Australian bug tracker startup BugHerd has raised $1 million in Series A funding, part of which will be used to roll out a more robust and powerful version of its task management system called Stack. BugHerd provides web developers and designers a way of managing website development issues quickly and easily. It is a graduate of Australian startup incubator Startmate and Silicon Valley-based 500 Startups. It has over 50,000 users worldwide and 1000 new business customers joining every month. Some of the world’s largest digital agencies are among its users including JWT, DDB, Publicis and BBDO. The bulk of the funding comes from Australia-based Tank Stream Ventures and Starfish Ventures, in conjunction with 500 Startups. BugHerd co-founders Alan Downie and Matt Milosavljevic say the funds allow the company to accelerate its growth plans with a focus on delivering visual, client-focused tools for digital and creative agencies. “There are plenty of bug trackers and project management tools out there, but they tend to put a focus solely on the development team, forgetting that there are other people involved in the project,” Downie says. “This is a dilemma we can solve. “As product development timelines shrink and design becomes mission-critical, regular feedback from stakeholders and clients using tools like BugHerd can make thousands of dollars difference to a project’s budget.” Tank Stream Ventures investment manager Rui Rodrigues says BugHerd’s high growth was one of the attributes that made it an appealing investment. “Software is present more than ever in today’s world and BugHerd has an ambitious vision to transform the way businesses develop online projects in a collaborative way,” he says. “TSV has a strong focus on software-as-a-service businesses and we’re thrilled to be working with BugHerd team, who we believe have managed to build significant traction and are well placed to execute on that vision.” Starfish Ventures investment director Anthony Glenning agreed that BugHerd’s high growth was attractive. “Starfish is delighted with BugHerd’s growth to date,” he says. “The expanded product offering envisioned is set to continue that high growth trajectory. Starfish is excited to participate again in helping BugHerd achieve its goals.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
A debate about the role and size of the early stage venture capital community was sparked last week by David Gonski’s comments that Australian entrepreneurs are being driven overseas due to a lack of available funds. Speaking at an Australia-Israel Chamber of Commerce event, the Australian Future Fund and Coca-Cola Amatil chairman declared the diaspora of Australian entrepreneurs heading overseas to find investment a “tragedy”. “We need an industry that is involved in early-stage investment and I don’t think we can get that when the major pools of money are being judged on 30, 60, 90 or 180 days because these things take much longer,” Gonski said. However, Venture Advisory executive director, Sydney Angels member, and investor Adrian Bunter told StartupSmart Gonski was incorrect in his assumption there is no adequate pool of funds. “In some respects he said there were no early stage funds and the only option was to leave Australia in the early stage. But the reality is start-ups don’t need to leave to raise funds and there is a lot of investment activity going on here,” Bunter says. According to a PwC and Google report on the start-up ecosystem released earlier this year, there are over 500 angel investors, 10 angel groups and one sidecar fund, and almost $600 million in management by 20 venture capital groups. “But there is always more money that can go into the system and he is right that a lot more needs to be done, especially from an institutional investor perspective. Most super funds don’t look at early stage start-ups and are more guided by those shorter couple of month return windows.” Bunter says encouraging super funds to back start-ups will not be an easy task. “It is very difficult for institutional groups to invest in start-ups because they’re so large. They’d need to allocate a significant proportion funds to see the returns their shareholders expect. “Venture capital here really started to grow during the dot.com phase, and towards the peak of it, so venture capital doesn’t have a great track record over the last ten years or so. Therefore the super funds aren’t allocating much money to venture yet.” Bunter adds the amount of early stage investing in Australia is probably considerably higher than the Google statistics imply, as much of the early stage investment comes from personal networks of family and friends rather than through networks and funds. “There is a huge amount of investors who are comfortable with that level of risk, so concerns about high-risk investments are not exactly the problem,” Bunter says. Concerns around the lack of funding at the series A-round level have largely been met, according to Kar-Mei Tang, head of research at national venture capital industry association AVCAL who addressed an event for venture capital investors in Sydney late last month. “The start-up sector has been an emerging force over the last three years and we’re starting to see more founder investors and super angel activity which will filter through to venture capital,” Tang said. Alan Jones is an investor and advisor for a range of start-ups including BugHerd, ScriptRock and through the Startmate accelerator program and Blackbird Venture Capital portfolio. He told StartupSmart investing in start-ups would become increasingly popular as people seek investment options not shackled to commodity prices but instead driven by smart people tapping into new trends. “People who are considering investing in start-ups often say it’s risky. But for those of us who are already doing it, we know we’re investing in people, technology and innovation. To me, that seems like a much safer investment than some of the other sectors where Australians invest such as mining, agriculture and aquaculture,” Jones says. Jones says the tendency of Australian investors to pour money into industries vulnerable to fluctuating commodity prices needs to evolve. “As no one in Australia has any influence on the future of commodity prices, it’s all speculation,” Jones says. “Sure, we have different challenges about gaining capital and getting permission to shoot for the moon, but usually when you start-up here, you’re servicing a global market and there are lots of options.” While there is significant risk involved in investing in early stage companies, Jones says the early stage start-up investment community in Australia is growing as investors gravitate towards more personal connections with their investee companies. “I’d rather back someone with a great technological idea, because the risks there are much more about picking the sentiment of customers correctly. The biggest thing about the tech start-up industry is there is no such as thing as a unique idea, so you need to find and back the team that will be the best at executing on their plans,” Jones says.
The federal government is set to consult with Australian industry over the tax treatment of employee share option schemes, which start-ups say needs to be overhauled to promote growth. The government is aware the current tax situation around employee shares creates difficulties for some sectors of the economy, especially start-ups, and will consult with industry on the impact of tax and administration requirements for the schemes, StartupSmart has been told. Revamping the tax treatment of employee share option programs is fundamental to growing the start-up sector in Australia, says Malcolm Thornton, investment director at venture capital fund Starfish Ventures. “It’s a key currency that people employ to keep highly talented people on board while conserving cash,” says Thornton. The start-up sector can expect consultations with the relevant federal government departments in the future, with sources telling StartupSmart the government is aware the current tax situation around employee shares creates difficulties for some sectors of the economy, especially start-ups. Employee share option programs enable start-ups to attract and retain leading talent to their company by offering staff a proportion of the future company on top of the (often low) wages they are able to pay. The complexity of the current system has held Australian start-ups back from embracing the system. A key drawback is that employees can become liable for significant amounts of tax based on the asset’s value, even if it’s not currently earning any capital. Thornton says an update of taxation rules around the program is “imperative” for the start-up sector. “It’s completely complicated and convoluted in Australia, compared to when our companies are US-based, and we can just take a program off the shelf and every lawyer in San Francisco knows how to manage the process.” Thornton says the current system fails to grasp the variety of companies that would benefit from the implementation of such schemes. “Start-ups and high growth companies have very different characteristics to large, mature multi-decade companies,” he says. “One of the key elements to appreciate is that there is little to no value in the options until the company has grown and either lists or is acquired.” Alan Downie, chief executive and co-founder of BugHerd, a visual bug tracker for web developers, has recently implemented an employee share scheme for one of his six staff and is working on setting the scheme up for another employee. “It’s a critical issue for start-ups,” says Downie. “As a start-up you don’t have a lot of cash so it’s the way to keep talent. If you have to compete with guys like Telstra and Atlassian for developers, all you’ve really got is the growing company equity.” Downie and his co-founder Matt Milosavljevic spent 12 months working out how to implement the scheme for their first hire, a developer. “It was a very long and tedious and expensive process,” he says. “There is no standard way to do it and that’s the problem.” “When our developer started with us, he was on a third of what he could make as a developer. But he was so engaged and he got we didn’t have the money, so it was really important to him to get a piece of the company.” Downie says he spoke to four accountants, a few lawyers and several entrepreneurs about how to implement an employee share scheme, and they all had different answers. “It’s still not ideal for the employee, as they still have a bit of uncertainty. From the employer’s point of view, you want to have solid understanding of what the government wants, rather than jumping through hurdles.” He says the Australian Tax Office hasn’t spoken to any of the parties involved, so it’s still untested. According to a report by the ABC, the employee share options scheme will be explored in the next update to the National Digital Economy Strategy.
Start-ups often underestimate the time required to raise capital, says the co-founder of Starfish Ventures, following a $2 million investment in an email and web communication company.
The co-working concept is spreading its tentacles across Australia, with the past week seeing a series of “first ever” launches – in Newcastle, Adelaide and, most recently, Perth.
Melbourne-based gaming start-up Scalify is set to rapidly ramp up its growth after receiving a $2 million investment from Starfish Ventures.
Australian-founded tech start-up Veokami is among the latest batch of companies to participate in the 500 Startups program, as it prepares for an investor pitch early next year.
US tech accelerator 500 Startups held its second-ever Demo Day earlier this week, attended by 31 start-ups from around the globe, including Australian start-up BugHerd.
Today on StartupSmart, we explore US tech accelerator 500 Startups' investment in 21 new companies in its latest founding round, including an Australian start-up, BugHerd.
US tech accelerator 500 Startups has invested in 21 new companies in its latest founding round, including Australian start-up BugHerd.