to name a few.   However in the Western world we have a crisis in education with declining enrolments in science, technology, engineering, and mathematics (or STEM for short). This is remarkable given we are in one of the greatest economic gold rushes of all time, thanks to the internet and software eating the world.   So startups and technology companies everywhere are scrambling for talent and they increasingly need to offer a variety of incentives to attract and retain that talent; the most powerful of those incentives is giving employees the chance to earn a part of the company and become owners themselves.   To understand how this works let’s step back and consider how shares are divided up in a company from the very beginning.   Companies are started by founders, who are the people who originally come up with a great idea to start a business. Typically, this group numbers somewhere between two and four people. Even though one person might originally come up with that idea, they will still need a founding team around them with complementary skill sets to turn this idea into a real company. Two people in a founding team is ideal. Greater than four people founding a company starts to become unwieldy in figuring out who is in charge. So founding teams will usually be between two and four.   The founders are the people who take all the risk in a venture, they are the people that put everything on the line. They quit their jobs, work for no pay, and have to risk being thought of as a fool. In fact, the bigger the potential opportunity, the bigger the fool you can look as a founder, because the biggest potential ideas are ones that no one has thought of yet, that go against the prevailing wisdom.   The vast majority of startups will fail miserably, and these founding teams might spend years with no income toiling away for no result. But if the idea works out and becomes a huge success, they receive the lion’s share of the reward. They took the biggest risk, and therefore they share the biggest reward.   So let's say we have a startup with four founders: Alice, Bob, Carol and Dave. If we look at the equity pie, the easiest way to start a business is to divide all the shares equally between the four founders, so they each get 25%. Vesting A huge number of complications can occur in early stage businesses. Alice might lose interest in the business and quit after only a few weeks, Bob and Carol might have a fight and one of them walks out, or Dave might not pull his weight and the three others might want to replace him. Well if you just gave the shares out without some sort of agreement to deal with these situations then you might have someone who leaves after a few weeks, doesn't put any effort in, who still keeps their 25% years down the track. That wouldn't be fair on the others, so startups usually put in place an agreement between each other to deal with what happens when something goes wrong. This agreement is called a vesting agreement, and it is designed to deal with all the tricky situations startups get themselves into when something goes wrong. And believe me, with early stage companies a lot of things can go wrong.   A typical Silicon Valley-style vesting agreement lasts for four years with what is called a one-year cliff. Under a vesting agreement, instead of automatically being granted all your shares where you can do whatever you like with them straight away, a vesting agreement instead restricts your shares so you are granted them over time, in this case over four years. At time zero, all the shares are unvested, and nobody can do anything with them if they leave the company.   With a four-year vesting agreement with a one-year cliff, nothing happens for a year. This is what they call the cliff. If you leave the company before a year, you get nothing. This is fair because if you are meaningfully going to contribute to a company you should be at the company for at least a year. If for some reason you quit or are asked to leave, the company can still continue without an unworkable share structure where all the people left working hard are resentful that a large shareholding is owned by someone who isn't doing any work.   On the anniversary of the original grant date, 25% of the shares will vest. At this point you own them and can do whatever you want with them, even if you leave the company for whatever reason – the shares have been earned. After the first year, vesting typically proceeds, so that every month 1/36th of the remaining unvested stock vests. So after two years, 50% of your stock will have vested; three years, 75%; and after four years, your stock is fully vested.   Vesting is not just a good idea; it solves a whole bunch of messy problems for when things go wrong. And believe me, a lot of things go wrong in startups! So if you're going to start a company, it's really important you put a vesting agreement in place.   So let's look at what happens to the capital structure when investors start to come in. Let's say along the way our startup finds an early stage angel investor who is willing to invest $500,000 for 20% of the company. This means he thinks the company is worth $2.5m after he invests, because his $500k is worth 20%. We call this the post-money valuation of the company, because it is the valuation after the money is invested.   The pre-money valuation of the company is the valuation before the money goes in. Since $500k was invested this means that the pre-money valuation of the business was $2 million. Everyone, all four of the founders and the new investor in the company, now owns 20%. Taxation At this stage our company probably wants to start hiring its first employees. It finally has some money in the bank and can afford to pay some salaries, but it's not a lot of money. The market for hiring staff is tough and it’s a very competitive and global market. The company has to compete with very well-funded companies who can offer much more than what our startup can afford, and this is in addition to all the other perks big companies are offering like free food, a great office and free gym membership. Not only that but Silicon Valley is even more desperate for talent, and companies like Google and Facebook are paying even more and have even better perks. On top of all that our startup is very risky and based on statistics, more likely than not is going to fail. So the only way it can attract staff to join such a risky and low paying endeavour is through stock; it’s something that the startup can hand out today, and even though it might not be worth a lot right now, it could be worth a fortune later on if the company is successful down the track. This is why equity is the primary means in which startups attract and retain talent, and this is why it is so important.   So our company wants to make its first hire, and given it’s such a risky proposition, the cost in terms of equity will be high, maybe a few percent. As time goes on and the company gains traction, the risk involved with the business will become lower, and as such, the equity compensation decreases. At the same time, the company becomes more and more valuable, so the dollar value of the equity already granted will increase.   Typically, an early stage startup might reserve 10% or 15% of its stock in a special pool for employees. So let's carve out this pool in our capital structure; 15% is reserved for the staff, and each of the four founders and investors each end up with 17%.   At this point you might think it's all very straight forward. But if only it was! The big problem we've neglected so far is the issue of taxation. While these shares are actually worth real money – we're giving out 15%, and remember our seed investor paid $500k for 17% of the business. So they're worth a little under half a million dollars right now. If you gave out the shares directly as stock grants, that means the staff in total would have to treat those shares as income, and pay income tax on almost half a million dollars in this financial year!   Can you see the problem here? You're trying to attract people to join your company by handing out shares because you can't afford to provide a good salary, but by doing so you're burdening them with a huge tax bill! Not just that, but those shares you are handing out won't be worth anything if the company isn't a success. On top of that there's no active market in which they can be sold because it's a private company – a market won't exist until the company goes public or gets bought out in a trade sale. Who in their right mind would want to be given stock then? Stock options Fortunately there's a way in which this problem can be solved, and that's by handing out a stock option rather than the stock directly. An option is a contract which gives the owner the right, but not the obligation, to buy or sell an underlying asset, which might be a share, at a specified strike (or exercise) price on or before a specified date. A stock option is what's known as a derivative, which means that it derives its price from something else, in this case the value of the stock. As the value of the stock goes up, the value of the stock option goes up as well. As the price of the stock goes down, the value of the stock option goes down as well. But for the option to have any value at all, the underlying share must be worth more than the strike price, because this is the amount of money someone has to pay to exercise the option, which grants them the underlying shares.   So our payoff diagram looks a little like this: if I buy an option while the stock is trading below the strike price I'm down the purchase price of that option, but once the underlying stock reaches the exercise price, the value of the option steadily rises in a straight line. Once the underlying stock reaches the value of the strike price plus what I paid to purchase it, I'm making money – and my ability to make money is limitless, if the stock keeps rising, I keep making money. This means that by owning an option I share in the upside of the company. If things go really well, I make money as fast as all the shareholders do, but if the stock doesn't rise or it drops then not only do I not make any money but I'm only out of pocket what I paid to buy the option.   The reason why giving options to staff works out better than giving out shares is because if I grant options that only provide upside from today then basically the value of that option today is pretty much zero. This means if we hand out options then we don't have a big income tax problem because the value of the options are pretty close to zero. The way this is achieved is by the company setting the exercise price of the option to be the same as the fair market value of the shares as of the date of grant. So if for argument's sake each share is currently worth $1, then the company would set the strike price of those options to also be $1. This means that effectively the options are worth zero today because I would need to pay a dollar to exercise the option into a share which would also be worth $1. The great thing about having the options worth zero is I can give them away to staff without having them receive a big tax bill, because there's no value in the options today. The staff share in the upside success in the company as much per share as shareholders do, but the value of the company has to improve for them to become valuable. This is a great mechanism for attracting new staff – if the company does well, then they do well, but they don't get burdened with a tax bill upfront.   However, it's a little more complicated than that. Options actually have two components of value in them. They have what is known as intrinsic value as well as time value. Intrinsic value is the value you would normally think would be in an option – it's the difference between the market value of the underlying share and the strike price of the option. So let's say our share is worth $1 today and the strike or exercise price of the option is also $1. When the stock trades below $1, then the option is also zero. If the stock was worth $2 and the strike price $1 then the option would be worth $1, and if the stock rose to $3 for the same strike price, then the value of the option would be worth $2.   Now here's where the complication is – options also have a time value. The time value of an option is the discounted expected value of the difference between the exercise price and the stock price at expiration. In layman's terms, even though the intrinsic value of an option today might be zero, there is a probability that by expiration of the option that the stock might have risen. So even though the intrinsic value might be zero, the value of that option isn't exactly zero, it's instead worth a small amount, which is a reflection of the probability that at some time in the future it might be worth something.   It's fairly complicated to calculate the time value of an option. Companies usually use either one of two ways: the binomial method or the Black-Scholes method, although there are other methods, but all the methods use a lot of complicated maths (if you want to know the difference between the two, here's a great video). The main way is the Black-Scholes model. The development of this model by Stanford academics was so fundamental to the creation of modern financial markets that the economists that developed it won a Nobel Prize in Economics for it. The model takes into account something known as the volatility of the stock, which is a statistical measure of the variation of price of the stock over time. The more volatile the stock is, or the more it moves up and down, the higher the time value is of the option. This makes a lot of sense intuitively, because the more it moves up and down the greater than chance it might actually be above the strike price at the time of option expiry.   So it's important to remember that even though the company is giving out stock options to staff that has the strike price equal to the market price of the stock, even though the intrinsic value of the option is zero, the time value of the option will still be worth something, and as such the option will have some value which the staff will receive as income and have to pay tax on in the current financial year.   So let's now talk about taxation of employee stock and why it's so important to get this right. We know so far that when you're granted either a share, or an option, that you're going to have to pay income tax on the fair market value of that grant in the financial year in which you receive that grant unless the grant is subject to deferred taxation, that is, among other things, subject to vesting conditions. Not all shares in startups are the same Now the first thing to remember is that not all shares in a company are the same. Investors rarely buy common (or ordinary) stock in a company – they buy instead a class of stock known as preferred stock. The stock is called preferred because it comes with a number of special rights and privileges. A common right is something known as senior liquidation preference. Liquidation preference was originally designed to provide downside protection to investors that put hard cash into the business, as opposed to just the hard work that founders and staff put in. We call that hard work "sweat equity", because the equity is paid for in sweat, rather than hard cash.   Financial investors in startups like venture capitalists are not just smart, they are in a powerful position; there's a rule in startups called the golden rule – he who has the gold rules. These financial investors invented senior liquidation preference to ensure that if the company goes belly up that in a liquidation scenario that they get their money back before any of the people who earned sweat equity get anything. This is why it is called "senior" in a liquidation. So if a venture capitalist invests $2 million dollars in a company with a 1x liquidation preference, then if the company doesn't go very well and winds up, that the venture capitalist will take the first $2m out of what's left before any of the people with sweat equity see a cent.   Now this was originally supposed to only provide downside protection, so that if a company didn't set the world on fire that the investor could get first claim on the assets, but if the company did well that in a distribution of returns in a sale of the business for a lot of money they would have to convert their preferred stock to common (or ordinary) stock and share like everyone else. So in a trade sale there are two options – you either chose to be paid out as a preferred stockholder, who only gets back their money up to the terms of the liquidation preference in the case of a wipeout, or you could convert to common and share with everyone else if the company did well. This is called a non-participating liquidation preference.   However, over time, and because of the golden rule, venture capitalists twisted liquidation preference to become participating preferred stock. What this means is that in a sale of the business they got both the liquidation preference and after that they get to share with everyone else.   So let's say our venture capitalist invests $2m in a company giving it a $6m pre-money valuation, so that they take 25% of the stock, but their stock is preferred stock with a 1x participating liquidation preference. This means that if the company sells for $8m, they first get their $2m liquidation preference and then they get 25% of the remaining $6m, for a total of $3.5 million! So you can see that even though the venture capitalist owns only 25% of the company, they get almost 50% of the returns in a sale of the business!   So you should be able to see right away that the taxation of the common stock on par with the preferred stock in the case of liquidation preference is quite unfair because the returns are not equally distributed between the two classes of stock.   It can get much, much worse than this. Sometimes the multiple on the liquidation preference for participating preferred is more than 1x, sometimes it's 2x or 3x, or more. If we go back to our VC's $2m investment in a company at a pre-money valuation of $6m to get 25% of the shares outstanding, that if the multiple is 3x then the VC would get $6m off the top before anyone else got anything. So if the company sells for $8m, then the VC takes $6m and then they share in 25% of the remaining $2m so they end up with $6.5m of the $8m which is over 80% of the returns even though they only had 25% of the shares outstanding.   These egregious terms are more common than you think. The US law firm Fenwick & West publishes a quarterly survey on financing terms in venture deals and for example in Q1 of 2013, 23% of senior liquidation preferences were multiple liquidation preferences, and of those 29% were between 2x and 3x and 14% were over 3x. Right before I floated Freelancer.com, one of the term sheets I received from a US late stage venture capitalist had a 3x liquidation preference.   To make matters even worse, liquidation preference stacks; later investors will always want at least the multiple that the earlier investors got. So if the company takes in $2m at a $6m pre-money with a 2x liquidation preference, then $5m at a $20m pre-money and finally $50m on a $200m pre-money, all with a 2x multiple, then the total amount of liquidation preference in the company is $114 million dollars. That's right, in a sale of the business, the investors take $114 million right off the top, and if the company sells for less than that, the founder and staff get nothing at all. If it's participating preferred, then on top of this they get to share in the rest.   Sometimes there might be a cap on the total amount of liquidation preference that can be received, but in the latest Fenwick & West survey for Q3 2014, 63% of participating liquidation preferences were not capped. Participating preferred liquidation preference, senior multiples and uncapped liquidation preferences are common tricks of the trade that venture capitalists and other financial investors use to bridge valuation gaps between what the valuation that founders place on their business and what investors are willing to pay. Taxation of grants So again you can see it's grossly unfair to tax grants to founders and staff as if the value of the common and preferred stock are the same. The problem is that when your startup is still a private company that there is no active market price for your stock, in fact, the only price you'll typically have is the last price that an investor bought preferred stock at. That's why in the US it is common in the treatment of taxation of common stock to discount the market price of the preferred by 90%. It's illiquid, it's subordinated, there might be a tonne of liquidation preference on top, and I'm not going to even get into all the other rights and privileges that VCs will have as a result of owning preferred stock – including the ability to pretty much fire you at will.   Now let's look at how the taxation of grants works with respect to vesting. Let's say for arguments sake that an early employee is granted 200,000 shares which at the beginning of the life of the company, when there is no value in it, are worth 1 cent per share. Let's say these shares vest with our standard Silicon Valley-style vesting agreement, which is over four years with a one-year cliff. On the one-year anniversary of the grant, 25% or 50,000 shares vest, and after that each month, 1/36th of the remaining or 4,166 shares vest until the four years are up and the grant is fully vested. Let's say that after the first round of investment in the company, or the Series A, happens sometime in the first year and that the shares are now worth 20 cents each. On the one-year anniversary 50,000 shares vest which is worth $10,000 at 20 cents a share. On that date, the early employee would have to pay income tax on $10,000 in that financial year. Let's say the company then goes through another round of funding and the shares are now worth $1 each. Each and every month now, the employee would have additional income of $4166 that they would have to pay tax on – and there are 12 taxable events in that financial year! Let's say the company does really well and the shares end up being worth $20 each – that would be 12 taxable events per year on income of $83,320 each! Granting options where the strike price of the option is equal to the fair market value of the stock at the time of grant might be slightly better, but remember that the value of this option will never be zero due to the time value of the option.   If the company does really well, this rapidly becomes a nightmare from a taxation standpoint! If the company is still privately held, the staff member might not be able to sell any stock to cover their tax bill because there is no active market for the shares. The company might not even be generating any revenue – just think of how Snapchat is valued at over $10 billion and not making any money yet. 26 U.S.C. § 83(b) In the US, luckily the IRS has realised the problem of vesting of employee stock, and has created a special exemption called an 83(b) election. 83(b) allows founders and employees to decide at the start of your vesting agreement to be taxed for the entire amount that will eventually vest at the present value. Rather than paying tax each year then, you pay all the tax up front based on the value of the stock or options as and when it is granted to you. The two important conditions of 83(b) is that the stock or options granted to you need to be at risk, that is to say be subject to a vesting agreement, and that you have to file a 83(b) election within 30 days of receiving the grant.   If we go back to our example of the early employee receiving 200,000 shares at 1 cent each under a standard Silicon Valley vesting agreement, then under 83(b) the employee could just elect to pay income tax on the total value at the start, which is $2,000. This is significantly better than the nightmare scenario I talked about before, when you have to pay tax as and when each share vests. Of course, if the company ends up being valuable, the employee will still pay capital gains tax when they sell the shares down the track on the difference between what the stock is worth then and now. If they've held for more than a year they'll pay long term capital gains rather than short term, which is a bonus. At the end of the day, the tax department still gets their tax, it just gets their tax when the stock has crystallised real value and the employee can actually sell the stock to pay for the tax bill.   Click here to read part two.   This story originally appeared on SmartCompany.

Bennett Blank’s three principles on staying fresh and relevant: “We’re trying to turn Intuit into a company of 8000 entrepreneurs”

9:31AM | Thursday, 18 September

It’s not direct competitors that keep the folks at Intuit up at night; it’s all the startups they don’t know about, according to Intuit innovation catalyst Bennett Blank.   The financial software company describes itself as the “30-year-old startup” and Blank says for the last six years it’s been trying to instil startup values in its employees through its Design for Delight program.   “There’s lots and lots of pressure from all different angles for established players like Intuit,” Blank says.   “In general, being in tech is extremely challenging because it’s changing so rapidly. We like to say it’s not the company’s market competitors that keep us up at night, it’s the kid in a garage outside Stanford that could be about to launch in 30 days.   “Which is why we’re trying to turn Intuit into a company of 8000 entrepreneurs.”   The program is based on three principles that Blank says can apply to startups and businesses of all shapes and sizes:   1. Deep customer empathy   “We try to understand the customer by observing them in the real world,” Blank says.   2. Going broad to go narrow   “This is about helping people to employ many solutions until they dive onto the final solution that actually works: brainstorming until they settle on the final option.”   3. Rapid experiments   “We’re out there developing experiments in the wild, showing those products. And figuring out through those experiments how to learn new things about the customer.   “There’s no success, no failure, just the experiment. Seeing what you learn.”   Of the company’s 8000 strong workforce, there are 200 employees that are known as innovation catalysts, specifically trained to help instil Design for Delight values in their colleagues.   “We have a rich tradition of entrepreneurship that gives us a head start from other corporations,” Blank says.   “We’re somewhat unique in that Intuit has been around for 30 years or so and our founder is still active.   “One benefit we’re seeing from Design for Delight is we’re able to react much faster to other companies.”   Follow StartupSmart on Facebook, Twitter, and LinkedIn.

Best of the Web: Eulogy for Twitter

5:45AM | Friday, 2 May

A eulogy for Twitter. Adrienne LaFrance and Robinson Meyer argue in The Atlantic that the social media platform is dying. Although Twitter added 14 million new users for a total of 255 million, the pair say Twitter’s users are less active than they once were. “Twitter says these changes reflect a more streamlined experience, but we have a different theory: Twitter is entering its twilight.”   According to France and Meyer, the question is – did Twitter change or did we?   “Twitter used to be a sort of surrogate newsroom/barroom where you could organise around ideas with people whose opinions you wanted to assess. Maybe you wouldn't agree with everybody, but that was part of the fun. But at some point Twitter narratives started to look the same. The crowd became predictable, and not in a good way.”   Uber cab confessions. As Uber attempts to upend the Australian taxi market it’s worthwhile taking a look at Mickey Rapkin of GQ’s take on spending a week as an Uber driver. Uber is pricier than your standard taxi. So what's the hook? Instant gratification, a hint of glamour, even some sex appeal.   “Uber capitalizes on what economists refer to as ‘slack resources’ or ‘underutilized capacity’,” Rapkin says.   “Translation: Why let your car sit idle in the driveway when you can turn it into a cash machine? The future is all about monetising downtime.”   Gap alums rule the fashion world. In SFGate, Maghan McDowell writes about the Gap retail program which is known as the Harvard of retailers.   "If you're trying to develop a career in retail, you have to do this program," says Stanford graduate Jessica Lee, who chose Gap over Google's Associate Product Manager Program, then under Marissa Mayer, in 2008. "You're not just applying to a job. You're being fostered, and they're basically paying you to learn."   But as McDowell discovers, while Gap seems to have no problem attracting and training top talent, holding onto them after they reach middle management seems a more elusive endeavour.   “The program remains renowned among retailers, but former Gap trainees have moved on from Gap to lead other companies – or to start their own. Call them the Gap Mafia. They're steadily influencing retail at boundary-pushing brands gaining recognition all over the world.”

Discussion hosted by UTS Business School looks at the need to foster an entrepreneurial spirit in Australia

3:08AM | Monday, 24 March

The entrepreneurial spirit needs to be fostered in Australia not just among individuals but also within organisations, according to panellists who dissected the challenges facing business at a discussion hosted by UTS Business School.   This requires more explicit government policy, readier access to funds and a culture where risk-taking is accepted not punished, they said. Government at all levels, investors, industry and universities all have important roles to play, especially by collaborating.   Silicon Valley-based entrepreneur and UTS Business School alumnus Adrian Turner, City of Sydney chief executive officer Monica Barone and AMP Capital Chief Executive Officer Stephen Dunne joined Business School Dean Roy Green in a discussion on the future of business and the future of business education.   “It might be an exaggeration to say Australia is at a turning point, but I think everybody would accept that now is a moment for reflection and reassessment of our direction as a country,” Professor Green said, introducing the discussion.   “As part of this, universities have a very important role, and business schools a particular role, in identifying the challenges, in identifying the future competitive advantages for this country.”   And the challenges Australia faces are serious, he said. “We have seen the end of the terms-of-trade boost that added 15% to our national income over six years. We as a country have to find new and alternative sources of growth and productivity to secure our first-world economy … we have to identify new sources of competitive advantage, creativity and innovation.”   Asked where the new sources of growth might come from, Turner said: “I think at the core of it is going to be entrepreneurialism – and entrepreneurialism is not just about startups but key to every facet of the economy, whether it’s small business, medium business or large business.”   Entrepreneurialism and innovation are correlated, he said, with innovation being a function of both “creativity and commercialisation” – one didn't matter without the other.   However, a big hurdle in Australia is funding, with very small amounts being devoted to venture or development capital in this country, he said. This is driving people with ideas overseas.   Ironically, Australian institutional investors could also be found in places like Silicon Valley, partly because government incentives encouraged investment in startups in the United States. “That’s a mark of failure that has to be addressed,” he said.   It was also an urgent need because 70% of Australian industry was services based, and such businesses were ripe for disruption by technology, he said. “The best form of defence is attack, by creating these new, disruptive businesses,” he said. “Australia has a very narrow window in which to do that.”   The City of Sydney’s Monica Barone said Australia lacked an innovation ethos. “I think one of the things we need to focus on is having an explicit policy around innovation that really helps to address how we want to evolve,” she said. “People could then feel confident to invest or innovate.”   From the city’s point of view, if Sydney wanted to be regarded as smart, innovative, youthful and creative it could not afford to lose talent to other cities. “Creative people want to live in a great city, a city where they have proximity to other creative people,” she said.   That is happening, Prof Green said. The transformation of the city – from Barangaroo on the inner harbour to Australian Technology Park south of the CBD, and including the $1 billion redevelopment of the UTS City Campus – was more profound than many Sydneysiders had yet recognised, he said. “The creative precinct around us potentially compares with some of the best creative hubs around the world.”   The sort of collaboration that this engenders is critically important, AMP Capital’s Stephen Dunne said. “The opportunity to collaborate with your peers, with your competitors, with various levels of government, with research institutions, is very important to solving the issues we face in the Australian economy.   “These long-term and critical challenges such as productivity and energy transformation do require collaboration and thinking that no one player can do on their own.”   Businesses are created at the intersection of corporates and universities, Turner said. “Some of the things that UTS is proposing here, in creating a ‘clustering’ ecosystem, is exactly what works. It’s that sort of environment at MIT, at Stanford.”   Programs such as the Bachelor of Creative Intelligence and Innovation were also a step in the right direction, he said.   Business schools can also play a role in helping organisations “reconceive” themselves in terms of collaboration across a broader system and how they can incorporate entrepreneurialism, Dunne said. “They are often the best placed to provoke and experiment – by encouraging innovation from within.”   Lesley Parker is the media officer at UTS Business School

Stanford start-up tutors share the top five myths about scaling tech start-ups

3:35PM | Tuesday, 11 March

By definition, every start-up plans to get global sooner or later. But scaling a business poorly is one of the fastest ways to kill it, according to two Stanford lecturers.   Robert Sutton and Huggy Rao have recently released Scaling up Excellence, which explores how companies from tech superstars to fast food chains have grown and gotten stronger.   “Start-ups need to start thinking about scaling a lot earlier than they do,” Sutton says, who adds you don’t need to a perfect organisation to scale well.   “A lot of times when people think of scaling up, they think they’re going to focus on the great stuff and spread it. But when you look at organisations that have nailed scaling, they’ve gone from bad to great.”   Sutton spoke to StartupSmart from San Francisco about the five biggest myths about scaling and how to overcome them.   Myth 1: Scaling is all rapid growth through fast decisions   While the scaling story of tech superstars Twitter, Google and Facebook can make it sound like every decision was instant and the implementation took only a tiny bit lower, Sutton says all scaling companies slow down to take the time they need to make the decisions where it matters.   “In every case we’ve looked at, including those three, this notion they rushed all the time is just not true. From Google to even Starbucks, all successful global companies go slow sometimes.”   A key time to focus on results rather than execution time is hiring staff.   “From the very beginning, Google was always very picky about hiring. They only hired very technically skilled who also had the leadership skills to grow with the company no matter how badly they needed a warm body in that chair,” Sutton says.   He adds founders shouldn’t shy away from the arrogance these decisions and the corresponding belief the company could become massive requires.   Myth 2: Conflict will kill a company   As companies grow, arguments are inevitable as teams choose what to focus on. Sutton says learning how to argue well is a critical skill for a scaling company.   “To make the best decisions, you need to be clear on how you argue and when you stop arguing. Good teams can have blazing arguments and then move on.”   Sutton says part of the success of many tech superpowers has come down to having founders, and later managers and executives, who are willing to model vigorous arguments followed by a resolution all commit too.   “Firefox’s John Lilly (chief executive 2008 to 2010) oversaw the company’s growth from 12 to 500,” Sutton says. “He told me he started realising at about 80 people that people had begun to act as though they were afraid of their boss. So he just started having arguments with his immediate team whenever he could. He’d be right or wrong but would always end respectfully and move on.”   Sutton says making sure everyone shares an understanding of what medium-term success looks like makes it easier to resolve disagreements and unites a team.   Myth 3: Scaling means building the team as quickly as possible   According to Sutton, one of the most dangerous myths about start-ups is the belief bigger is better when it comes to teams.   “The notion that scaling mandates adding more people is a myth. There is lots of evidence that when you bring on board the wrong people too quickly, it’s deadly.”   The pressure to build the team often comes from investors who are keen to see their money put to work.   “I can’t tell you how many times I’ve seen a start-up still in the product development stage kill itself by hiring sales staff before they’re ready. These guys need to sell, so they sell a product that’s not ready and it’s over,” he says.   Sutton says actions such as Israeli start-up Waze’s hiring freeze after raising $20 million should remind start-ups about the virtues of staying lean, as the company went on to be acquired by Google.   Myth 4: Our culture will suffer and we need to stay small   While cultural death by growth was the fate of Yahoo! and eBay (who later turned it around), Sutton says rapid growth won’t kill a start-up if they’re smart about it.   The key to a culture thriving, as well as smarter working, is to keep teams small.   “One of the mantras at Amazon is you shouldn’t have a team that can’t be fed by two pizzas,” Sutton says. “The difference between a five person team and say an 11 person team is huge. From battlefields to big corporates, all the evidence shows the maximum is seven before it dissolves into interpersonal contests and missed communications.”   Small teams organised in pods is an emerging trend in start-ups. Australian start-up 99designs has used a pod approach for over a year. Sutton adds that scaling can make deeper cultural issues more significant as the organisation widens and effective communications requires more effort.   “When you’re trying to scale an organisation and you have destructive behaviour or people, the first order of business is to nip that in the bud because otherwise it’s impossible to grow well.”   Myth 5: Bureaucracy and hierarchies should be shunned as they stifle innovation and productivity   One of the joys of start-ups is team flexibility. But start-ups need to implement some structure and processes if they want to become global companies.   “Staying entrepreneurial and easy to get things done is admirable, but there is a lot of evidence that shows companies need managers, hierarchy and processes,” Sutton says.   “There is a fine art of adding just enough process or bureaucracy so you can actually get all the work done. I think it’s admirable that entrepreneurs resist adding that stuff, but if you don’t it’ll turn into an unruly, out of control organisation.”   For early stage ventures, Sutton adds it’s essential to work out the leadership structure early or risk confused strategy direction and in-fighting.

Melbourne pitching competition combining business and programmer development

10:01AM | Thursday, 10 October

Five businesses are in the running for $8,000 in seed capital and a mentoring lunch with Red Balloon’s founder Naomi Simson, after being announced the finalists in Melbourne University’s 2013 Startup competition.   The selected companies are: Creatologists, CareAbility, My Wingman, The Fashtag Group, and Projectboard and cover a range of industries including food, recreational services and disability services.   The five emerging founders will pitch to a group of private equity and venture capital investors.   Competition founder and consumer psychologist academic Dr Brent Coker told StartupSmart the ideas have been getting better and better since he launched the competition in 2009.   “In 2009, we had maybe five teams enter, everyone presented their ideas and the winner got a handshake. So it was a pretty small deal,” Coker says.   “This year, there were a range of new interesting and feasible ideas that gave us that instant reaction of ‘I wish I’d thought of that’. A few of this year’s entries stood out as exciting with huge potential.”   Coker says the development of the standard of the ideas was in line with the growing Melbourne entrepreneurial ecosystem, but also due to some events the university has run to connect programmers to business development students.   “One of the things I did this year was get engineers and computer programmers and put them in the same room as the smartest business students. I gave them beer and pizza and tried to get them to mingle, because that’s where the best ideas come from,” he says.   Coker says the best business ideas are born from the potent combination of great developers, both from a product but also business perspective.   “With these two roles together in the same team, you’re covering each other’s weaknesses,” Coker says. “Engineers are very good at making things, but they try to work out who to sell it to after it’s made. That’s the opposite of how we train our business students, who are trained to find gaps to fill and then create products, but they’re not usually inventors.”   He adds the communication hurdles can be big, but worth overcoming.   “The biggest challenge is learning to see each other’s point of view. Engineers and programmers are very good at thinking up technologies and what’s possible but the challenge is getting them to understand the business people’s point of view, which is they want to build a fairly simple solution to a problem, and after they’re doing that they’ll care about features,” Coker says.   He says many Melbourne University students who are aspiring founders can feel intimidated or disadvantaged by being so far away from Silicon Valley.   “Many have the perception that those at Stanford are better than them, but that’s not the case,” Coker says. “We’ve got an advantage here as you don’t need to compete with the Silicon Valley start-ups until you’re really ready.”

New app heralds the next generation of radio: socially attuned and completely customisable

10:23PM | Monday, 7 October

Omny, an app allowing users to combine news clips, emails, social media updates and articles via voice-to-text software, launches today after over 20 months in development.   Created by 121Cast, the app allows people to create their own customised audio channel. The app also includes a recommendation algorithm to suggest content.   121Cast co-founder and chief operations officer Ed Hooper told StartupSmart they were excited to see it finally launch.   “Seeing how it can change people and their behaviour is really exciting, as is the opportunity make that commute period really productive all over the world,” Hooper says. “We’ve all been doing this for so long and everyone knows about it, so how this goes is tied to our personal brands, what we stand for, and our credibility.”   Co-founders Long Zheng and Hooper began exploring the idea for the app in 2011. They had previously worked on an international award winning start-up involving farm irrigation automation software.   “But it was the GFC and we were still students, so for a whole lot of factors it didn’t work out but it was an amazing journey,” Hooper says, who gave up studying at Stanford to return to Australia to work in the Groupon team just as coupon sales were taking off.   He was working at Groupon when Zheng got in touch to talk about how to turn the issue of commute productivity into a business opportunity.   “I was constantly looking for a good opportunity, but I didn’t want to jump on something unless it was awesome, because you want to put everything into it. When Long called me up and we started talking about an audio solution that read you your emails and updates, I realised this was it. I literally could not stop thinking about it,” Hooper says.   Omny sources content from over 30 providers, from music apps such as Spotify, to news groups such as the ABC and BBC, to Facebook, Google and Microsoft. Hooper says all the early conversations were focused on the difficulties of developing such an app, rather than building a business around it.   “Whenever we’ve spoken to potential partners or investors, the assumption is always if we can make the app work, the money stuff will be fine,” Hooper says. “The feedback we got was the idea was there and it could definitely be a business, but also that it was going to be really hard to build and we’d need significant expertise.”   They brought on third co-founder and chief technology officer Andrew Armstrong in February 2012. They’ve gone on to hire a front-end developer and a data scientist as well.   To guide the development, the 121Cast team launched a test app, SoundGecko, in mid-2012.   “We realised we didn’t have a clear idea of what we were creating and needed some real data. We tried surveys and interviews, but it didn’t really get us there. So we took a small fraction of this app, and bundled it as a standalone,” Hooper says.   SoundGecko, an app which read websites and PDF documents for users, has almost 50,000 active monthly users. It allowed 121Cast the opportunity to test the reception of voice-to-text, and also the data requirements for sending audio to thousands of users across the world.   Over 210,000 people have downloaded SoundGecko on iOS, Android and Microsoft phones.   “We found that managing all three platforms was quite hard. As soon as we’d launch a version, we’d see things we needed to change and there were always things we should have done on the first one,” Hooper says. “For the resources we have, it just isn’t feasible to be updating the app on all three platforms. So we’re fine tuning the iOS one while we do the core Android development.”   Omny is currently a free app. 121Cast will introduce ads and affiliate marketing in the coming months, and are exploring a premium subscription for launch later next year.   “SoundGecko definitely validated that people would pay for the premium features, such as more voices, and the Omny premium subscription will probably not include ads,” Hooper says.   Hooper adds financial opportunities will emerge from the user data over time.   In order to fund the development, the 121Cast team used their own capital and raised a series of seed investments.   “We burnt our own savings and lived off them for quite a while. We decided we were going to do this regardless, and between us we could go for about a year without raising funds. Let’s just build this because we have to do it,” Hooper says.   They went on to raise $250,000 from Adventure Capital and the SingTel Optus Innov8 program in November 2012; $20,000 from the University of Melbourne Accelerator program in late 2012, and just over $250,000 from Commercialisation Australia in July 2013.   “With the investment, if we knew we need to do something in the future, we started building the relationship as early as possible and find out what’s important to our potential partners and match them on multiple data points,” Hooper says.   Hooper says they’re focused on Australia at this stage, but will be looking to expand to the US, United Kingdom and other English speaking markets in the next few years.

Lagging behind: An analysis of Australia’s start-up sector

7:37AM | Thursday, 25 July

Australia has no Silicon Valley, but with a few reforms we could. Australian entrepreneurs rank among the best in the world when it comes to generating business ideas, but when it comes to the commercialisation of ideas, we fall flat.   In this year’s Global Entrepreneurship and Development Institute index Australia ranked fourth, behind the United States, Sweden and Denmark. Intuitively, fourth seems decent, but dig deeper and there are a number of issues reducing our potential to become a global leader.   In terms of the venture capital environment, research suggests Australia is lagging behind most of the developed world. When it comes to gender diversification, the number of male entrepreneurs still outnumbers females by four to one. In terms of the Australian mentality toward entrepreneurialism, our attitude to failure and willingness to encourage entrepreneurialism is markedly different to established entrepreneurial hubs such as the US and Israel.   Research from PwC published earlier this year revealed Australia’s economy is likely to fall out of the world’s top 20 by 2050 and with the mining boom ending, the federal government is searching for a sector of the economy to pick up the slack. There are many experts who believe our best bet lies with the entrepreneurial community.   SmartCompany has analysed the statistics and spoken to the experts to provide a snapshot of Australia’s entrepreneurial environment – what we do well, what we could do better and how we’re placed globally.   Venture capital   To kick-start new business ventures, a strong venture capital community is vital. But Australian entrepreneurs are unable to access the same level of funding as other developed nations.   According to the Organisation for Economic Cooperation and Development’s latest Entrepreneurship at a Glance report, venture capital spend represented an average 0.03% of GDP internationally in 2012, but in Australia it’s only 0.02%.   While Australia is behind the average, Israel greatly exceeds it, with venture capital spend amounting to 0.4% of GDP. The US also dedicates convincingly more than Australia, with venture capital equating to 0.17% of GDP.   These higher results are a reflection of more mature markets, but also of the countries’ strengthened support for entrepreneurial endeavours.   Other OECD countries which ranked higher than Australia were: Canada, Hungary, Sweden, Ireland, Korea, Finland, the United Kingdom, Switzerland, Denmark, Netherlands, Norway, South Africa, France, Japan, Luxembourg and Belgium.   The OECD study also revealed that globally, venture capital spend was 40% lower than in 2007 – bad news for entrepreneurs looking for funding.   Ernest and Young’s Oceania Entrepreneur of the Year leader Bryan Zekulich told SmartCompany there has been a decline in the creation of new venture funds over the past three to five years.   “Institutional money is hard to come by in the start-up sense since the risk is so high and they’re not willing to take that risk.   “The government incentive plans have been appropriate in terms of structure, but the money from the Australian Innovation Investment Fund, which has been established for a long time and is continuing, is just money coming back in from investments and there is no new money in that either,” he says.   The Australian Private Equity and Venture Capital Association Limited 2012 Yearbook found Australia has the lowest number of active venture capital managers doing deals in the last ten years. In 2012, $122 million was invested, a 4% decrease from FY2011. Only 42 new companies received fresh investments.   When it comes to fundraising, venture capital funds raised $240 million, an increase of 200% year-on-year, but $200 million of this was raised as part of the Southern Cross Renewable Energy Fund under the government’s renewable energy venture capital fund co-investment programme.   “When start-up companies go to Silicon Valley, there are more companies which have done something similar before and the understanding basis is much higher than here in Australia,” Zekulich says.   “They find this to be a huge benefit and when they’re pitching they’re positioned against their peers, people doing similar things to them, and the investor already has an understanding of what they’re doing.”   Commercialisation of ideas   Market Gap Investments director Mike Sewell told SmartCompany Australian entrepreneurs and businesses have historically been on par with the other developed nations in terms of idea generation, but they’ve struggled with turning ideas into reality.   “Australia’s spend on research and development is the same as any industrialised country in the world, but if you look at the commercialisation of ideas, there is a huge difference,” he says.   “We don’t have a good track record in investing in ideas, the statistics prove this and there isn’t an easy solution for that, but it’s why people go to Silicon Valley.”   However, research suggests in the long term the rate of idea commercialisation could be starting to improve. The most recent 2010-2011 National Survey of Research Commercialisation found there has been a steady increase in the number of invention disclosures and in the number of patents issued to publicly funded research organisations. It also found an increase in the number of capital-raising start-ups and the amount of institutional equity they received.   Despite the likely long-term increase in the commercialisation of ideas, the survey found the number of new spin-off companies per $100 million of research expenditure decreased in 2010-2011 to 0.4 from 1.3 in 2009-2010. The research also found the rate of invention disclosure still lags behind the developed world.   Per $100 million of research spend, Australia disclosed 28.1 new invention ideas compared to 43.7 in the UK, 41.6 in Canada, 35.8 in the US and 28.4 in Europe.   While Australia is struggling to keep up with the invention creation rates of the UK and the US, we are getting more value for money. The income of the start-up spin-off companies has increased from $2,000 per $100 million in research expenditure in 2008-2009, to $6,000 in 2010-2011.   Zekulich says part of Australia’s problem with ideas commercialisation stems from a lack of business mentors.   “We don’t have a lot of overt mentors and leaders for start-up companies to give them some degree of framework to be successful. We talk about commercialisation, but that looks at the structure of the business, the processes, how you go about the marketing and generally making start-ups a bit more professional than many are.   “It’s really about having a professional way to manage the front and back office of the business. Many start-ups lose their way and their idea dies in terms of excitement and enthusiasm. Many start-up companies have a really tough first year, but if they get through it and get the practices going well then they’re more likely to succeed,” he says.   Gender diversity   This year the Global Entrepreneurship and Development Index ranked Australia the second best environment for female entrepreneurs, behind the US, but male entrepreneurs outnumber females four to one.   Statistics from the global entrepreneurship group Entrepreneurs’ Organisation show males represent more than 85% of members. President of the Melbourne EO chapter, David Barnes, told SmartCompany that this is despite efforts to grow the number of females in the organisation.   “Sydney and New Zealand seem to be able to attract more female entrepreneurs, in New Zealand females account for around 40% of the members, but we’ve always struggled in Melbourne and Perth.   “Since we’ve had more females come on board we’ve started attracting other quality female entrepreneurs, but there are still a lot more males,” he says.   Despite efforts from organisations such as EO, the OECD survey shows little has changed globally since 2000.   “Women remain substantially underrepresented as entrepreneurs. Men are two to three times more likely to own businesses with employees than women,” the report stated.   “Online in a few countries the gap has significantly narrowed, namely Chile, Korea and Mexico.”   The OECD average shows women make up approximately 23% of the entrepreneurs in each country.   Once again Australia was behind the average, with females accounting for roughly 18% of the entrepreneurial community, although Australia was ranked ahead of the US, Israel and the UK. Greece was leading the way, with females making up more than 40% of the entrepreneurial population.   Alarmingly, the OECD found overall that self-employed women earned “much less than men” and in all countries the gender gap in earnings from self-employment was greater than the wage gap.   Zekulich says while Australia has a small female entrepreneurial representation, this is partly due to social factors.   “We find overwhelmingly female entrepreneurs reach a level of revenue which they are comfortable with and remain there,” he says.   “For whatever reason, they are savvier about risk taking and they consider risk a whole lot more than their male counterparts, which makes them less inclined to take risks their male counterparts will.”   This article continues on page 2. Mentality   In terms of business growth, Sewell says Australian entrepreneurs, in general, frequently make the decision not to grow their businesses over a certain point.   “Often Australian business owners who are making $200,000, $300,000 or $400,000 a year decide they’re happy with it and they don’t have an incentive to scale the business,” he says.   “People make lifestyle choices that we don’t necessarily understand either. I think, why don’t you try to grow the business to $10 million or $20 million, because many could do that with what they’ve got, but they’re happy.”   Sewell says business owners find once the business exceeds 15 or 20 people “the game changes”.   “People decide they don’t like it past 20, it’s a different game. This is possibly a lifestyle choice or a business size choice,” he says.   “You make the decision at $5 million that that’s as big as you want to be. But the market changes and if you have a profitable niche today and haven’t capitalised on it, then someone will either compete with you, or the market will change and leave you behind.”   Sewell says too few business owners realise it’s better to change the business structure and become an investor, rather than an operator, allowing a professional management firm to run it, than to fail to adapt and grow.   Attitude to growth isn’t the only way Australian businesses differ to their US counterparts. Sewell says the Australian approach to failure limits the entrepreneurial environment.   “We don’t accept failure, if a business person fails here, that’s it, they’re done. But in reality you have to fail, it’s a part of life,” he says.   “You’ve got to work with your customers and sometimes your customers don’t even know what they want, so you invest in the wrong things and you fail.”   Co-founder and lead investor of AngelCube, Adrian Stone, told SmartCompany the US’s big advantage is their embrace of business failure.   “Failure isn’t seen the way it is here. In Israel too, a country which has the greatest number of start-ups per capita and the second largest in the world, failure is actually a badge of honour.”   Stone says in order for entrepreneurial communities to work, fundamentally the drive has to come from the entrepreneurs themselves. Changing this attitude to failure, he says, is crucial to Australia’s entrepreneurial capacity.   “We need to get to this point, but it’s a cultural thing. Maybe we can talk about our failures more often. It’s moving this way in tech start-ups, there is a move toward the lean start-up and it’s all about failing often and failing fast,” he says.   Barnes says there is now a negative stigma around business failure.   “The media publishes things when businesses go into voluntary administration and say they’ve collapsed. But going into administration is a normal business process.   “There are other people which have had four, five or six successful businesses, and going into administration or “failing” is the realisation you’re not going to hit your goals.”   ‘Let’s move overseas’ attitude   Motivated by the ease of attracting funding in the US, including its extensive entrepreneurial environment and positive start-up culture, a goal of many Australian entrepreneurs is to shift their business to the US.   Chief executive of the world’s largest outsourcing platform Freelancer.com.au Matt Barrie told SmartCompany the venture capital model in Australia is “completely and utterly broken”, with the exception of groups such as Blackbird and AngelCube, and this is driving entrepreneurs away.   “The traditional model of Australian venture capital is they’ll finance you early on if you can find someone, everyone will write you a cheque for $20,000 or $50,000 and maybe $100,000, but that first $1 million to $5 million is very difficult,” he says.   “Even if you manage to attract $1 million or $2 million in funding, the venture capitalist will do all the hard work with you and then tell you to go to the US for further funding.”   At this point after a round of funding the Australian tech start-up might have won $5 million to $10 million in funding, and Barrie says the Australian company will be under pressure to move to the US.   “The US team then says you need a US chief executive and the team partially moves to the US, and then comes a US management team. This eventually dilutes all the Australian shareholders. Then they say the company is undercapitalised, which it is, you need to raise $20 million,” says Barrie.   “Then the Aussie venture capitalist runs out of money gets kicked off the board and the US CEO then has a US management and US shareholders, but an offshore development team. When the Australian dollar is 60 cents or 70 cents it might make sense to have an offshore development team, but when the Australian dollar was $1.05, it was more expensive to hire a Sydney graduate than a Stanford graduate.”   The net result, Barrie says, is that the Australian company’s operations are eventually moved to a cheaper location and the business becomes effectively another American company.   Barrie says to counter this problem the Australian Securities Exchange needs to be “built up” as a route for financing technology companies and arousing liquidity.   “We do it in mining tremendously well. You can have a PowerPoint presentation, not even a drill hole in the ground, and raise $20 million on the ASX.   “The Australian mining industry is a world powerhouse and we need to do it with technology because mining is running out. There has been more money raised on the ASX in the past five years than NASDAQ, so it’s one of the biggest financial markets in the world and we need to be doing this for start-ups,” he says.   Government action   The experts were unanimous that the push for change needs to come from the entrepreneurial community, rather than government action, but all agreed there are a number of policies which could be altered to better the entrepreneurial environment.   Barnes says payroll tax is harming the small business community.   “Payroll tax is just a joke – no business owner likes paying payroll tax,” he says.   “Businesses are going to move their staff offshore so they can lower the costs of doing business. It seems unfair to incur a 4-5% payroll tax for employing people when we’re also paying the superannuation increase. It’s another 7-8% on top of the base wage just to employ people.”   Sewell says the government would also be able to restructure its tax system to better favour investment.   “The tax deductibility of losses and capital losses, you could change the way they are treated to encourage investment. The system now is that you quarantine your losses against particular assets, but there would be a more effective tax structure because at the moment it’s not conducive to investments,” he says.   Stone says the government needs to “chip in and put their money where their mouth is” to help fund Australian businesses.   “Commercialisation Australia does a lot to help entrepreneurs, but they need to take their lead from Singapore, UK, and Israel where they give loans to match those of investors,” he says.   “The government needs to recognise that it’s worthy of investment. The way it works is it provides a loan which is repayable, almost all the loans get paid back and this goes a long way to fostering the community.”   Stone says the education system also needs to be changed to better encourage entrepreneurialism from a young age.   “I’d like to see all kids to try and start an online business and I think the support of doing this would help them a lot. My son started his first business when he was 12 and he’s now onto his third business and earning enough to support himself.   “For me entrepreneurship, I believe it’s learning by doing. You can do university courses, but it needs to be like vocational training almost. Start a business and then get right. It might succeed or fail, but it doesn’t matter.”   Ultimately, Stone says it’s about encouraging more people to have a go.   “Be willing to have a go and withstand the consequences. Don’t be results driven, do something you love and don’t be hung up on your result good bad or indifferent,” he says.   This story first appeared on SmartCompany.

Grip Clip is an idea that sticks

4:45AM | Tuesday, 23 April

Always scrambling for a pen or pencil? A new invention called the Grip Clip is aimed at ending this frustration, albeit in a rather conspicuous way.   The Grip Clip is a piece of soft plastic, which slides onto the user’s glasses. It can hold a pencil, pen or other similarly sized object.   It was created by Atticus Anderson and Blake Crowe, two graduating Stanford students majoring in mechanical engineering-product design   “Whether your glasses are on your head, hanging on your shirt, or actually on your face, a Grip Clip turns your glasses into a useful tool,” the duo says in a Kickstarter campaign   “After extensive testing in our secret laboratory, we have found that the Grip Clip can successfully hold many different sizes and shapes of objects.   “We set out to hold a pencil, but have been constantly surprised at what it will hold! It’s a tough little clip.”   Students and office workers are always appreciative of tools that make their jobs easier. Can you think of any ideas that are similar to the Clip Grip?

Uber prepares for Sydney launch: Five top tips from the US venture’s GM

3:39AM | Monday, 11 March

The Australian general manager of US-based car service Uber has offered start-ups some advice after spending five years in Silicon Valley, as the business gears up for its Australian launch.   Uber, based in San Francisco, is an on-demand car service where drivers pick up users based on iPhone, Android, SMS and web-based requests.   Last month, Uber confirmed its intention to launch in Australia, posting job descriptions for an operations manager and a community manager, having already hired a general manager.   That person is David Rohrsheim, who is heading up Uber’s expansion to Sydney after spending five years in Silicon Valley, where he not only worked but attended Stanford Business School.   Ahead of Uber’s Sydney launch next week, Rohrsheim shares his insights about start-ups:   Never stop moving   “I was a bit of an IT geek as a kid. I studied engineering at uni but was encouraged to do a double degree in finance, so I would understand more than just engineering,” Rohrsheim says.   “I spent a few years working with [global management consulting firm] Bain and then was introduced to a VC firm in San Francisco, Draper Fisher Jurvetson.”   “I worked for them for two-and-a-half years… It was an ideal way to meet a lot of people in a short period of time. I was welcomed into the valley.”   “I then applied to Stanford Business School, which was just down the road… Almost half of the people in venture capital [in Silicon Valley] have a Stanford MBA.”   “I decided it would just be a fun experience. I thought of it as a gift I gave myself.”   Be driven by the cause, not the title   “The biggest change in my mindset over the last five years is to actively pursue projects I’m passionate about… It’s important to solve a problem that matters to you.”   “I do think too many people start businesses – and this is all around the world – because they think it’s sexy or they want the CEO title.”   “Start-ups are such hard work that if it isn’t your main reason for being alive, eventually you will give up on one of the down days.”   Silicon Valley is hard work   “You’re encouraged to get on the plane and go to Silicon Valley, where it will all work out.”   “I think sometimes people are expecting too much. They expect to arrive and for it to just start happening… Get as much of [your] story together before you arrive over there.”   “There’s a lot of magic there but you’ve got to get some runs on the board first.”   Don’t be afraid to come home   “It was a tough choice to come back… I had many more friends in San Francisco than anywhere else in the world.”   “I wanted to work for a disruptive consumer technology company, and there’s lots of them there, but in the back of my mind I knew I would come home one day.”   “I didn’t think it would be so soon, but the Uber opportunity was one of the most interesting jobs I could imagine back in Australia.”   Get frustrated   “I am personally frustrated by how long we have to wait for innovative services in Silicon Valley to move down to Australia.”   “Every day I am longing for Amazon Prime and Turntable.fm. I am highly motivated to shorten that gap, and Uber is just my first project.”   “Australians are tech-savvy, wealthy and share a common language, so we deserve to have the latest from Silicon Valley earlier.”

Staying small

6:53AM | Friday, 8 June

I read A VC every day. It’s the last thing I do before I go to sleep, as it is early morning in New York.

Accelerators seem to want a lot of equity for little funding – is it worth applying?

5:10AM | Thursday, 3 May

I’m thinking about applying for a start-up accelerator program, but it seems like a lot of equity for not much funding. How can I be sure that the program will be worth it?

Steve Jobs in his own words: 20 of his best quotes

10:05AM | Thursday, 6 October

It really shouldn’t have been such a shock. Steve Jobs was diagnosed with pancreatic cancer, a notoriously harsh version of the disease, in 2004, and whispers of his impending demise have circulated ever since.

Going Freelancer.com

5:11AM | Wednesday, 2 May

Perhaps ironically for someone whose business relies on outsourcing tasks Matt Barrie has a very do-it-yourself approach to entrepreneurship.

The state of student start-ups

4:18PM | Saturday, 28 April

Most people know that social media giant Facebook was founded by Mark Zuckerberg who, at the age of 23, was studying psychology at Harvard University.

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