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