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Should you be California dreaming?

Thursday, 10 February 2011 | By Michelle Hammond

For some high tech Australian start-ups, success can still be defined by two words: Silicon Valley.

 

Wedged between the San Francisco Bay and the suburbs of San Jose, Silicon Valley is widely regarded as the epicentre of high tech innovation and development, making it the ultimate destination for many companies throughout the world.

 

It’s estimated that a third of all venture capital spending in the US is focused on Silicon Valley, so the lure for Australians start-ups is clear. The recent Stateside success of Australian firms such as Freelancer.com and The Broth suggests that US investors are increasingly in tune with the innovation taking place Down Under.

 

Making the move

 

But what does it take to get to Silicon Valley, how can it transform your business, and is it worth it?

 

According to Matt Barrie, chief executive of Sydney-based outsourcing marketplace Freelancer.com, Australian start-ups have traditionally headed to the US because it is the largest market in the world, which means more access to capital.

 

“There’s a whole group of ‘Australia mafia’ in Silicon Valley now who have gone across and in some cases even sold their companies to giants like Google,” Barrie says.

 

“It used to be that the only exposure many Americans had of Australia was through [TV program] The Crocodile Hunter.”

 

“Increasingly however, US VCs I’ve spoken to are more open to investing in Australia and quite like the Australian companies they’ve seen.”

 

“Many are now actively trying to source deals down here, particularly because start-up valuations are so high in the valley.”

 

According to Barrie, the benefits of heading to the US depend on the kind of business you’re starting.

 

“If you’re selling through a website like Freelancer.com, it doesn’t really matter where you’re based. If you are selling seminconductors, however, you need to be where the customer is, which is Silicon Valley,” he says.

 

“The great thing is that the cost to start a company has come right down thanks to the internet and things like online outsourcing.”

 

“As a result, a whole new class of investor has emerged; ‘super angels’ such as YCombinator or TechStars that fund companies to the tune of $20,000 or $50,000 instead of $5 million because it’s just so cheap to get going.”

 

Starting up small

 

Viki Forrest, chief executive of the US-based ANZA Technology Network, agrees the shift to internet-based solutions means many business ventures only require a small sum of start-up capital.

 

“I think this is exactly why we’re seeing incubators and angel groups springing up in Australia – a small angel investment can make a real difference in this model,” she says.

 

Forrest cites Australian group-buying site Spreets as a prime example, which was recently sold to Yahoo!7 in an overnight deal worth a whopping $40 million.

 

“Of course, there was a tremendous amount of hard work and great talent that went into Spreets,” Forrest says.

 

“My point is that you can afford to take a chance when the investment is quite small, and the returns can be relatively big. I’m hoping we’ll ultimately see a change in the risk profile in Australia as a result of this trend – it could be a game-changer.”

 

Do you really need to head to the Valley?

 

Mick Liubinskas, co-founder of Australian incubator Pollenizer, which picked up Spreets, says the overall landscape in Australia is starting to change as companies choose to venture to the US much later, or not at all.

 

“The old model was to test your idea in Australia and then get it to the US as soon as possible… But a lot of Australian start-ups are now avoiding the US because it is so competitive,” he says.

 

“It can be more difficult to do a light launch in the US market – you have to hit it pretty hard.”

 

Amanda Price, chief executive and founder of ausEmerge; a support mechanism for Australian companies looking to enter the US market, agrees that success in Australia does not necessarily translate to the US.

 

“Unless you have lived and worked in the US for at least 12 months, then you should treat the US as if you just landed on the moon,” Price says.

 

“One of the biggest mistakes made by Australian businesspeople is assuming that Los Angeles and New York are representative of the US market. That could not be further from the truth.”

 

“If you really want to get to know the US consumer, then you need to understand the diversity of consumers in the different geographical areas.”

 

“Is your brand culturally appropriate for the US? Does the US consumer have the same value or benefit proposition as your Australian consumer? Can you really offer something truly unique?”

 

“Don’t risk your Australian business by overinvesting or taking your eye off the Australian market.”

 

StartupSmart spoke to three successful start-ups who have made it in Silicon Valley to see if the odessey is worthwhile for the next generation of fast-growth Australian businesses.

Patrick CollinsPatrick Collins is president of 5th Finger, a mobile marketing company that links brands to consumers via SMS, MMS, email and voice services.

 

What was your business idea?

 

5th Finger is the global authority on in-store mobile marketing, converting shoppers into buyers through in-store mobile apps. We bring our unique in-store shopper experience to over 15,000 stores with top retailers such as Victoria’s Secret, Bath & Body Works, Safeway, Jo-Ann and Jos. A. Bank.

 

Unmatched depth of experience and unique in-store mobile applications have made 5th Finger an award-winning global mobile marketing leader. Our apps inspire and guide customers, deliver m-coupons, enable m-commerce and create shopper loyalty.

 

Through integration with other consumer touch points including SMS, email, web and call centre, we ensure successful adoption of the mobile experience.

 

How did you look to commercialise it?


5th Finger had already been built into a successful business in Australia, which we sold to ninemsn in 2005. Since we are serial entrepreneurs, we decided to re-start the business in the US with a much tighter focus.

 

Based on the success of 5th Finger Australia and in partnership with ninemsn, we raised AUD $7 million in venture capital finance from Melbourne-based Starfish Venture Partners to relocate the team and bring the technology to the US.

 

 

Why did you head to the US?


When we decided to start our business in the US, we were also considering other markets such as Europe and Malaysia. We chose the US because the mobile marketing industry in the US was just starting to boom. The language barriers were lower and the market is large.

 

We chose to base ourselves in San Francisco in order to stay close to one of the largest capital markets in the world and also because the time zone overlap to Australia was much friendlier.

 

With the funding we raised from Starfish Venture Partners, we relocated a number of Australian employees to seed our new US company culture and to ensure we had the skills to hit the ground running.

 

How do you view the Australian market?


I will restrict my comments to the Australian high tech market. The Australian market is full of amazing entrepreneurs who are savvy and worldly professionals.

 

They have great business ideas and great execution capabilities. However, they are most often stifled; stifled by the population and size of our own country.

 

Companies that build consumer-facing propositions have a higher chance of success given that these business models tend to be less location-centric.

 

However, consumer-facing business models often demand higher levels of cash than the Australian investment industry has at its disposal.

 

In the US, a $500,000 seed round can be obtained for a good idea and a seasoned professional fairly easily. Only the rare business in Australia can obtain a seed round of that size off an idea and a prototype.

 

What does the Australian market need to do to better support these start-ups?


Australians form strong international networks. For instance, the Australian expat community is strong in San Francisco and Silicon Valley.

 

These Australians, including myself, could do more to support their fellow Aussies in starting their business in other markets, including in the US.

 

Groups like ANZA, the Australian American Chamber of Commerce, and Advance all provide great opportunities for Aussies to network. I do think these networks could consolidate and pool their energies.

 

Secondly, the Australian Export Market Development Grant has been a real boost for my business and helped us tremendously during the difficult times of the global financial crisis.

 

I’m very proud that the Australian government has such a scheme in place to help the export of Aussie technology.

 

Domestically, I believe that the Aussie market needs to view itself as a launching pad rather than a full blown market. Aussie companies who figure that out quickly seem to do well.

 

There is a general view that the Australian government could provide more financial support to start-ups. I do not believe that this is the government’s job and I think the size and type of the capital markets is the primary challenge in providing further capital to Australian companies.

 

What tips would you give to other tech start-ups?


In doing business in the US, my biggest tip is to focus. Due to the smaller size of our domestic market, we are forced to diversify our offerings in order to generate the revenue growth required.

 

As a result, great businesspeople in Australia tend to lead their companies to be great generalists in a given field.

 

5th Finger in Australia ran a broad business offering and we could compete well against other companies who ran broad business offerings. However in the US, companies fiercely go after a very specific client dollar in a specific market with a specific purpose.

 

It seems counterintuitive to an Aussie travelling to the US, where the opportunity seems so large, that they are unwilling to focus on just one particular client dollar when they have such a broad toolkit of products which could be of use.

 

We learned this lesson late and I have seen other Aussie companies come to the US and find it difficult to adjust to this dynamic.

 

What are your ambitions?


5th Finger is growing rapidly in the US and we are predicting 80% revenue growth this year. We see a fantastic opportunity for retailers to use the mobile phone to capitalise on the shifting consumer behavior when they’re standing in-store. We will be the largest business in the US servicing this sector.

 

Mobile is evolving beyond standalone m-commerce. 5th Finger offers in-store solutions that elevate the conversation from m-commerce to “m-enabled commerce” where we integrate the world of the in-store application and traditional m-commerce.

Ryan JuneeRyan Junee, is co-founder and former CEO of Omnisio, which was acquired by Google in 2008. Omnisio, founded in 2007 by Junee, Simon Ratner and Julian Frumar, enabled users to annotate and share videos from any website.

 

What was your business idea?


Omnisio was a web-based video editing platform that allowed users to enhance their YouTube videos with annotations, PowerPoint slides and more.

 

 

How did you look to commercialise it?

 

We were considering licensing the platform to companies and educational institutions as well as generating revenues from ads.  

 

Why did you head to the US?


We started the company in Silicon Valley because frankly, there is no better place in the world to start a technology company.

 

There is a wealth of support here from other entrepreneurs, investors, lawyers, PR firms, etc, all well versed in start-up best practices.

 

How do you view the Australian market?


The Australian market is very small and unfortunately is often ignored on the world stage. However, if you can build a successful company and dominate a particular market in Australia, you may have just as good a company as if you are one of 10 players in a market in the US.

 

 

What does the Australian market need to do to better support these start-ups?


Access to expertise from experienced entrepreneurs – Startmate is a great start – and access to capital at an early stage.

 

For example, more angel investors willing to take risks on start-ups at the earliest stages rather than VCs who tend to be more risk averse.

 

What tips would you give to other tech start-ups?


I guess one of my main pieces of advice is “Just do it”. You will learn far more from getting out there and building something than you will sitting at home pondering ideas. Even if the idea is not perfect, just get started because the idea is bound to change anyway.

 

What are your ambitions?


To build another successful company or two, hopefully one that truly changes the world, and then spend my time angel investing and helping the next generation of start-ups.

Howard KoenigHoward Koenig is CEO of Aruspex, which is a software-based workforce planning provider. It was founded in 2003.


 

What was your business idea?


Founded in 2003, Aruspex is the world’s leading Software as a Service company, focused solely on strategic workforce planning to help the world’s most successful companies plan and build their best workforce.

 

The Aruspex methodology and SaaS solution were developed through years of practical domain experience, complemented by deep technical skills. Headquartered in San Francisco, Aruspex has customers and offices around the world.

 

How did you commercialise it?


Aruspex CAPTure software lets companies monitor the progress of their strategic plans and alter the plans based on changes in the company or surrounding environment. High profile clients include Toyota and Starbucks.

 

The CAPTure SaaS solution is complemented by Aruspex Advisory Programs, which provide clients with hands-on education and ongoing guidance.


Why did you head to the US?


I think the classic reasons to head for the US are well understood; these include market size and valuations. Another primary driver is access to a critical number of vertical industry markets.

 

Australia is a market that lacks depth of vertical market adopters in many industries. This forces new solutions vendors to offer their solutions as cross-industry solutions. This runs counter to global trends of specialisation and industry adoption patterns.

 

How do you view the Australia market?


I view the Australian market as a great place to develop SW and validate the commercial marketability of new SW solutions.

 

What does the Australian market need to do to better support these start-ups?


Australia needs more venture capitalists with expertise in global markets. Also, there is a shortage of systems, engineers and architects with SaaS expertise, particularly with enterprise class applications.