Australia’s startup community has welcomed improvements to the employee share scheme legislation, but raised concerns about exemptions for ASX-listed businesses and employees with more than a 10% stake in the company. The Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015, tabled in Parliament this morning, will wind back changes made by the former Labor government in 2009 and allow startup employees who are issued with options to defer tax until they convert them into shares. The current legislation governing employee tax schemes has long been a headache for local startups wanting to attract talent to Australia. Matt Barrie, the chief executive of Freelancer, told StartupSmart the tax regimes in America and the UK are “far better” than what is in the tabled reforms. As it stands in the bill, companies with a turnover of more than $50 million will be exempt from the government’s tax concessions – as well as those listed on an approved stock or securities exchange. “There’s more than just the $50 million [issue] … The ASX exemption is a disaster,” he said. “Our government is paying lip service to supporting the technology industry.” Reuben Bramanathan, senior lawyer at Adroit Lawyers, told StartupSmart it was disappointing the government had not addressed “some of the key issues” with the draft legislation that were raised by the startup sector during the consultation process. “For example, the proper tax treatment is not available to employees with more than 10% of the company, which can cause problems for founders,” he said. “Another real problem is that, if an employee resigns from a company on good terms, and they keep their vested shares, they still have to pay income tax at that time. This taxing point applies even if they are unable to sell the shares at that point, for example, due to lockup restrictions in the shareholders’ agreement.” Small Business Minister Bruce Billson has defended the legislation, telling StartupSmart the bill was “unashamedly focused” on early stage startups and smaller enterprises. Those concerns aside, the changes have been welcomed with open arms. Peter Bradd, the a director at StartupAUS, says it's encouraging to see the goverment recognise the potential of Australian startups and take steps to rectify the tax treatment of share schemes. "Changes to the ESS will help Australian startups become strong drivers of increases in job creation and, because many help to drive technological change, this will lead to productivity gains and job creation for our economy," he says. Meanwhile the chief executive of the Australian Private Equity & Venture Capital Association, Yasser El-Ansary, said in a statement the tax treatment of share schemes has been “a major handbrake” on Australia’s startup ecosystem for almost six years. “There have been countless stories of home-grown Australian entrepreneurs packing their bags and relocating overseas because our tax rules in this area have been such a problem – especially when other countries around the world are going to great lengths to lure our entrepreneurs offshore,” he said. El-Ansary says all members of parliament should get behind the proposed changes now that they have been tabled. “The strength of our economy into the future will depend on our capacity to foster a more entrepreneurial culture where we encourage startups to attract and retain the best talent here in Australia.” The new rules governing employee share schemes are on track to come into effect on July 1. Follow StartupSmart on Facebook, Twitter, and LinkedIn. Buy tickets to the 2015 StartupSmart Awards.
Early stage tech startups are the focus of changes to the employee share scheme legislation introduced into Parliament on Wednesday. Small Business Minister Bruce Billson tabled the bill on Wednesday morning, saying the reforms will “restore and rebuild” startup incentives, which were taken away by the previous Labor government. Speaking to StartupSmart after the second reading, Billson said an effective employee share scheme framework is an important ingredient to any healthy economy. “There has been a consistent and loud chorus calling for change,” he said. “The incoming government recognised that and we’ve set out not only to correct the harm of those 2009 changes, but stepping forward with new concessions to bolster support and engagement for employee share schemes.” The changes Companies and employees who are issued with options will generally be able to defer tax until they exercise the options (convert the options to shares), rather than having to pay tax when those options vest. Eligible startups will be able to issue options or shares to their employees at a small discount, and have that discount exempt (for shares) or further deferred (for options) from income tax. The maximum time for tax deferral will be extended from seven to 15 years. The maximum individual ownership limit for accessing employee share scheme tax concessions will be increased from 5% to 10%. Eligible startups need to have an annual turnover of less than $50 million. In the event a startup raises venture capital, that will not affect the eligibility threshold. If a startup is acquired before it has operated for three years, its original shareholders will still get their 15% tax deduction on the sale of the shares. Billson says the changes are on track to come into effect in the new financial year. “I’ve had encouraging early responses with opposition members and I’m optimistic that will all be implemented as per a tight and demanding timetable which is exactly what the startup industry were calling for,” he said. StartupSmart understands there is support from within the Labor party to overhaul the current rules governing employee share schemes. The legislation tabled in parliament today not only allows employees at eligible startups to receive tax concessions, but also ensures the regulatory burden faced by young tech companies is significantly reduced. Billson says there will be “good-to-go template tools and documents” from the ATO available to help businesses wanting to set up an employee share scheme. Reuben Bramanathan, senior lawyer at Adroit Lawyers, told StartupSmart there were some “key issues” with the draft bill that have carried over to its current form. “If an employee resigns from a company on good terms, and they keep their vested shares, they still have to pay income tax at that time,” he said. “This taxing point applies even if they are unable to sell the shares at that point, for example, due to lockup restrictions in the shareholders’ agreement.” Billson says this was identified as an issue during the consultation process. “This was an issue that came up and we consulted quite widely on that as we knew it was an issue of some interest,” he said. “We extended the tax refund provision to cover situations where an employee is forced to pay when those options lapse or cancel. That’s what we’ve sought to do to alleviate that concern.” Another part of the legislation that has been criticised is the exemption for startups turning over more than $50 million, as well as companies listed on the ASX. That means companies like Atlassian and Freelancer will not be able to access the scheme. However Billson defended this, saying issues around employee share schemes “most visibly” affect smaller players. “It’s unashamedly focused on startups and smaller enterprises,” he said. “We’ve got to work within a frugal budget climate, therefore we’ve had to target these measures where they can best make a difference.” Atlassian co-founder Mike Cannon-Brookes has criticised that position, telling SmartCompany last month it’s a bit like saying Facebook and Google don’t need to give employee share options “which I think they would disagree with”. The new employee share scheme rules are due to come into effect on July 1 should they pass both houses of parliament. Follow StartupSmart on Facebook, Twitter, and LinkedIn. Buy tickets to the 2015 StartupSmart Awards.
Many tech workers and entrepreneurs leave Australia for Silicon Valley, and while for many it’s not the end game, employee share option scheme reform is key to luring them back, according to Xero managing director Chris Ridd. The Australian Consulate-General in San Francisco estimates more than 22,000 Australians are working in the United States and the Valley in particular. Ridd can relate. About 20 years ago when working for a large multinational he had the opportunity to leave Australia and work in Silicon Valley, but would eventually return and is now based in Melbourne. “I think it would be a shame if we had a situation where great talent in Australia and New Zealand felt they had to go to Silicon Valley to pursue career goals and get traction with an idea. But the reality is a lot go over there and come back,” Ridd says. “From my perspective and a lot of people I talk to (that move abroad), the US is not the end game but can be part of furthering your career. But Australia is a cool place to live and we’ve got a lot of innovation here. “So you can pick up some great skills and experiences and bring that back, that would be my hope.” That said, there must be incentive for talent to return to Australia and a big part of that relies on employee share option scheme legislation reform. The startup industry has been lobbying for some time for the government to roll back changes made to the legislation in 2009 which made employee share option schemes essentially unworkable for startups. The government has since promised to introduce new legislation, but has been criticised by Freelancer CEO Matt Barrie and Atlassian founder Mike Cannon-Brookes as it would only apply to companies with less than $50 million turnover. Ridd says when he moved from Microsoft to take a job at Xero, a big part of the appeal was the New Zealand-based company was able to offer an employee share scheme. “I took a 50% pay cut when I joined Xero. What got me on board was the act that they were able to offer equity. Equity is a huge value proposition when you’re in startup mode,” he says. “The only option you have at your disposal to attract people from large corporates that have a lot of experience is to offer equity, and to put a tax regime on top of that, that makes it less attractive is insane.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Freelancer founder Matt Barrie says he is excited for the year ahead, after the online freelance marketplace posted a 39% jump in revenue for the year ending December 2014. “It was an exceptional year, revenue is up, users are up,” Barrie told SmartCompany this morning. “I’m pretty excited.” Investors were also pleased with the results, with Freelancer’s share price improving slightly from 0.68 cents at the close of yesterday’s trading session to 0.69 cents this morning. Reporting its full-year results to the Australian Securities Exchange yesterday, Freelancer reported net revenue of $26.1 million, up from $18.8 million for the 2013 financial year. Freelancer’s gross payment volume also grew strongly in 2014, up 23% from $84.4 million in 2013 to $103.7 million. Freelancer recorded 4.6 million new registered users in 2014, bringing the total number of unaudited users of the site to 14.46 million at the end of last week. This compares to 9.7 million users as of December 2013. As of February 15, 7.1 million projects had been posted on Freelancer. But a year of opening new offices, hiring new staff and a string of acquisitions meant Freelancer posted a net loss after tax of $1.5 million and earnings before interest, tax, depreciation and amortisation of negative $2.1 million. Freelancer came close to breaking even, with operating cash flow of $-100,000. But Barrie dismissed concerns about the net loss, which he described as “immaterial”. Barrie says Freelancer has come close to breakeven point in each year of its existence and “sometimes it’s positive, sometimes it’s slightly negative”. “Top-line revenue growth is what matters and that’s what we’re focused on,” he says. Freelancer acquired online marketplaces Warrior Forum, Fantero.com and Zlecenia.przes.net in 2014, as well as technology startup conference SydStart for an undisclosed sum in November. While Barrie says there are no “imminent” plans for more acquisitions, Freelancer will “continue to look at good opportunities where they make a lot of sense and are the right price”. “Historically, consolidation in the industry has worked well for us.” Instead, Barrie says the focus for 2015 will be improving the user experience for Freelancer’s 14 million users. “Our design is improving in leaps and bounds,” Barrie says. “We want to work on a few pages on the sites and improve translation for multilingual users. We want to make our mobile products more robust and full featured.” “There’s a ton of stuff. The product managers are pretty fired up.” This story originally appeared on SmartCompany.
Communication is of the utmost importance when collaborating with freelancers to develop apps, according to Freelancer product director Ilter Dumduz. Freelancer has recently launched its iOS app and Dumduz worked closely with freelancer developers on its development. “The whole planning phase is important, developing a detailed brief for those freelancers,” Dumduz says. “Once the planning is in place, then it’s a matter of collaborating and communicating. Being transparent and clear and setting the right milestones. “Freelancers are obviously experts at what they do, so they can help employers break down the project into smaller pieces.” Why freelancers? Dumduz says startups and small businesses are increasingly turning to freelance developers for two major reasons. With large corporates flooding into the mobile space they’re taking and paying all the best developers, making hiring a developer an expensive prospect. And secondly, it provides a scalable solution for businesses that aren’t quite sure if there’s a need for an app or not. “The corporates, like the big banks, they suck up all the good app developers because they can pay top dollar,” he says. “For Australia, that’s especially important because finding a good dev is quite rare. “Some businesses are not quite sure whether or not they should be building an app or not. Using a freelancer helps minimise that initial investment. It’s a solution that’s scalable and flexible.” When deciding to build an app, Freelancer looked at the needs of both its freelancers and customers who were looking to hire a freelancer. Recognising the need to build up their workforce of freelancers, many of whom are in emerging markets, or are freelancing as a lifestyle choice, preferring the flexibility freelancing affords. Should my startup be building an app? “The devil is in the detail, if you look at that data, most businesses would see that a big chunk of their traffic would be coming from mobile devices, and while that doesn’t necessarily mean you need an app, it does indicate there’s a demand in the market,” Dumduz says. “Whether it’s an app or a mobile website, it depends on the business. If you’re a service business or ecommerce platform, where you sell products online, I would recommend having an app as it provides a more fluid user experience. If there’s a transaction, it’s easier to transact using an app. “In our case we looked at our numbers and it was very clear that we needed to go mobile. We are a global business, and in some of the emerging markets we are growing in, mobile is growing so rapidly that a generation are connecting to the internet for the first time and skipping desktop entirely. “That generation is coming and joining the workforce in those markets, looking for freelancing jobs, and we need to make sure we offer them a solution and bring their talent onto the platform.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
A number of Australian startups raising between $6 million and $35 million worth of funding in recent months is a result of the globalisation of venture capital and Australia’s increasing reputation as a startup creator, according to Australian investors. Last month Ingogo raised $9.1 million and Invoice2Go $35 million, in August ScriptRock raised $8.7 million, following LIFX’s $12 million raise in June and Hipages $6 million raise in May. The deals included investors from both locally and abroad. Blue Sky Venture Capital investment director Dr Elaine Stead and Tank Stream Ventures managing director Rui Rodrigues say raising capital in Australia is becoming easier than it was in the past. “The deals are a reflection of increasing globalisation, and it’s a great thing,” Stead says. “What I think we’re starting to see is in the old days funds invested locally and only locally, now venture funds from the United States are investing in not just the US, but other territories, where there’s great innovation and entrepreneurs. “What they bring is not just extra capital … it brings expertise in the key markets that a number of those companies are trying to access.” Stead says the factors of globalisation and the success of companies such as Atlassian and Freelancer – which have increased Australia’s reputation for creating globally scalable businesses – are leading to more venture capital firms casting their eyes to Australia. Tank Stream Ventures managing director Rui Rodrigues agrees and says the funding environment in Australia has improved considerably over the last few years. “Probably two or three years ago, it was relatively difficult to raise those $3 to $5 million rounds, and now that’s become a lot easier,” he says. “There’s been a shift towards the higher rounds too, while they are still much more difficult to raise than in the US, we can’t pretend there is as much capital in Australia as the US, but we’re seeing a slight shift in that we’re seeing bigger and bigger deals in Australia. “There’s definitely globalisation occurring in terms of the VC industry. Funds now have deal scouts all over the world looking for interesting deals, and one of the reasons is they are placed under huge pressure to allocate the capital they have available. We’re talking to multibillion-dollar funds. There’s only a limited amount of opportunity in big markets like the US to actually deploy that capital. “So Australia is a terrific option. There’s a very strong tech adoption rate, strong smartphone penetration, there’s a strong pool of talent – all of the parameters for the ecosystem to work. So although a lot of things can be improved in terms of funding, government support and education, in the very basic sense, we are fortunate to have some of the key factors in place that are required to create strong and global businesses.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
It’s already disrupted the market for personal taxi trips and now crowdsourced driving service Uber is hoping to shake up the local market for business travel. In a move that will see Uber directly take on taxi giant Cabcharge, the taxi app has today launched Uber for Business in Australia. The Uber app for businesses works in a similar way to the Uber app for individuals, with business customers booking car trips through a mobile application. But when it comes to payment, the invoice for the trip is sent directly to the employer, eliminating the need for workers to pay drivers directly and collect receipts to be reimbursed later by their employer. David Rohrsheim, general manager for Uber in Sydney, told SmartCompany Australian Uber customers have already been using the service for business travel “because they love the convenience”. “If you use the app, you can see when the car is nearby to the minute so you can sit in your office and keep working until the car arrives,” he says. “And if you are travelling from A to B, you can actually share your location with others. If you’re running late to an appointment you can send a text message to show where you are.” But Rohrsheim says the biggest benefit for small businesses is Uber’s ability to centralise payments for all work trips through Uber. He says the employer will automatically be sent a copy of the receipt for the employee’s Uber trip, and users of business software provider Concur can integrate their Uber account with other company expenses. While employees won’t have to worry about keeping hold of taxi receipts, Rohrsheim says employers will also have the benefit of clear and accurate records of where and when their workers are travelling to. “We’re all about transparency, it starts from the moment the ride begins with our safety features,” says Rohrsheim. “The name of the driver is recorded and the trips are tracked by GPS … there’s a clear record of the time and where [the employer] travels to.” Uber For Business has been operating in the US for a number of months and Rohrsheim says today marks the international launch of the services, which is now available in 22 languages. Some of the world’s largest banks are among the first users of the service, while Australian startup Freelancer has also signed on. “I think they just love the ease,” Rohrsheim says of the feedback Uber has received from the early users. “If you’re a small business, any time saving is a massive win and this makes it easier for team members as well as your finance department.” Rohrsheim says Uber users also pay approximately 20% less than users of other taxi providers. “And those savings add up very quickly for a business,” he says. This article was originally published on SmartCompany.
If the Australian startup ecosystem was to have a family reunion, SydStart might be it. Over 1000 startup founders, budding entrepreneurs and investors gathered at the Hilton in Sydney yesterday for SydStart 2014. Among them were Australia’s best and brightest entrepreneurs, Atlassian co-founder Mike Cannon-Brookes, Freelancer chief executive officer and chairman Matt Barrie, Startmate founder and investor Niki Scevak, Canva co-founder Melanie Perkins and many more. It was Mike Cannon-Brookes, perhaps the most uncomfortable with his position as one of the key figures the Australian industry looks to for advice and guidance, who drew the most interest. He spoke of feeling like a fraud when meeting other prominent startup founders from around the world and being pleasantly surprised by the fact that they felt the same way. And he had a lesson for founders: entrepreneurs are all the same. “You move up this weird totem pole of entrepreneurs, where you get to meet more and more interesting people and you to these weird points where you’re so excited to meet them, and you think to yourself ‘Wow, I’ve read about this person 40 times, just to get a half hour coffee is amazing’,” he says. “And then they turn up and they feel the same way and it’s like ‘wow, this is weird’. “You realise all these other super successful entrepreneurs are in exactly the same boat and that never goes away. They’re all doing it for the first time, they’re all making it up as it goes on, they’re basically making smart judgment calls and getting 80% of the decisions right. Ploughing ahead and continuing to be bold. They don’t get timid as the stakes get higher.” That point – all entrepreneurs are the same, all are learning on the job, all are “making it up as it goes on”, permeated the entire conference. Throughout the day, it was impossible to miss the many conversations going on between founders after advice and investors, or the successful entrepreneurs taking time to give it to them, regardless of who they were. It was a point Niki Scevak later picked up on. “If you look around the investment landscape you have all these people that believe in cliches that aren’t true,” he says. “They want to invest in proven founders, with a great management team, in this really, really big market, as if any of those are knowable at the time you get to invest. “All of these great success stories that Australia has been home to, they were started by, no offence, people with very little experience who had just finished university, no business experience, they looked like complete jokes and not only that they were entering into markets that were incredibly crowded. “You’re actually looking for first time founders that look like a joke, it sounds a bit silly, but founders know that. Founders know it’s a complete mess at the start. It’s not actually about that, it’s a couple of levels deeper and what unique insight do you have.” As Fishburners general manager Murray Hurps pointed out as the conference closed, when he began his startup 16 years ago, there was nobody to help out with that mess. That’s since changed thanks to the many co-working spaces and community leaders like SydStart conference coordinator Pete Cooper, as some of the many founders in attendance pointed out. SimpleNutrution.me founder Nathan Murphy spoke of the value of SydStart to people like himself. “SydStart is like a big family reunion every year where you get to see old faces, share war stories and hopes for the years ahead,” he says. “You gather around the elders and listen attentively to their advice for finding success.” For Play2Lead founder Theresa Lim, SydStart was not just about advice but also a place to recruit her team. “I was only expecting to potentially (meet) developers who I might add to my team or investors who might be interested,” she says. “No only did I achieve that goal, but I made several customer leads from enterprise as well. “I’ve had so many doors open to key customers through this (Fishburners and SydStart) community. Everyone is driven and helpful – the event itself inspires me to just keep going! Pete Cooper and Murray Hurps are tirelessly dedicated to making our startup community thrive.”
Australian startup conference SydStart is considering a name change, in order to reflect its growing prominence as a national startup event. Founder and event coordinator Pete Cooper says the event’s reach encompasses far more than just the Sydney area, with international and interstate representation growing each year. SydStart 2014 will be held at the Hilton in Sydney on Tuesday September 2 and features 120 exhibitors, and over 50 speakers and panellists, including the likes of Freelancer CEO and chairman Matt Barrie, and Atlassian co-founder Mike Cannon-Brookes. “It’s easy to get the headline numbers growth, but the hard part is to get the sheer range,” he says. “We’ve got everything from IoT (Internet of Things) in the home, to bespoke fashion and high volume, high capacity cloud services. “We’ve got a huge percentage of women entrepreneurs this year, which has been part of a steady trend. My teenage daughter has been a big motivator for me to get away from the neck beards, they’ll be there and they are still some of the nicest and smartest guys, but the sheer range is great.” 220 startups applied for SydStart’s pitch event. These were narrowed down to 30 finalists. The Top 10 will pitch on the main stage at SydStart in front of a host of potential investors, while the next 20 finalists will get the chance to pitch on the expo stage to help them build awareness. The Top 10 finalists include: BLRT - Communication Go Far - Driving optimisation You Chews - Catering marketplace Thinkable - Research marketplace Coalfacer - Research marketplace UrbanOutsource - Home services marketplace Stockspot - Financial advice Rbutr - Crowdsourced rebuttal Next For Sale - Property pre-marketplace Touch Payments - Mobile payments Cooper says he was unsurprised the Top 10 was dominated by marketplace startups. “I’ve seen this trend coming for years,” he says. “I think it’s a combination of the Australian education system, we’re not narrowly educated so marketplaces are a natural thing. So Australia is well placed because of the diversity in our education, our history of good commerce and the force of law. “Australia is a natural place to build great marketplaces, look at Design Crowd, 99 Designs and Freelancer.” Over 1000 people are expected to attend this year’s event, which Cooper describes as “the hobby that ate my life”. “It was supposed to be a part time thing I do a few weeks a year, but it’s become enormous,” he says with a laugh. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Freelancer is dropping its minimum jobs price from $US30 ($A32.30) to $US10 ($A10.70) to make its platform more accessible to users in both developing and developed countries. The company announced its financial result for the first half of the 2013-14 financial year today, with record revenue of $11.9 million, a 41% increase on the same period last year. The company posted a net operating loss after tax of $600,000, which Barrie says was the result of accelerated re-investment in future growth and expanding its international footprint. Freelancer currently has almost 12 million verified users. Freelancer CEO and chairman Matt Barrie says last year it added three million users, three out of four of which were from the developing world. He says dropping the minimum job price to $US10 will make Freelancer more accessible to the roughly five billion people that are earning less than $10 a day. “A huge amount of people can now work in tech, in areas where it would normally be unavailable to them,” Barrie says. “It’s basically enabling people to rise up out of a low standard of living, and in some circumstances poverty. It’s allowing them to create businesses and put money back into their local economy. “We continue to have the same strategy, to have the widest selection of freelancers at the lowest prices.” The company added 1.8 million new registered users, up 54% on the corresponding period last year, while there was also growth in projects and contests posted, which were up 30% on last year. “The space feels like it’s eBay in 1997,” Barrie says. “We have continued to focus on re-investment in key areas of the business, such as product development, to drive future growth in the company’s broader marketplace offering and executing on strategic acquisitions where appropriate. “The half-year results are extremely pleasing, with all key metrics in the online marketplace growing strongly and all categories of work within the marketplace performing well. “The record revenue result is a measure of this performance as a whole.” Barrie says for the rest of the year the company will continue to focus on improving scalability, strengthening the team, expanding its marketplace, product development particularly mobile, and expanding across regional and multilingual markets and job categories. “The company expects growth to continue for the foreseeable future,” he says.
Freelancer claims it is “the world’s largest online marketplace for outsourcing, freelancing and crowdsourcing services”. But is it? For all the hype, the Australian online sector is relatively sparsely populated. Unlike the United States, our ecosystem is dominated by a handful of brilliantly executed marketplaces like Seek, Carsales and Realestate.com.au. However, a new generation of titans is also emerging — with the media giving increasing attention to businesses like Atlassian, Bigcommerce, 99Designs, Xero (technically a New Zealand company, but like Phar Lap, we’ll claim it) and Freelancer. For the most part, the new marketplaces have excellent prospects. While none are hugely profitable yet, most dominate their sector globally — in particular Atlassian, whose Jira software is the most widely used project management software globally, despite the business not having a sales team. Xero and 99Designs are also market leaders with exceptional growth. But there is an odd one in this group. Despite the hype that founder Matt Barrie is able to generate for himself and his business, Freelancer appears to be far more sizzle than steak. Barrie became an internet folk hero last year after rejecting a $400 million bid from mysterious Japanese recruitment firm Recruit Co to float on the ASX. Freelancer offered a very small number of shares in its float, which initially sought to value the business at $200 million — but Barrie appeared to have the last laugh, as Freelancer’s share price shot up to $1.50 (from a listing price of only 50 cents), valuing the business at $600 million. Barrie was instantly catapulted into the BRW Rich List, with an estimated net worth of $255 million this year. Some remained sceptical of Barrie’s heroics. For a start, there was never any actual evidence of Recruit Co’s $400 million offer (Recruit Co never confirmed the offer was even made, and Freelancer was vague about the specifics). But the bigger problem with Freelancer is its claim that it is “the world’s largest online marketplace for outsourcing, freelancing and crowdsourcing services”. The claim to be the largest marketplace is critical for valuation. Investors (justifiably) place a significant premium on the No. 1 marketplace (like Seek, Carsales and REA). In some instances, a second or third player can also create real value, but a stiff premium is attached to the largest operator. This is probably why Freelancer have been so keen to make such a statement to the market in its prospectus and public statements. Not long after Freelancer listed, two of the biggest players in the outsourcing space, oDesk and Elance, announced they were merging. This was quite big news, as the combined businesses generated US$750 million in payment volume in 2013. By contrast, Freelancer’s annual report noted that despite growth of 66% during the year, it had generated only AUD$84.4 million in sales during 2013. Not only is Freelancer not the largest marketplace globally, it is around one-tenth of the size of the dominant player. Last week Freelancer released a quarterly cashflow update, noting that (on an operating business) the company suffered negative cash flow for the June quarter. The operating cash flow situation would have been worse but for Freelancer receiving a $150,000 government grant from taxpayers. Worryingly, it appears that Freelancer’s growth has slowed significantly. In 2012, Freelancer generated operating cash flows of $9.4 million; in 2013, cash flows increased to $18.8 million (and strong rise of 100%); in this year’s June half, cash flows were $11.8 million — meaning growth appears to have slowed to around 25%. It appears that Freelancer is a distant No. 2 marketplace, whose growth has slumped and which isn’t able to generate much, if any, surplus cash flows from operations. The market it seems, has noticed, with Freelancer’s share price slumping from $1.54 in April to only 79 cents now — a drop of almost 50% in less than four months. The company, which briefly had a market capitalisation of $1.09 billion, is worth around $345 million now (less than the Recruit Co offer). Barrie, to his credit, hasn’t sold any of his Freelancer shares, but has seen the value of his stake drop from $520 million to $158 million. Barrie has done a remarkable job rolling up a number of freelance businesses to form and float Freelancer at the perfect time, but it seems like the market is becoming far more sceptical to the spin and looking to the substance. Unless Freelancer can start generating significant growth, or extract some real earnings, even its discounted valuation of $345 million will appear generous. This article originally appeared on Crikey.
Google has partnered with incubator Fishburners, in a six figure deal, to implement its startup outreach program Google for Entrepreneurs to help facilitate the growth of the startup community. The partnership will see Fishburners become part of the global network of Google’s 30 startup hubs, allow companies based at Fishburners access to the Google framework for startups, as well as international innovation programs. It will also be renovating and doubling its space, including a ‘physical’ Google Hangout. Fishburners chief Daniel Noble says that the partnership was a good fit based on the fact that Fishburners acts as a not-for-profit and does not take equity or invest directly in startups accepted to its programs. Startups apply for space at Fishburners and commit to a 20-month program until they are ready to move on. Successful applicants pay for their time there with desks being charged at $400 a month. “We’re about equipping startups to be better formed companies when they go to market, or seek investment,” Noble says. “Too often companies try and do things much too early.” Part of the Google deal will also be a push to encourage more female entrepreneurs. In a blog post announcing the deal, Google says: “From the Cochlear bionic ear to Wi-Fi, Australia has a long history of innovation. Local-born innovations and startups like Atlassian, Freelancer, 99Designs, and Shoes of Prey are flourishing in global markets with the help of the web. While we’ve seen the growth of the startup community in recent years, we know there’s still a long way to go.” One of the first programs on offer is BlackBox Connect, a two-week immersion program in Silicon Valley. A Fishburners’ based startup will be selected to spend a week on Mountain View and have access to Google’s network of experts. “Supporting local tech startups is vital to Australia's future economy. We know the talent, drive and potential for innovation is all here; we hope to help realise the full potential of Aussie entrepreneurs,” concludes the blog post.
Entrepreneurship is the solution for young people in Australia who are struggling to find work, according to Freelancer CEO Matt Barrie. “These days young people have an amazing opportunity to start their own business in ways not possible before,” Barrie says. “It’s a gold rush out there.” Barrie made the comments ahead of the G20 Young Entrepreneurs’ Alliance Summit (G20YEA) where he will be speaking, with an aim to tackle global issues around youth unemployment. One quarter of Australians aged 18-24 are currently under-employed, and youth unemployment has reached 50% in many countries. “Conventional industries are being overturned every day, and young people are in a good position to make the most of that,” Barrie says. “The costs of starting a business are not expensive any more, compared to what they have been in the past.” Barrie says that the opportunities like those offered by sites like Freelancer also make it possible for young people to obtain employment on their terms. “My grandfather used to say, you can’t do what you want, but you have to like what you do,” he says. “These days it’s the other way round – you can do what you want. You are only limited by your imagination.” The opportunities of self-education are also out there for the taking, says Barrie, with online universities and sites like Khan Academy making it possible to learn anything. “It’s an amazing time to be alive. Small businesses have the opportunity to get big quickly, and the ability to start something from nothing is very real,” says Barrie. “If you’re young right now, there is work in front of you and you’re in the ideal situation to take risks and try something. Remember even if it fails then you are back to square one. As you get older, it gets harder to take risks.” The 2013 EY G20 Entrepreneurship Barometer found small businesses deliver 69% of the overall employment growth in Australia, while across the OECD, SMEs with fewer than 250 employees account for two-thirds of employment. In the EY G20 Entrepreneurship Barometer, Australia is ranked highly against other G20 countries for the pillars of education, training and entrepreneurship. However, it is ranked 15 out of 20 for coordinated support – a measure of the collaboration between the public, private and voluntary sectors. The G20 Young Entrepreneurs’ Alliance Summit will be held at the Sheraton on the Park, Sydney on 18-22 July 2014. To register visit: http://g20yeasummit.com/member-registration/
It turns out the casualization of labour is not a Gen Y phenomenon. At least, that has been the experience of one Australian startup. When Australian small job listing marketplace Airtasker first launched they believed their target market would be young university students wanting flexible casual jobs. Two years later, the over-55 market makes up as much of their users as their younger Gen Y counterparts. Co-founder and CEO Tim Fung says they noticed the growth in older Australians signing up to their site about six months after they launched, believing it at first to be an anomaly. As it stands, their top “runners” (people who post frequent jobs on Airtasker and get positive feedback) mostly fall into the older age bracket, growth that has been completely organic. Fung says he believes the success of this age-bracket on their site is down to their strong work ethic and their years of accumulated experience. “We’ve got people with fantastic experience listing on the site, there’s an ex-Silicon Valley engineer and an ex-SMCG marketer,” Fung says. “Most of the users of the site are very digitally savvy and know how to promote themselves.” He put the attraction of Airtasker to this market segment down to the fact that they often faced discrimination by large employers as well as being too young to access their super, so they were still looking for a means to support themselves. The unexpected market segment had seem them change some of the branding and appeal of the site, originally targeted at the younger market, with pictures showing youthful uni students replaced with realistic ones of the older demographic. Airtasker, which is not dissimilar to virtual marketplaces Elance-oDesk and Australia’s Freelancer, has seen 50% market growth month-on-month. While still a tiny market play compared to its behemoth cousins, its focus is on hyper-local job listings, which mostly require a physical presence, though there are some virtual listings. Airtasker founders Tim Fung and Jonathan Lui
Last month, Piper Alderman hosted angel investment group SA Angels for a special invitation only event featuring Stefan Kuentz of Swisscom Ventures and Shane Cheek from Acumen Ventures. Kuentz and Cheek gave an update of the venture and investment market from a Swiss/global and the Australian/south-east Asian perspective. The event was well attended by a group of key players in the Adelaide commercialisation and investment community. Stefan Kuentz’s presentation started with an outline of the reasons why Switzerland had to focus on innovation and looked at Swisscom’s commercial rationale for establishing Swisscom ventures. He touched on the types of industries that Swisscom Ventures will be interested in for 2014: network optimisation, security and identity management, CRM, internet of things and related clusters such as e-health. He also engaged in some lively discussion with the audience of his personal experiences and war stories about the investments that Swisscom Ventures had made. Drawing on his years in Silicon Valley, Kuentz said that it was very important for companies to have some experience there: “For companies who truly wish to be global, I would strongly recommend that they have some exposure to the Silicon Valley. For example, all the major telco companies have a presence there, and are all located within a short distance from each other. The VCs are also just around the corner, and all of the ingredients for a vibrant market place are located in one place. It really is like a market place for innovation.” “We were very lucky to have someone of Stefan’s experience come to share his knowledge and experience with us,” Michael Dilettoso, chair of the SA Angels said of the event. “It was also great to see the event supported by many members of the Adelaide angel investment community, some of whom have already made a number of investments not just in Adelaide-based companies, but Silicon Valley based investments as well.” Shane Cheek from Acumen Ventures gave some valuable insights and data from the VC industry in Australia and SE Asia. Cheek is currently aiming to close out his $30m fund focusing on enterprise, B2B and e-commerce ventures in Australia, New Zealand and South East Asia. “The Australian technology sector has reached an amazing inflection point, driven by a wave of successful companies such as Atlassian, Freelancer and Bigcommerce, and a new generation of startups that take an aggressive approach to regional growth,” Cheek said. “They recognise they are a part of south-east Asia with a population approaching 650 million, an insatiable appetite for all things digital and annual GDP growth of 8%. The next generation of category defining companies will emerge from this region and Acumen Ventures is excited to be funding them.” It is the comment on “market place” that resonates strongly for supporters of Adelaide’s startup and innovation ecosystem. The Adelaide market has been aware that in order for innovation to flourish in the city, all of the various parts of the community need to exist. We already have a vibrant start-up community supported by a number of co-working spaces and accelerator programs. We also have some active angel investors, early stage VCs, as well as experienced advisors, all within close proximity of each other. It will be great to see Adelaide mature into that crucial “market” concept. Dilettoso said the event was a great success and one that could be repeated again soon. “The event was a success, as it gave an opportunity for the investment community to engage with each other and swap notes on what has been happening over the last few months. It is certainly something the SA Angels will try to organise again,” Dilettoso said.
When it comes to starting your own business, it can be a challenge working out what sectors have the best potential. Business evolves with changes in technology, global developments and the whims of customers. We spoke to Brad Callaughan, of business advisors Callaughan Partners, about which business sectors might fire in 2014 and provide lucrative opportunities. IT and technology Callaughan says apps and website development will be a lucrative area to start a business as internet use continues to grow. The latest figures from the Australian Bureau of Statistics in October showed broadband downloads in the three months to June 30 surged by nearly 60% on the same period last year. Mobile handset downloads have also surged as the number of people with smartphones increases. Businesses are also increasingly taking up technology. The Sensis e-Business Report for 2013 found that 98% of small to medium enterprises have a computer, up 3% from last year, 69% have a laptop, up 10% from 2011, and 41% own tablet computers. The report also found small business internet penetration has grown to 96% from 23% in 1997, with 60% using a website to promote themselves. “As there is more demand for apps with each business and the development of new apps to make life easier, there will be an increase in the demand for companies that can service this area,” Callaughan says. “Website and IT support will again be winners with the changing technology environment. “There will also be an increase in online activity, so business will need to be up-to-date with technology and have the best equipment to be able to support this infrastructure.” Baby boomers It’s well documented that Australia has an ageing population. A recent Productivity Commission report says that the number of people aged 75 years and more is expected to rise by 4 million from 2012 to 2060, increasing from about 6.4% of the population to 14.4%. Callaughan says our ageing population and Baby Boomers have “always provided numerous business opportunities”. But he suggests people think outside the box of just aged care housing and consider the numerous needs people have as they age and move into retirement, highlighting travel as a potential area ripe for growth. “There will be more opportunity for services like tours and travel agents that cater to travel for retirees,” he says. Fitness, health and beauty With Australia ranked as one of the fattest countries in the world, the fitness and healthy living industries are likely to remain popular, and lucrative, fields to start a business. Industry researcher IBISWorld estimates the gym and fitness industry makes $1 billion in annual revenue and is expected to grow by 4.8% a year over the next five years. IBISWorld also estimates the hairdressing and beauty services industry rakes in annual revenue of $4 billion, with the sector expected to grow by 1.3% a year for the next five years. “Healthy living is becoming more popular but there is still a lack of knowledge surrounding clean living,” Callaughan says. “There will be opportunities within this sector to create businesses that can educated and provide healthy living services, including gyms, health food providers, consultants and pre-packaged food.” He recommends looking to the US to see how they have approached the sector. Callaughan says fitness, health and beauty can also tie in with the ageing population. “There could be opportunities for gyms that cater to over 50s that have certain machines that help you work out but don’t cause injuries. You will also not have to compete with other young gym goers.” Freelancing Freelancing has become a popular buzz-word recently, as websites that link people to work on projects rise in popularity. The successful listing of Australian-based online site Freelancer.com this year has also sparked interest in this way of working. Freelancer’s shares surged to as high as $2.60 on the Australian Securities Exchange from their initial public offering price of 50 cents. The shares have since retreated to trade at around $1.05 at December 12. “I just feel that with the recent success of Freelancer there will be more businesses looking to enter this area,” Callaughan says. “There will also be more businesses that become freelancers and offer services to a larger range of businesses. “The range of services that will be offered will also be expanded to include everything and anything that can be outsourced for not only businesses but individuals as well.” Online retail Australians have embraced online retail and are spending billions of dollars through the internet. And it’s a trend that’s continuing to grow, albeit at a slower pace recently than seen previously. According to the National Australia Bank’s Online Retail Sales Index, Australians spent $14.4 billion online in the 12 months to October, equivalent to 6.4% of traditional retail spending. It says monthly online sales grew by just 0.3% in October, the same as September and only marginally better than August when sales fell 0.2%. Callaughan says online selling has taken off and will continue in 2014. “There will be many opportunities open up in this field with even the large department stores moving to online retail,” he says.
Cloudstaff, an Australian outsourcing start-up based in Manila, has raised $500,000 from three local investors Robert Whyte, Trevor Kennedy and serial entrepreneur, Bevan Slattery. Founder and chief executive Lloyd Ernst told StartupSmart the successful float of Australian outsourcing company Freelancer has stoked even more interest in the growing trend. “While we’re involved in outsourcing, we’re in a slightly different part of the growing market. We build and manage ongoing teams in the Philippines in particular,” Ernst says. Ernst says the increasing demand for outsourcing has changed the dynamic of outsourcing tasks, as more work is sent overseas and both parties’ expectations evolve. “People often make the mistake of trying to outsource a person, but it’s about taking tasks offshore, especially the low-value repetitive tasks. We’re the next step and help build ongoing relationships,” Ernst says. The funds will go towards developing demand for Cloudstaff services in Australia, specifically education campaigns including marketing campaigns and education seminars about the benefits of outsourcing. Ernst says they chose to base their operations in the Philippines because they believe the biggest challenge holding start-ups back from making the most of the outsourcing were cultural challenges. “Understanding all the cultural issues involved with working offshore takes time. There is a raft of different issues you need to cover,” says Ernst, adding you’ll need to invest as much time into supporting your offshore team as you do your local one. “It’s essential that you come and visit the offshore team and understand what can and cannot be done,” Ernst says. “If your offshore team is working well, you need to focus on culture if you want to retain these quality staff.”
Crowdsourcing giant Freelancer has acquired the fourth-largest site of its kind, with founder Matt Barrie saying the purchase is just another step in becoming the "eBay for services".