The harsh reality is that failure fucking sucks. Don’t let the startup mantras and hashtags fool you. Failure is emotionally draining, physically exhausting and psychologically frustrating. In some circles, it’s externally glorified, and in others, overwhelmingly demonised. I know this today, more than most days. Today we shut the doors down on OutTrippin, our company, our baby and the love of our life for the past two years. Notice how I struggle to even say the word failure in that sentence? It’s not a strategic choice of words; it’s just agonising to say the words: My company failed. I keep telling myself failure is an opportunity. Based on the generally positive demeanour I’ve had over the past few days, many might think I do believe it. Sometimes, I think I believe it too. I can logically draw the lines and understand why failure can be, and should be an opportunity, but sometimes logic just goes out the window. Because when I dig deep, behind the pleasant demeanour, behind the words, behind the actions, late at night as I lie awake, tossing and turning, a paralysing realization starts to sink in and the “truths” you keep telling yourself during the day can no longer mask the reality. Failure. Fucking. Sucks. It’s a funny little world. I remember when we started this adventure two years ago. Indi, my cofounder, and I met in a hostel in Buenos Aires. Traveling through, we became fast friends and when we happened to find ourselves in the same beautiful city a few months later, this time to live, ended up as flatmates and eventually as co-founders. We’ve been all over the shop, from Buenos Aires to Santiago, Melbourne to New York, and San Francisco to Dubai. We put it all on the line to realize our vision of what this world may look like if each person travelled more, travelled better and found experiences that they found truly amazing and eye opening. We think it would make us a happier people, a more understanding civilization, a more loving race. And so we tried. And try hard we did. We started OutTrippin, to build products that let people get personalised recommendations for truly amazing experiences on their travels. Our first product was a service that let travel experts compete to build your vacation. We took investment, we moved continents, we dealt with visa bullshit, joined an accelerator, found mentors and experimented with product, partners and business models. We failed, we learned, and we got up and tried again. And never thought that one day, we would get up to try again, but OutTrippin would not. We never thought OutTrippin would fail. Nine out of 10 startups fail. That’s a statistical fact (well, more like just an estimate). And yet, every account from an entrepreneur with a failed startup, the recurring theme always is: ‘I never thought my startup would fail.’ It’s the combination of the narcissistic nature of entrepreneurship (that I, as a single human can change this world of 7 billion people). It is also the stressed importance and almost glorification of hardship (Airbnb and their one thousand days of failure) that has allowed us to create this magical bubble of optimism. We allow ourselves to reach for unimaginable heights and work our asses off, all with the belief that we are the outlier – we are not the 90%, even if statistical reality says otherwise. And boy that bubble is simply amazing. It’s energising in the face of impossible (improbable) odds. It’s invigorating even in the darkest hours, when all seems lost, and it gives you permission to go after goals that most others have deemed impossible. Because, you, your beautiful, intelligent, passionate self is the person to achieve the impossible (improbable). And. It. Is. Glorious. Right up until it all comes crashing down. And 90% of the time, it does. Today, it came crashing down for my startup and my life for the past two years. People ask me, what happened? It all seemed to be going so well, I thought? I was back in Santiago, Chile in April 2013 when I was skyping with Indi on a Wednesday evening, who was stopping by Melbourne for a friend’s wedding. She said I’d love this city. She said I’d love all the cute hipster girls (she knows me well) and that we should totally think about moving there. I considered it for half a second and thought I’d see who’s investing in Melbourne on AngelList. After a few messages with Adrian Stone and Nathan Sampimon, by Friday morning just two days later, Indi was pitching OutTrippin to a crew of angels. We all got on a Saturday group skype, and by Monday AngelCube invited us to join their 2014 batch. The only catch was I had to move to Melbourne in four days – by Friday morning. Many would say “no way, that’s absolutely ridiculous”. For us, it was a no-brainer. A day of packing, some serious hustling for visas and few tearful and sudden goodbyes later, we were off to Melbourne, myself from Santiago and João from Portugal, just one week since Indi suggested we consider Melbourne as the next stop on OutTrippin’s journey. Startup founders get used to living on the knife’s edge because anything can happen. In fact, anything happens all the time. For every amazing thing I tell you is happening, there is an equally destructive thing that could also happen to the company. For every potential ascension and growth opportunity, there is a deep dark valley we could plunge into. Things can be amazing and terrible at the same time. For every huge deal we close, it can all fall apart before we’ve even had a chance to finish the champagne. So we learn to drink up quickly. We learn to manage the constant threat of things falling apart. We mask it behind the amazing potential. But masking it doesn’t make it go away. It’s always there. It’s a condition without a cure, the best we can do is manage it, mitigate it, and accept it. And that’s just how it goes. Sometimes it all comes crashing down like a house of cards. So what went wrong? I don’t believe that only one thing going wrong can kill a company. Usually it’s a catalogue of things that go wrong that brings any company to this point. It was no different for us. Everything that could have gone wrong did. That includes everything from business model failure, partial failures in team dynamics, general tiredness of doing this thing this long and go through yet another product and biz failure and a difficult investor climate in the travel industry. But, most of all, market dynamics pushed us onto a mountain that we kept trying to ascend only to eventually realize that that mountain was not our Everest. It wasn’t our Everest Startups are hard. And it’s not made easier when life things happen. Back in 2013, we were going through AngelCube, an intense three month accelerator program that essentially takes over your life. Similar to other accelerators, the non-stop ferocious nature of the program requires you to park your life entirely for 90 days and focus on your company and company alone. But life, as you might expect, makes other plans. From 7000 thousand miles away, I got a call no son should ever get: A hysterical sister and mother trying to tell you that your dad, the man who you could always turn to, is no longer there. And suddenly, everything changes. Everything that you knew to be true no longer is. Everything you knew about life is shrouded in doubt. Everything you were you no longer are. I left immediately to return home (obviously), leaving my cofounders to keep the company going while I tried to simply accept what had just happened. You never realise the strength of the bonds you create with those who you start a company with until it’s put to the test. We fought through what was the worst moment of my life and my co-founders Indi and João helped me put myself back together in a way that made me think that nothing could stop us from ascending our Everest, all because we had just survived the worst moment of my life. With all the sleepless nights, grey hair and the financial disaster that is your personal bank account, you’d think we’re nuts to go after the impossible (improbable) odds. But the truth is, when it’s a vision you so passionately believe in, everything else fades away. You say “who cares about the grey hair, I’m on the George Clooney aging plan”. You say “you’ll sleep when you’re dead”. Money schmoney, this is why you have credit cards. It’s all good if you can keep going after your vision. It’s all good as long as you have your Everest. And that’s why, it’s so very, very, very crucial to find your Everest. No other mountain is worth climbing OutTrippin was our Everest for a long time. But we were also open to following the market to wherever it might lead us. And this time, we were led astray. In the world of travel planning, finding a business model that works is like hunting for unicorns. It’s why there has been little to no competition to TripAdvisor on the travel planning front for the past decade. We’ve always had an amazing community of travel writers and bloggers and we’ve always had a concept that got people really excited. The problem has always been to find a business model that could scale. From OTAs to airlines, from content companies to hotels, we experimented for a sustainable route to create high quality expert generated travel content at scale. What a mouthful, I know. With a recently launched B2B (business to business) product targeting hotels, we came damn close too. But it dragged the company to a place where we dealt with slow moving behemoths and a B2B sales cycle that makes movements of glaciers look like that of a Ferrari. We could make peace with that, I think, but we couldn’t make peace with the fact that this wasn’t the mountain we wanted to climb. We wanted to focus on creating more magic with our apps on the consumer side. But without the revenue from hotel partners to cover content costs, it would all come crashing down like a house of cards. The travel industry’s investor climate is colder than the arctic. It is notoriously difficult. There are fair few success stories (Airbnb and HotelTonight are the only ones that come to mind and are essentially in the accommodation booking space) and there hasn’t been a legitimate challenger to TripAdvisor in over a decade. Investors are sceptical and rightfully so. Many don’t understand the space and those that do know exactly how hard it is. Either way, doesn’t make quite the savvy investment, does it?! What that means is that most travel startups are going to have to prove 10 times more than their counterparts for similar valuations and investment, all in an effort to overcome the industry bias. Doesn’t make it impossible, just a whole lot harder. And that just meant that we had become a company that did things the bootstrapped way. A specific conversation I had with my cofounder still rings out in my mind. I told her of a random idea I concocted in the shower the night before. It combined the Tinder and Swipe concepts, presenting amazing things to do in the city, and an ‘algorithm’ that would put together a timely version of an itinerary with the things you like most with the time constraints you had. Groundbreaking? Not at all. But her response is what was most telling. She asked: “How do we make money from this?” It wasn’t one sided, there were many conversations where I played the role of “show me the money!” We had just become a company with a “show me the money” culture. Remarkably, it helped us become self-sufficient and we probably made more revenue than most travel startups our stage, mostly because we had no choice but to keep on hustling. But it also left no room for errors. And it meant that any new idea came constrained with the question: How do we make money from this? And that, ultimately stifled our creativity. All that pressure took its toll on the team too. It did us no favours that part of the team, mainly João, was on the other side of the world with a 12 hour timezone difference. Sure, tools like Github, Google Hangout, Slack, Basecamp and countless others help you manage team workflow no matter where they are, but there are no tools to help manage emotions and morale. And startups are just as much an emotional journey as anything else. When the person you work with day in and day out sits next to you, you can see how they feel, when to push, when to support and when to get them a glass of wine or a gin and tonic. But when you have a two hour window in a day to work together, you barely have time to get past work to really get to know how they are truly feeling and how you might help. I caught up with Indi last week after her trip to visit family in Sydney, and mine to visit family in Dubai. It seemed like a moment away from the home base of OutTrippin had helped us clear our heads and understand who we were and what we believed. We had a glass of wine and our thoughts and, dare I say it, “feelings” just seemed to come rolling out. We talked about how this B2B product we created for hotels as the revenue and content driver for OutTrippin had become the bane of our existence. It seemed to have pushed us in a corner of the market we had no interest in. How the god awful B2B sales cycle with hotels made me crave a shot of vodka simply to answer an email. We talked about how it was convoluted that we never believed in this new product but were willing to do it if it made it easier to pursue our core vision. About how the reality was that it didn’t. It didn’t make it easier to pursue. It didn’t follow our core vision. And it certainly wasn’t our Everest. Eventually, it became clear to us that it was tiresome to even feign excitement over this new direction we were taking, all to keep surviving as a company. We spent the past two years of our lives on OutTrippin because we were driven by the magical memories that we helped create. From sci-fi themed honeymoons in New York City to diving trips in Malaysia, from bachelor parties in Austin to a girls’ trip to Iceland, these stories and countless others that we’ve helped make are absolutely epic. And for this we are prouder than a dog with two tails. But the more we moved in this new direction to keep surviving, the more the magic faded. And that was the straw that broke the camel’s back. It was the stark realization that in an effort to keep surviving as a company, we had started climbing a mountain that wasn’t our Everest. And that wasn’t fair to our users, our customers, our community and it definitely wasn’t fair to us. There is no logic in building a company whose direction you no longer believe in So, it’s time for us to find a new challenge, and bring this crazy train we’ve been on to its final destination. As I sit here, listening to Frank Sinatra lay down some truth bombs, I can’t help but resonate with ol’ blue eyes: “I’ve been a puppet, a pauper, a pirate, a poet, a pawn and a king. I’ve been up and down and over and out but I know one thing: Each time I find myself flat on my face, I pick myself up and get back in the race.” And that, ladies and gentlemen, is life (and I can’t deny it). I feel a surprising ease that I cannot explain. Considering all of the above, one would think that I would be a wreck but it’s quite the opposite. I’m energised by the decision as opposed to burdened by it. There isn’t a trace of regret. Maybe it’s because I’ve made my peace with it. Maybe it’s because I don’t know what’s next but that excites the living hell out of me. Maybe it’s because I get to restart the search for my Everest, because I am just as thrilled to climb it now as I was when I started OutTrippin. Or maybe, just maybe, it’s because failure is just another opportunity to start again. This time, faster, better, stronger, and (most importantly) more intelligently. Kunal Kalro is the founder and chief executive of @OutTrippin. Kalro speaks four languages and is perpetually living out of his suitcase. He has spent most of his time last year in Chile, Australia, Dubai, India and US. This article first appeared on Medium.
Online web series That Startup Show has been shortlisted for the Best Innovation Award at the 2014 Online Video Awards, as its creators negotiate with possible distributors. The second episode of the web series was released on Wednesday and looks to build on the success of the pilot. The first episode, released on YouTube in August has had over 36,000 views with a global reach across Asia, Canada and the USA. That Startup Show co-producer Sally Gatenby says the team was negotiating with a number of possible distributors, including TV. “We’re looking at both traditional and online,” she says. “Given the amount of views we’ve had in a short amount of time, we’re looking forward to seeing how we can leverage that and reach a larger audience.” Episode two, which you can (and should!) watch below, features Oxygen Ventures general manager and investment director Ilya Frolov, IntelligenceBank co-founder Tessa Court, and AngelCube co-founder and lead investor Adrian Stone. They, along with the host, comedian and tech commentator Dan Ilic examine the Australian venture capital landscape, the perceived lack of funds in Australia, and examines why “bizarre” innovations like Yo manage to raise capital. “We’re really happy with how the episode has come across,” Gatenby says. “We really wanted to demystify the role of venture capital in Australia.” Show creator Anna Reeves, a former business affairs manager for cult TV show Rockwiz in its early seasons is thrilled with how That Startup Show has been received so far. “For us, it’s also about actively engaging our audience on this journey in a unique a fun way, which adds vaue and foster connections with the amazing startup culture we have in Australia,” she says. “That’s actually what we love most about it.” That Startup Show episode three and four will be filmed back-to-back in late October as part of StartupAus’ Startup Spring Festival. Tickets are available at That Startup Show’s Eventbrite page. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
It was great to see some amazing women join this year’s AngelCube program, with three of the six teams having female co-founders. Prior to the program, AngelCube co-founder Adrian Stone declared he didn’t think enough was being done to foster diversity and that he was willing to “put his money where his mouth is” and offer up a $10,000 grant to Startup Victoria, should one team with a female-led founder make it into AngelCube. He also offered the team that made it into the program an additional $1,000, with that grant going to the program’s first all-female team. Now that the AngelCube program has wrapped up for the year, Stone has written about what has happened as a result of that initiative and what more he thinks needs to be done. Here is the post in full (republished with his permission): “Earlier this year, I wrote about my plan to donate $10k to Startup Vic if just one female-led team made it into AngelCube’s 2014 cohort. That happened and the grant was made, and I’ll wait – along with everybody else – to see what comes of it. I know that plans are already afoot (but, I’ll leave it to Startup Vic to make their own announcements when ready). It was mainly for two reasons: 1. Out of the 19 startups that we (AngelCube) accelerated through to the end of 2013, only two female founders participated. 2. Founders Institute trumpeted their Female Founders Fellowships which amounted to little more than some discounts on their fees and a small $1k prize. So, I went on a bit of a Twitter rampage and tried to stir up some mud, with mixed results … Fast forward to 2014 and AngelCube had three teams with female-led founders, including one all-female team. Sadly, I can’t take credit; it was just the universe karmically rebalancing. Brandspot, as Kate and Amanda’s amazing startup is called, won my personal $1k grant, which was in addition to the $10k that Startup Vic also received, but either of the other two female founder-led teams could easily have taken the prize. All of which goes to highlight a point that I have been making all along … Startups should be an equal opportunity sport. For me, I would never like to see an end-game where there is either affirmative action or negative action – both of which, to me, are just forms of discrimination – when it comes to launching, funding, and scaling Australian startups. Alas, AngelCube’s current cohort aside, the gender-unbalanced shape of the Australian (probably the world’s) startup ecosystem doesn’t yet support my dream; hence the grants. Whilst I failed to get Founders Institute or Scale or any of the others that I hassled to match my donation (yet!), FI did manage to bring me on board as an occasional mentor … I guess Matt Allen’s simply a better negotiator than me. I’ll do another update when Startup Vic announces their ‘more female founders’ strategy … stay tuned!”
The Australian startup scene is booming with large numbers of startups being launched every day, but we still lack experienced founders and teams, according to a number of Australian investors. Application numbers are more than adequate across a number of Australian startup accelerator and incubator programs. The Telstra-backed Muru-D program received 200 applications for its initial batch of startups while AngelCube received around 100 applications for this year’s intake, meanwhile BlueChilli receives 200 online applications a month. AngelCube founder Adrian Stone says the incubator tried to the address the problem by tightening its requirements this year, which resulted in around 50 fewer applications when compared to last and an increase in quality, but it was still difficult to find seven or eight startups to fill the program. The Sydney Seed Fund, which aims to invest in 20 startups over three years, had over 200 applications in its first year, but only offered investment to five. Sydney Seed Fund partner Benjamin Chong says it isn’t so much a lack of quality ideas that’s a problem, but a lack of quality teams. “From what we’ve experienced the quality is very variable,” Chong says. “We’ve had a bunch of people applying for money and all they have is an idea, others have a team, but maybe they haven’t had revenue, but they do have something to show for it. “We’re very interested in backing teams of people that are demonstrating a capability to get things done. They might have done something before, but also if they have a strong co-founding team with complementary skills.” The Sydney Seed Fund received a broad range of applications, many of which weren’t even tech startups, one team wanted to build a skyscraper in Pakistan. “For some founders there’s a bit of a spray-and-pray type approach,” Chong says. “Just go up and hit a lot of people in the hope that it will bear fruit.” Chong wasn’t able to say for sure if the three startups Sydney Seed Fund invested in, and the two more it’s negotiating with, were the only startups they gave an offer sheet. Stone agrees it’s a lack of quality teams, and more specifically technical co-founders that is hurting the standard of Australian startups, in addition to a general lack of experience that comes from the ecosystem having a relatively small amount of successful startups. “Maybe we haven’t got enough people that have had a go, if you haven’t started and failed you’re probably not as good a founder as you can be,” Stone says. “And we’ve got a weakness when it comes to tech co-founders.
A Melbourne-based mobile games developer has secured $400,000 in funding from a group of prominent investors, after joining seed accelerator AngelCube’s 2013 program intake. Investors in the latest funding round for c8apps include Angelcube co-founder Adrian Stone, Future Capital founder Domenic Carosa, Tisher Liner FC Law partner Michael Fetter, and serial tech investor Adam Krongold. Cofounder Bao-Minh Tran-Vo told Private Media c8apps’ first product was an AFL fantasy sports game called Footy Coach, which was developed after meeting cofounder Charles Noble while studying in Canberra. “My co-founder and I have been best mates since uni. We studied at the ANU in Canberra, where the main sports are rugby league and rugby union – the Raiders and the Brumbies,” Tran-Vo says. “I played AFL in college, so when we moved to Melbourne for work, we went along to a few matches. And it’s just ridiculous – you can get 80,000 to 90,000 supporters in the stadium for a game! “So we fell in love with the sport, but soon realised there was no decent football manager app for AFL, so we decided to start developing an app. Within about a month, we managed to sign up our first 1000 users.” The app was initially developed for Facebook app in late 2012. However, following user requests, a version of the app for Apple iPhone and Android smartphones in early 2013, a move that caused business to take off. “You need to try as early as possible to understand your market and to do that you need to release an MVP, or minimum viable product. There’s also a lot to be said for the lean startup methodology,” Tran-Vo says. Tran-Vo credits the decision to release the mobile apps, based on user feedback, with eventually getting the team into AngelCube during the 2013 intake. “We got good traction, but our growth wasn’t fast enough. We applied to AngelCube, which I thought was the best accelerator in Melbourne at the time. That year, they had over 200 applicants – and we were one of seven to get in,” he says. “They told us to double down on marketing and connecting to our audience, which helped us to climb the app store rankings. They also put us in touch with big-name investors across Australia.” A key aspect of the development process was to create a basic ‘platform’ that allows a lot of the same basic code to be reused in creating management simulator apps for different sports, rather than creating each one from scratch. “Around 80% of our tech can be applied to new sports, while 20% is very code specific,” Tran-Vo says. “We started with AFL because it’s a sport we really enjoy watching. We then created one for rugby league in conjunction with Bauer. It took us a month in development time – it was good timing, coming out ahead of the Rugby League World Cup.” Since then, c8apps has gone global, launching an aggressive push off the back of football soccer management app Frantic FC. The app managed to pick up over 2000 downloads in just two hours after being tweeted by a cast member of MTV reality show Geordie Shore. Looking forward, Tran-Vo says c8apps wants to continue its global push, which includes plans to launch fantasy sports app covering NFL, basketball and baseball in the US. “We’re really attacking the European market aggressively at the moment,” he says. “We also think Asia is a sleeping giant, so we want to position ourselves there – Japan is very lucrative and China is already in the top five markets for apps.” Image credit: Flickr/the_woodsies
Sebastien Eckersley-Maslin, Founder and CEO, Blue Chilli: "Ministers Hockey and Turnbull have been flagging changes since prior to 2013 election, so there's been more than enough time to put forward new legislation. "We're competing in a global talent market and we're unable to reward and retain the best talent in Australia without these changes. Effective ESOP reform will cut the cost of early-stage startup innovation, get more innovation commercialised and help us create teams with a common purpose rather than an Industrial Age employer/employee relationship." Yasser El-Ansary, AVCAL’s CEO: “Reform of the employee share scheme tax framework for early stage companies is long overdue. AVCAL has recommended to the Government that employees of start-ups should only be taxed when a realisation event occurs. "The approach also needs to be simple and low cost and will need to contain an appropriate definition of ‘start-up companies’.” Niki Scevak, Blackbird Ventures director: “In a word: finally! Thank you to the government for finally removing this ill-conceived roadblock to Australia's best people working in startups.” Adrian Stone, AngelCube co-founder: "The changes to ESOP are important because it removes one of the friction points for Australian startups at want to grow. "At AngelCube, we had to use back door methods, such as reverse-option vesting agreements to achieve a similar result so, clearly, the need for ESOP reform is there even for startups making their very first hire. And, it's the earliest hires that make or break a new business." Alan Noble, StartupAus board member, and Engineering Director, Google Australia and New Zealand: “We look forward to changes to ESS/ESOPs that enable startups to be more competitive in attracting talent, and give employees more skin in the game." Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Australia has long punched above its weight in sports, and now a new accelerator aims to help Australian sports technology startups excel. The Australian Sports Technologies Network (ATSN) has launched HeadStart, an accelerator that aims to incubate and invest in up to 40 new sports technology and information technology startup businesses over the next four years. Headstart will offer investments in the $20,000 to $50,000 range, for an equity stake ranging between 10% and 15%. Headstart is based in Geelong and is the culmination of three years’ of investigation by the ASTN. ASTN chair James Demetriou says Australia is well suited to the sports technology industry. “We have a competitive advantage in medical technology, health technology, ICT and in smart apparel and wearables,’’ he says. “One thing about Australia is we are comparatively strong throughout the world in sport, we accept we’ve got great sports people, great sports coaches, great sports innovators. “What we think now from our research, and anecdotal evidence, we can grow the industry to be worth over a billion in Australia.” Demetriou says ASTN also plans to launch a follow-on funding program, which will help the best graduates of Headstart. The program will be based on the AngelCube model, and AngelCube founder Adrian Stone is part of the Headstart team. Demetriou says it’s the first accelerator of its kind in Australia. “What we’ve tried to do is develop a sports technology and ICT accelerator, the first in Australia and probably the region, we’re not going to duplicate what’s already out there,” he says. “It’s based on very clear research, we’ve been validating and searching, and now we’re confident we’ve got the right model going forward.” Seven startups have already commenced the program in a non-investment intake and while Demetriou couldn’t give specific details about the startups he says they’re involved in wearable technologies, sports governance platforms and unmanned aerial vehicles or drones. The establishment of HeadStart was supported by funding from Enterprise Geelong and the Department of Employment. Demetriou says the accelerator will bring its first batch of 10 startups onboard in the coming months. At the HeadStart Accelerator Program launch with James Demetriou Chair of the Aus Sports Tech Network. @DarrynLyons pic.twitter.com/74riWng6bq — Geelong Mayor (@Geelong_Mayor) June 30, 2014
The federal government should introduce “fast-path” grant applications for tech startups and treat accelerators as consultants for the purposes of grant funding under the new Entrepreneurs' Infrastructure Program (EIP), according to AngelCube co-founders Nathan Sampimon and Adrian Stone. The recommendations form part of AngelCube’s submission to the government’s policy review of the recently announced Entrepreneurs' Infrastructure Program. “These recommendations have to be taken up if the government wants the EIP to be useful for tech startups as well as ordinary businesses,” Stone says. He says the normal grant application process might work fine for small businesses, but for startups it takes far too much time. “Startups don’t want access to consultants; they don’t want access to funds where it takes three to six months before you’ve got access. “We can take a startup from an idea to a fully functioning business in three months.” AngelCube’s submission touched on the same point, highlighting the “lengthy, time-consuming and costly process” required to understand if a technology business is eligible for government assistance, and compared it to the rigorous but much shorter process used by accelerators during their selection processes. It made six specific recommendations: Venture accelerators are recognised as a new category to apply for Business Management Grants. Venture accelerators can apply directly under the three year rule for business management grants. Venture accelerators should be recognised as an ‘expert network’ for the nomination of Commercialising Ideas grants. The government should allow “Business management” grants of up to $100,000 for venture accelerators to support between 6-10 companies. Business Management Grants should be preapproved based on the venture accelerators’ initial commitment to provide a minimum of $20,000 to each accepted company, indicating an initial investment from the accelerator of $120,000 to $200,000. Allow a rapid process approval of the Commercialising Ideas Grant based on the due diligence conducted by Venture Accelerator and co-investors. Venture accelerators are a valuable part of innovation ecosystems and government can capitalise on this by recognising their existence as a category and supporting them, the submission concluded. “Venture accelerators provide an avenue for government to make a rapid impact and support the new technology businesses of the future,” it says.
AngelCube founder Adrian Stone has thrown down the gauntlet to investors to do something to address the apparent lack of female startup entrepreneurs. Admitting that he doesn’t know how to solve the problem, he’s done what he says he can as a VC and told StartupSmart he’ll “write a cheque for those smarter than me that can to do something about it.” He’s offering an additional $1000 to the top female AngelCube applicant (they already receive $20,000), who makes it into the popular incubator’s program. He notes that every year they’ve had at least one female entrepreneur in the program (so he’s set the bar low), but he wants to encourage more. If the $1000 is granted, he’ll donate $10,000 to Startup Victoria to look at ways that it can use the money to encourage more female entrepreneurs. Stone says the caveat means “that female-led teams (at least, startup teams that include a female in a key founder role) need to show that they are indeed willing and able to help other female tech entrepreneurs succeed by applying to AngelCube, then succeeding in being selected into our 2014 program.” Once that happens, the $10,000 grant, from Stone’s personal money, will be made available to Startup Victoria. Writing on his blog, Stone said: “Startup Vic will need to apply this grant, if somebody wins it on their behalf, to programs aimed specifically at supporting (or increasing the number of) female tech entrepreneurs in Victoria during 2014 and/or 2015. “And, I’m hoping that the person (or people) in Melbourne who do have some ideas on how rebalance the ecosystem here will put their hands up and help Startup Vic light the way on this issue. I’m also hoping that by leading the way (supported by our cheque), Startup Vic will be able to find corporate and vested-interest sponsors to follow with their own financial and other assistance. It’s much easier to get money if you already have a little.” Stone is calling on other investors to match his donation. “I’m not done with this yet,” he says. “I won’t stop until I get other investors to join me in giving money to help solve the problem.” @mattallen You could start by matching my donation for @StartupVic's FTF fund $ for $. I'll release whatever % you match immed. @founding— Adrian Stone (@SmallTimeVC) April 5, 2014 And @scale_investors can you match all/part so @StartupVic can really get something going? "Balancing the gender divide" http://t.co/YEDcIXsJwh— Adrian Stone (@SmallTimeVC) April 5, 2014 Stone says he’s already organised a meeting with Scale, a fund run by successful female investors who fund female led startups. He was inspired to make the proposed donations when he came across the Founder’s Institute Female Founder Fellowship program, which allows females to apply to the Founder Institute for free ($50 value), and also provide a free course fees to our best female applicant in each city ($1100 value). Stone he looked at it and thought that he could do better. “It’s really just a marketing exercise on their part, so I did the same for AngelCube, and then did something bigger,” he says. Claire Robertson, Founder Institute co-director of the Perth chapter says that the Fellowship program has encouraged female applicants with just over 20% of their applicants being women. “Within the Perth tech startup ecosystem I'd anecdotally estimate that women represent between about 10-15% of attendees at most startup and technology focussed events, excluding those that target women specifically,” Robertson says. “Based on those numbers I think that the fellowship does produce some incentive.” Robertson has just returned from the USA with a long list of ideas on how to increase female participation in the sector. “I think that there's plenty of scope to increase female engagement in the sector, going forward,” she says. Startup Victoria chair Leni Mayo says at this stage they would be looking for someone who was working to solve the problem of lack of females in startups to be a chair of a committee on female tech entrepreneurship. “What we’d do from there is get a clear understanding and articulation of what the problem was, and then how we can solve it,” Mayo says. Mayo says they are looking for someone passionate about the problem to lead the committee.
Automated document processing start-up Breezedocs has locked in a $250,000 grant from Commercialisation Australia, the federal government’s venture capital organisation. The start-up has been developing the product for two years. They launched a beta round as an entity called OneTouch and launched to the market in August 2012. Co-founder and managing director Hany Pham told StartupSmart they waited until they were sure they met all the criteria before applying. “Commercialisation Australia is great but it’s a tricky little window you need to be in, post research and development but pre-revenue,” Pham says, adding while they’re making revenue now they had minimal revenue when they applied. “As an enterprise start-up, you launch quietly and if that doesn’t work as great as you hoped you launch again with the feedback from the users.” In a statement, Commercialisation Australia chief executive Doron Ben-Meir said their support of Breezedocs went beyond the invested funds. “In addition to grant funding, Commercialisation Australia provides companies such as Breezedocs with access to our expert network of successful entrepreneurs, domain experts, professional investors and strategic corporates which helps them get to where they need to be faster.” The funds will go towards building the engineering team and expanding their Australian operations and customer network. Breezedocs intends to launch an office in the United States in late 2014 and have already begun working with clients. “We’re already getting started there so we’re up late at night doing phone calls for the US time zone and why we always sign off our emails with the US number,” Pham says. This is the start-ups second funding round, after raising $250,000 in 2013 private equity investors including Angelcube accelerator co-founder Adrian Stone and economist Nicholas Gruen.
Leading US investor Jonathan Teo will visit Melbourne next month to meet local start-ups and entrepreneurs and speak at an event hosted by investor group Investors’ Org. Adrian Stone, chairman of Investors’ Org, which organised Teo’s visit, said in a statement the group was “super excited” that Teo was visiting and checking out Melbourne’s start-up sector. “In recent years Melbourne has been home to a number of very successful start-ups, including 99designs, Kaggle and Catch of the Day, and RetailMeNot,” Stone says. RetailMeNot recently listed on the Nasdaq stock exchange in the US. Teo is the managing director of venture capital firm General Catalyst Partners and was involved with Twitter, which is estimated to be worth around $11 billion, Instagram, which was sold to Facebook for $1 billion and Snapchat, a photo-sharing platform valued at $800 million. While in Melbourne, Teo is also due to meet government innovation officials. Teo has a Bachelor of Science in electrical engineering from Sydney University, a Masters from Stanford University in the US and managed several engineering teams at Google. His profile on the General Catalyst Partners website says his areas of investment interest are consumer internet services and infrastructure. In a recent interview with Forbes, Teo said while he didn’t know what the next big thing in consumer applications would be, he has been focusing his efforts “on culture and its enablement in the digital realm”. “My job is not to read the future, but to see the needs of people all around the world (thus all the international interest) and find the common threads of need and desire that can be expressed through product,” he told Forbes.
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.
Failure. It’s an ominous word that comes with plenty of negative connotations. Especially in Australia where success is celebrated and failure frowned upon. Just look at the adulation heaped on successful sportspeople compared with the ire directed at those who don’t meet expectations, like the Australian cricket team. But for many in Australia’s entrepreneurial community, failure is not a scary concept. In fact, it’s embraced and welcomed for the learning opportunities it can provide, lessons that can take entrepreneurs further down the road to success. As such, they say the attitude to failure in Australia needs to change so that entrepreneurs and start-ups are encouraged to take risks without the fear of being stigmatised if they fail. Here’s what Aaron Birkby, a co-founder at incubator Silicon Lakes, AngelCube co-founder Adrian Stone, Blue Chilli’s chief executive Sebastien Eckersley-Maslin and Innovyz Start managing director Dr Jana Matthews, say are the best things about failure. Learning from mistakes It’s the most obvious thing to take from failure. If you or someone else has done something wrong, you know not to do it again. Birkby, Stone, Eckersley-Maslin and Matthews all highlighted this as a key positive of failure. “Failure is an opportunity to learn,” says Stone, while Birkby says: “Success can only teach us what works. Failure teaches us what doesn’t.” Matthews says mentors at Innovyz Start take part in a panel discussion to talk about their worst mistakes and what they learned. “As people ‘go public’ about their mistakes and failures, others learn how to recognise the patterns and not make those mistakes themselves,” she says. Eckersley-Maslin points out that “if you fail and lose a couple of hundred thousand dollars, you won’t do that again”. Builds “character” As the old saying goes, what doesn’t kill you makes you stronger. Birkby says failure builds emotional intelligence and intuition, with the “street smarts” fundamental to being a successful entrepreneur coming from experience. “Those experiences are a multitude of varying degrees of success and failure, both of which teach us in different ways,” he says. Eckerlsey-Maslin says failure teaches people to be humble about success. “We’re great at supporting the underdog in Australia, but we do have a problem with the `tall poppy syndrome’. Being successful can be confused with arrogance.” He adds that failure teaches people not to fear failure. Stone says while failure is “inevitable”, it’s part of the scientific process of discovery and should be embraced by business for the same reason. Matthews notes that failure can reveal a lot about individuals in a team. “When something doesn’t turn out as planned, does your team spend time analysing the data and asking why this happened, or shifting blame from person to person?” she says. “Failure can be a crucible that enables you to learn the truth about people sooner, rather than later when it’s more difficult and expensive to make changes.” Story continues on page 2. Please click below. Provides motivation and boosts appetite for risk “Humans are engineered to be motivated by both seeking pleasure and avoiding pain,” says Birkby. “So failures can become as motivating as our successes.” Birkby also says that failure can build risk tolerance levels and courage, enabling people to take greater and smarter business risks in the future. Eckersley-Maslin agrees. “To be entrepreneurial you have to break rules and take risks,” he says. “With risk comes failure. Failure teaches you to push the limits.” He adds that pushing those limits teaches entrepreneurs where the “edge” is so it can be avoided. “If you fear failure, you’ll never be there.” Failing fast and early Stone says failing fast and failing often is now a key strategy of a new wave of start-ups. “It encourages businesses to launch much earlier than they otherwise would, and show products and services to their customers that may still have imperfections or even gaping holes, all for the purpose of seeing if their ideas can succeed or fail much earlier,” he says. “If customers like what they see, the founders can quickly and iteratively improve their products. If customers don’t like what they see, the founders can get back to the drawing board much earlier and try and try again.” Matthews also sees benefits in the fail fast and early concept. “It’s good to fail early, when recovery is easy and doesn’t cost much,” she says, adding that companies in ANZ Innovyz Start’s program “fail” and pivot several times during their 13-week course. Don’t give up Stone notes that it’s suggested Thomas Edison failed 1000 times before finding the right filament for his lightbulb invention. “Where would be we if Edison gave up, even after the 900th attempt,” he says. “You will probably fail in 100 small things and a few large ones as you try and start your own business; the only real failure is when you give up. It only takes one success to wipe out all of those prior failures.” Matthews has a similar view, recounting the story of a college student asking an entrepreneur what they needed to do to become as successful as the entrepreneur. “The answer was: ‘Be prepared to fail at least seven times’.” “Each time you fail, you can deduct one more from the magic number of `seven’ failures. But this only works if you take time to learn from something that didn’t turn out as expected. Study the pattern of problems, recognise the signs, and don’t make that mistake again,” Matthews says. For Birkby, failure means that “you actually showed up in the first place”. “True failure is really not participating at all.”
What are the main issues Australian start-ups are grappling with? Accountancy and business advisor network DFK recently conducted a survey of its clients and staff to identify the top 10. We’ve already highlighted number 10, cloud computing, and number nine, exit strategies. The beefy Australian dollar is in at number eight, while political uncertainty is seventh, growing pains number six, while number five is how to hire and keep staff or let them go quickly. Number four was falling consumer consumption and number three is tax. We’re now at issue number two -- funding. The DFK survey shows the second hardest challenge for start-ups is – not surprisingly – funding. Raising money is tough – especially if you have few assets and no useful network – but don’t give up! There are opportunities out there. The banks are usually very restrictive when it comes to lending money to start-ups, especially if you have little or no assets yourself. Still, there are opportunities, it all depends on you. What is your experience? How long have you been in the industry you’re planning to start the business in? Do you have good references? Do you have a great mentor to support you? How do you carry yourself? So, you tick all those boxes? Well, pull up your socks even further. Create the best business plan that there ever was. Be sure your business plan contains all the different parts: organisational, marketing, operational, financial and risk analysis, etc. If you don’t know how to do it, get someone to help you. There are plenty of different solutions. Use your accountant or business advisor or do it yourself – just Google business plans. The level of funding required will vary. “It depends what business you’re starting, but if it’s not cost intensive, maybe the balance on your credit card will be enough. Of course, if you’re going into heavy manufacturing then other solutions are necessary,” says Cheree Woolcock, partner of DFK Australia New Zealand. ANZ has recently announced that they are targeting the small business market, so it looks like NAB will get some competition, which is good for you. Recently, Nick Reade, ANZ general manager of small business, was quoted in The Australian saying many banks don’t play in the start-up field: “There are a couple of hundred thousand new small businesses every year and we feel that we need to be in that market.” “We can only applaud the bank for being active. Who knows what business Australia would have missed out on, due to lack of capital,” thinks Woolcock. ANZ said it was now approving more than seven out of ten lending applications from new small operations, a proportion it wants to increase. This development is gaining pace, and as we see here at SUS, many new businesses are online-only. “We see that some banks have been reluctant to lend to online-only business, but I think banks also need to adjust to the cloud-business-world,” says Woolcock. There are other choices for people now as well, particularly in the start-up space. There is a lot of hype around angel investors, seed capital and crowdfunding, so people might not be as willing to go to the bank. Adrian Stone knows this better than anyone else as co-founder of Angel Cube and winner of the Best Start-up Investor award. They take a minority equity stake in internet companies and in return provide seed capital, mentorship, marketing, connections, administrative help and support services (such as legal, accounting and office space). “I don’t see anyone around me using the bank system. By the time they react, the business is already up and running, and sold. The lifecycle for our entrepreneurs is four years,” says Stone. The web-based businesses in Australia (and elsewhere) are working in an environment characterised by low costs and high speed. “The entrepreneurs that go through our program are walking out with $150,000 to $200,000 after six to nine months,” tells Stone. So there is hope out there for your business too. How to best get funding within the bank system: Polish and perfect yourself and your skills Organise credible references Produce an outstanding business plan Keep a clean credit history Start your business in different steps with the funding you get How to best get funding outside the bank system: Government grants – plus there are many other grants as well, locally, different areas and for particular business owners Angel investors Crowdfunding Seed funding is a form of securities offering where an investor purchases part of a business. There are many different types of funding depending on what sector your business is in.
An international stock exchange aimed at solving start-up capital issues went live this week, launched by René Römer, chief executive of the Dutch Caribbean Securities Exchange. The StartUp Stock Exchange (SSX) is a global marketplace that connects entrepreneurs to investors. It is designed for early stage start-ups looking to raise growth and development capital. The SSX was founded by serial entrepreneurs Ian Haet and Brian Niessen, who say capital is an ongoing issue for start-ups not based in major start-up hot spots such as Silicon Valley, New York and London. “Worldwide many entrepreneurs are building excellent businesses but don’t have access to the funding they need. At the same time, investors of all sizes don’t have access to vetted companies and diverse early stage opportunities,” Haet says in a statement. Haet told StartupSmart that Australian start-ups would be interested in participating in the exchange because it would connect them to a pool of international investors and give them greater fundraising flexibility. “As an entrepreneur myself, I know that fundraising can become a dominant activity for a young company,” he says. Start-up companies have to apply and be vetted by the SSX before being able to raise funds, and investors have to be verified before they can start investing. “Once verification is complete, investors can fund their client account and pledge to buy shares of our initial public offerings (IPO’s),” said Haet in a release. “We are commencing with two IPOs: a daily private sales company and Software as a Service (Sas) company, focused on small business compliance.” Based in Willemstad, the capital city of the Caribbean island-nation of Curacao, the SSX complies with the legal framework of regulations of the Dutch Caribbean Securities Exchange (DCSX), an international exchange for listing and trading securities. Haet told StartupSmart the SSX would be a good fit for companies looking to raise between $100,000 and $2,500,000 (USD). “Every company that lists must pass a six-step vetting process that reviews business plan, team, corporate and legal factors. At each step SSX provides actionable feedback so the company is also receiving advice along the way,” says Haet. Adrian Stone, co-founder of start-up accelerator AngelCube and investor group Investor Inc, told StartupSmart that anything that provided liquidity for start-ups was welcome, but the initiative would need time to develop. “The whole point of the exchange is to provide liquidity, but just because you hang your shingle up and say you’re a stock exchange doesn’t mean you’ll actually get it for investors or companies,” says Stone. “Small stock exchanges haven’t typically raised the critical mass needed for the liquidity for investors. They have lots of ground to be covered before they can prove they’re doing what they aim to for start-ups and investors.” Stone added that even if the exchange did take off, start-ups were still likely to find themselves needing to raise the majority of their funds through other means. “It might be a good way to top up the funds, but won’t be a panacea to the big problem of raising money. You’ll still have to raise the bulk of the money from your networks,” he says.
Finding a co-founder is one of those things that can happen in an instant or it can take months of fruitless searching. While a lot of it depends on an entrepreneur’s networks and specific requirements, it seems there is also an element of luck involved, and not everyone is fortunate enough to find their co-founder in a chance meeting. Indeed, some entrepreneurs go to great lengths to find the perfect co-founder. Melbourne-based entrepreneur Marc Harrison offered a $2,000 bounty during his hunt for tech co-founders, while Sydneysider Ryan Wardell set up Cofounder Speed Date following his own struggle to find a sidekick. Even start-up powerhouses like Pollenizer have been known to put the feelers out for co-founders. Earlier this week, Pollenizer said it was seeking co-founders for four of its start-ups. And these start-ups aren’t duds either. One would involve a partnership with a Skype co-founder while the other would involve working with the former chief executive of CareerOne. It’s also worth noting an increasing number of accelerators have specific requirements regarding co-founders. In January, StartupSmart spoke to Australian start-up 7write.com about its struggle to find a third co-founder after being selected as a finalist for Startupbootcamp Amsterdam. On its website, Startupbootcamp Amsterdam says it prefers teams with three or more founders. “You can apply with two founders but to really accelerate your start-up we prefer a strong team of three people,” it says. Closer to home, Melbourne-based start-up accelerator AngelCube recently announced it won’t be taking on sole founders in future rounds. “I think we’ve learnt some lessons from the last round,” AngelCube co-founder Adrian Stone told StartupSmart in April. “We had too many sole founders and quickly realised being a sole founder is too much of a big task… [in a three-month program]. “[We realised] our program is not going to happen for a sole founder. We’re looking much more at teams. “I think what we’ve learnt is one founder is too few and four is too many. The jury’s out on whether two or three is right.” This means more start-ups are scrambling to find good talent, and find it fast. One entrepreneur facing this predicament is Tablo Publishing founder Ash Davies, who was named Best Young Entrepreneur at the 2013 StartupSmart Awards in March. Tablo Publishing helps authors publish their work from anywhere in the world and reach a global network of iBookstores. Davies, who has been accepted into the AngelCube program, told StartupSmart he is looking for a tech co-founder. “I am now four weeks into [the program] and working very hard and am at the point now where I could go a lot further if I had someone alongside me,” Davies says. “I’m looking for someone with great technical skills who can build applications but also someone with a strong sense of vision. “The biggest thing I’m looking for is someone who is able to learn fast.” Davies admits it is a tough process. “It’s like dating. You’ve got to match the personality as much as the skills,” he says. So how does one find a co-founder? StartupSmart spoke to Pollenizer co-founder Mick Liubinskas to determine what’s involved. Show your face Liubinskas says Australian start-ups don’t have the luxury of waiting for the right person to present themselves, so if you need a co-founder you have to make it happen. “Being in Australia we don’t have what the Valley or Israel have, where you can find lots and lots of co-founders waiting to take the risk,” he says. “The challenge is talented people who won’t take the risk or people who will take the risk but aren’t talented. “You want to find someone who’s so good they could possibly do it by themselves. The thing I encourage people to do is go to as many events as possible.” Conduct a trial “Say to people, ‘Hey, when we have a cup of coffee let’s sketch out one idea’,” Liubinskas says. “Try to work together as quickly as you can but don’t make [the project] so small that people can give it up easily. Be very aware that’s not going to give you [what you need].” Make them an offer “You have to have a clear idea and pitch it very strongly. Be specific about what you do and drive it as much as you can. You also need to put out an attractive offer,” Liubinskas says. “If you’re a non-technical person who’s really trying to get started, you may have to give them more equity. “You also need to make sure any equity is vested and that should apply to you as well. At Pollenizer, everyone’s equity for effort is earned over time.” Do as much as you can beforehand Finding any kind of co-founder is difficult, says Liubinskas, but finding a tech co-founder is particularly tricky because they are in such high demand and therefore receive lots of offers. In this situation, Liubinskas says entrepreneurs should attempt to do as much of the work as they can on their own. “Good entrepreneurs will always find a way and that’s part of the fun,” he says. “There are a lot of platforms where you can do manual testing without building a product. Once you actually start building, everything can actually slow down. “The more progress you can make in building a product, the more attractive it’s going to be for a co-founder and the easier it is for them to know what they need to build.” Take your time While it can be tempting to hire the first person who looks your way, Liubinskas says entrepreneurs must ensure the co-founder they choose is the right one for their start-up. “It’s tough with so much competition around… Do it slowly and carefully rather than doing it recklessly – that’s the main thing,” he says.
Melbourne start-up OneTouch, which offers technology that allows businesses to scan and process documents such as pay slips and tax returns, has kicked off a tour of Silicon Valley for investors and customers after snaring $150,000 in funding. The business secured the cash from Adrian Stone, founder of tech incubator AngelCube, which recently won StartupSmart’s Best Start-up Investor award, and high-profile economist Nicholas Gruen, who has previously backed Aussie start-ups Kaggle and BiNu. Fresh from the funding injection, OneTouch, founded in 2011 by Hany Pham and John Schagen (pictured below), is currently traversing California’s tech scene in the hope of striking further partnerships to help boost the business. OneTouch is in the US as part of the Advance Innovation program, which picked 25 Australian start-ups for the sought-after Silicon Valley tour last month. The business has developed B2B-focused software that automatically reads and captures information from any document, such as pay slips, tax returns and receipts. Pham, who has a team of developers in Melbourne and offshore, tells StartupSmart the idea originates from his background as a mortgage broker, where he had to deal with a large volume of documents. “We wanted to create software that could read and process these documents – it’s now possibly a bigger deal than we first thought,” he says from San Francisco. Above: Hany Pham and John Schagen. “The feedback (in the US) has been that it’s solving a real problem in managing documents. I don’t need to go too much into the problem because people understand it.” “This kind of technology is very popular right now, as is enterprise software.” Pham says he has put $200,000 of his own money into the business in order to develop and iterate the technology. He has since used his connections to strike a deal with Connective, the second largest mortgage aggregator in Australia, which linked OneTouch to more than 1600 brokers. “We’ll look to target any industry that involves a lot of documents – it’s still early days,” he says. “We’re toying with a subscription model and a cost-per-page model. It will depend on the feedback.” Pham says the strength of his personal relationships with Stone and Gruen opened the doorway to the $150,000 investment. “Adrian is very free and willing to help start-ups and after we had evidence of traction, which was people interested in it, he agreed to back us,” he says. “Nick expressed an interest right away. I didn’t show him a PowerPoint slide – I guess he’s mainly investing in me and John.” “With B2B enterprise software, there’s a clear revenue model – it’s not like launching a rocket and hoping for the best.” “It’s clear who our customer is and we demonstrated to Nick that we are the right guys to back. I’ve got a strong sales background and John has a strong software background.” “We’ve got a reasonable runway with capital now. I will probably want to raise a series A here in Silicon Valley, but it’s more important to build networks for customers. We want to build a tailored model for the US market.”
Melbourne-based start-up accelerator AngelCube has made several small changes to its program, including distancing itself from start-ups with sole founders, after opening applications for 2013. AngelCube, named Best Start-up Investor at the 2013 StartupSmart Awards, offers seed capital, mentorship, connections and opportunities to web start-ups. Applications for the 2013 program will close next week on April 12. Once applications have closed, 20 finalists will be chosen to pitch to a selection panel of high-profile tech players. From those 20, AngelCube will select eight start-ups to participate. The program is completed over a three-month period, after which the start-ups head to the United States to pitch to a roomful of investors. There are a number of noteworthy start-ups in the AngelCube fold, including Kickfolio, which raised $100,000 from US investors before being accepted into US-based accelerator 500 Startups. Kickfolio is now closing a Series A funding round. Other AngelCube success stories include LIFX, Broccol-e-games and shopping recommendation engine Giveable, which has raised $150,000. According to AngelCube co-founder Adrian Stone, about half of AngelCube’s graduate companies go on to raise follow-on funding from Australian and overseas investors within six months of completing the program. Successful applicants for this year’s program will receive $20,000 in seed funding, six months of free desk space and access to a group of more than 50 mentors. Mentors include RetailMeNot founders Guy King and Bevan Clark, Pollenizer co-founder Mick Luibinskas and Nic Hodges of MediaComm. Stone told StartupSmart AngelCube will be doing a few things differently this year. “I think we’ve learnt some lessons from the last round,” Stone says. “We had too many sole founders and quickly realised being a sole founder is too much of a big task… [in a three-month program],” he says. “[We realised] our program is not going to happen for a sole founder. We’re looking much more at teams. “I think what we’ve learnt is one founder is too few and four is too many. The jury’s out on whether two or three is right.” Stone also admits the net needs to be cast a little wider this year. “A lot of the ideas were probably too small [last year]. They focused on a niche market in Australia only. If you have a niche market and your market is Australia, that’s not what we’d call a scalable start-up,” he says. “So we’re looking for big ideas.” Stone is quick to point out the program won’t be easy. “Anyone would love somebody to hold their hand. We’ve realised that is probably counterproductive,” he says. “It’s not our job to build these companies. It’s their job to prove they’re entrepreneurs, and we produce a great environment to help them bloom and succeed. “There’ll be fewer sessions in the weeks. [Last year,] we had too many people in and out, talking to our start-ups and distracting them from the game of building their business. “The second thing is, our start-ups started pitching their ideas too early. “This year, we want them to focus on ensuring they have product-market fit by talking to customers and then start pitching to investors.”
The co-founder of Melbourne-based incubator AngelCube says he makes a conscious effort to recruit female mentors, but believes more can be done to entice women into the industry.
Melbourne Population: 4.07 million Start-up survival rate: 74.3% (2007 to 2009)