In my last article I responded to an interview in Vox with Marc Andreessen. Andreessen lamented that, in spite of a historic gold rush in technology companies, the IPO is dying in the United States due to zealous over regulation in the form of Sarbanes–Oxley, for example. As a result, the general public is missing out on the incredible gains that were experienced in the listed US technology companies of yesteryear. Yes, the regulators have gone too far and it is creating serious friction in the IPO pipeline. However I argued that perhaps the real reason that technology companies appear to Marc to be listing later and later is because, not surprisingly, the top venture capitalists are keeping these returns all for themselves. It's been a relatively recent phenomenon that US technology companies have been waiting longer and longer to go public. In the US, technology IPOs of yesteryear companies went public much earlier, with market capitalisations in the hundreds of millions of dollars instead of the tens of billions. As a result, the general public had the ability to share in the spectacular returns that technology companies can generate over time as software eats the world and industry after industry is being wholesale remapped and reshaped, with revenue growth at a speed unprecedented in history. Even though eBay's share price went up a spectacular 163% on opening day, if you bought shares on market after this rise and held on until today you'd have made over 3500%. If you bought Amazon the day after it listed, you'd be up over 27,000%. If you'd bought Microsoft at IPO in 1986, you'd be up 66,500% today and 3000% in the first eight years alone. Unfortunately for investors in the US, the general public is missing out. You only have to look at Facebook listing at $104 billion and Twitter listing at $24 billion to get a feeling for just how late these companies are going to market. So who is making all the money as the stocks go from the tens of millions of dollars in market capitalisation to the tens of billions? The answer, not surprisingly, are the venture capitalists. You can't blame them for doing so, because of course their business model is to make as much money as possible for their limited partners. There is another stock market, however, outside the US that is not subject to Sarbanes–Oxley and where technology listings are about to boom. This market is already quite a large market for equity capital issuances. In fact, as much money was raised there in the last five years as NASDAQ. The only problem from a technology company perspective is that most of the money raised there has been for resources companies. I am, of course, talking about the Australian Securities Exchange. Now let me tell you how this has all come about, and why now. There is a disaster in venture capital in Australia with only around $30 million per annum for the whole of seed stage investments, $40 million in early stage and $20m in late stage. AVCAL reports there were 16 "investments" done with this grand sum of $20 million in late stage venture capital in 2013. I am quite perplexed about how they defined "late stage" here, because the very definition of a late stage round size is usually greater than $20 million in one single investment, let alone 16. The only conclusion I can make is that these investments were triaged into bleeding zombie companies – hardly a sign of a successful late stage industry. Either that, or AVCAL has now taken up reporting of late stage investments to include lemonade stands. Atlassian, one of Australia's most successful technology companies, just raised $US150 million in a late stage round. The entire Australian venture capital industry simply isn't big enough to fund that single round. In addition to the lack of venture financing, a major terraforming of the economy is needed. Although we have $1.5 trillion dollars in the fourth largest pool of retirement funds (superannuation) in the world, these funds don't invest very much in Australian venture capital because none of the VCs to date have demonstrated that they can generate a return. It's hard to claim that venture capital is even an asset class in this country, as it's missed every single major technology success story this country has produced all the way back from Radiata: Atlassian, Kogan, Big Commerce, RetailMeNot, Campaign Monitor, OzForex. The list goes on and on. For the life of me, I can't think of one they actually invested in. The funds being invested into Australian VC come roughly equally from corporates, government and high net worth individuals. Corporate investment in VC in Australia is in decline, and with the government recently turning its tap off with the cancellation of the IIF program, I don't see a path to resurrecting a domestic venture capital industry any time within the next decade or two without a serious change in philosophy, which is not going to come from either of the two major political parties. The incumbent Liberal party is currently implementing a program of austerity, and the previous Labor government was, at best, only interested in trying to win union votes from bailing out the inefficient and dying local manufacturing sectors. The biggest impact Labor had on the sector during their tenure was to change the laws on the taxation of option schemes, which wiped out the primary incentivisation mechanism for the technology industry (and, ironically, the primary means by which wealth is redistributed from owners to workers). While I personally was not sorry to see the IIF go, I was hopeful that the axing of the program would be replaced with something more effective for financing technology companies down under. A better way would be through taxation reform for investors in qualifying risky technology ventures –front-end relief in the form of tax credits or a reduced rate of tax and back-end relief in the form of capital gains tax reductions or exemptions like the UK's Enterprise and Seed Enterprise Investment Schemes. At the end of the day, the Australian government only provided $25 million a year into the IIF program, which is paltry when you consider Singapore, with a population of 5.4 million, has committed $SG16 billion ($US12.8 billion) into scientific research and development over a four year period from 2011 to 2015. So how are Australian companies getting financed? Whilst the big US VC brands like Accel, Sequoia, Spectrum and Insight are actively prospecting down here, they are mostly just looking for cheap deals by value investing in late stage companies outside the hot money Silicon Valley market. The investments that they have made to date, and which have been trumpeted in the media, have for the most part been majority buyouts or exits (Campaign Monitor, 99designs, RetailMeNot, etc). A notable exception to this has been Accel's investment in Atlassian. However, the lack of funding has not deterred Australia's entrepreneurs from building world class technology companies. Instead, they have focused on raising funds from the best source possible: selling something valuable to their customers. This story continues on page 2. Please click below. Almost all of Australia's best technology companies have bootstrapped all the way through. Those that did take outside funding, for the most part, didn't take it until they reached quite a late stage. As a result, we have some very well run technology companies, and some world class companies in the making. Although I am pretty active in the startup community, every second week I am shocked to discover yet another Australian technology company that I have never heard of generating $10 million, $20 million, $50 million or more in revenue per annum. Until recently, I had never heard of companies like RedBubble, Nitro, and Pepperstone. The latter of which has, in just three years, become the 11th biggest forex broker in the world, turning over $70 billion a month through their online platform). Because the Australian technology industry is mostly bootstrapped, it took longer to get here, but coming down the pipeline are an incredible number of great technology companies. So if the Australian VC industry is dead, then how are these great companies going to raise funds when they need them? Well, I believe the answer is staring them right in the face. It's called the Australian Securities Exchange (ASX). After all, what better way to fund a company than by crowdsourcing it? This is what the resources industry already does today, via the ASX. If you have an early stage speculative mining company, you don't go begging down Coal Hill Road pitching to mining VCs and spending six months negotiating a telephone directory thick preferred stock structure. No, you write a prospectus detailing what you're going to do with the money and list it on the ASX. Likewise if you're BHP or Rio Tinto, you can go to the ASX and the market is deep enough to raise billions. Crowd sourcing equity from the public has been done successfully for decades in resources. The ASX is in the top five globally for the total amount of money raised for equity issuances from 2009-13. There is no Sarbanes–Oxley in Australia, and listing costs are quite low. (In Freelancer's IPO, the underwriting fees were $450,000, legal fees were around $100,000, and investigating accountants cost about $50,000.) Why go to a venture capital middleman unless they are a rockstar with solid operating experience that can add demonstrable value in some way? I believe that Malcolm Turnbull will bring in legislation to allow the general public to crowdfund early stage ventures without a registered offering document, as is starting to happen elsewhere around the world. This will generate further interest and appetite in investing in technology companies from the general public which already actively takes a punt on speculative, early-stage mining companies (not to mention the Melbourne Cup). At the moment, to invest in companies without a registered offering document you need to be a "sophisticated investor", which is curiously defined as a person having income of $250,000 per annum in each of the last two years, or net assets of $2.5 million. I don't know why being rich makes you automatically sophisticated, and being poor means you’re incompetent with your money, but I'm sure that something sensible will happen here. If, by miracle, we see some taxation relief for technology investments, then this will be accelerated. But I'm not holding my breath, even though the Australian government used to provide some form of taxation relief for investors in the mining industry. When we were considering listing Freelancer on the ASX, many people gave us the usual regurgitated responses as to why it wouldn't work; investors here don't understand technology and that we would trade at a discount compared to US markets. Professor George Foster from Stanford Graduate School of Business showed some time ago that country specific factors were a lot less important than company-specific financial statement-based information in explaining valuation multiples in an international setting. Markets are increasingly globalised. It's almost as easy for a US investor to buy Australian shares as US ones. Money flows to where it gets the greatest return for a given risk profile; basically if arbitrage exists, someone will take it. Our stock going to $2.50 from a 50 cent issue price in the biggest opening in the last 14 years and third biggest opening ever on the ASX for an issuance larger than seed size is testament to the amount of pent up interest amongst the general public to invest in technology. We took a calculated risk – nobody wants to be the first to try something new. But so far it has paid off. It’s great to see the sector now heating up with recent listings from companies like Ozforex, iSelect, iBuy and MigMe (up 95% yesterday on their IPO, and like I did, broke the bell), and with WiseTech Global, Vista Group, 1-page, Covata, BPS Technology, Grays Australia imminently coming down the pipeline. I suspect Ruslan Kogan will also be considering his options given the tremendous effort he has done bootstrapping Kogan to date. What surprised me is that the process was significantly easier, quicker and resulted in a more equitable and transparent capital structure than what I have experienced in any of the dozen venture capital financings I have been involved with in the past. Projecting forward, I think that the ASX will be the primary way in which technology companies raise equity in this country in the future. The ASX realises this as well, and is moving to position itself as a regional hub for the Asian technology sector. If it is successful—and I think there is a good chance it will be—it will cover a massive market. There are significantly more people in Asia (with dramatically rising incomes), significantly more micro, small, and medium enterprises (MSMEs). It’s a much bigger market for many industries, and there are a lot more mobile phones than the US, to draw comparison to just a few metrics. The ASX is in a fantastic position to capture this opportunity. In the second half of 2013 a total of 14 technology companies listed on the ASX. Since January 2014 there has been 55. In the entirety of 2013, a total of 59 companies were financed by Australian venture capital. This is the future for financing technology companies in Australia. Matt Barrie is chief executive at Freelancer.com
It shouldn’t be up to Australian startups to get politicians interested in the startup industry, according to Nitro founder and chief executive officer Sam Chandler. With Alex Greenwich MP, an independent in the NSW state parliament, announcing today he will be based out of Fishburners co-working space in Sydney for the next few weeks, StartupSmart asked a few influential startup industry figures how to get more politicians interested in the startup industry. Sam Chandler, founder and chief executive officer of Nitro: “Voters like jobs and the technology industry will create more jobs than any other in the coming decades. Any politician who doesn’t realise the importance of the technology economy doesn’t understand the world around them. “Politicians who seek to understand the importance of the startup ecosystem and drive policy accordingly will be rewarded by their constituents. On the other hand, those who miss the opportunity to support sustainable high-value job creation in a post-mining boom era will have shorter careers. “I think the better question is, ‘What can the government do to better engage with startups and the broader technology industry?’ The nation’s unemployment rate will depend on that question. Over the next several decades, the votes will be on the side of those politicians who got smart.” Laura McKenzie, chief executive officer Scale Investors: "In order for our government to better understand and formulate a package of pro-entrepreneurship and pro-angel investing reforms to revitalise the Australian economy, it makes perfect sense for our MPs to fully immerse themselves in our community. “Being based in Fishburners will enable Mr Greenwich to see first-hand what is required to support and promote high growth startup businesses in Australia. It's a great opportunity for the startup community to get him excited about startups. “In the UK, a country which has wholeheartedly supported entrepreneurs with tax and economic reforms over the last 5 years, members of the entrepreneurial community and MPs frequently collaborate, and there are even regular events at the Houses of Parliament." Alan Jones, chief growth hacker Blue Chilli: “Alex Greenwich wants to represent the interests of his constituents as best he can, and he represents an electorate that includes the densest population of startups and associated services in Australia. He has the additional flexibility of being an independent, meaning he only has to concern himself with his electorate, and not the needs of his party. “The startup industry has trouble getting mindshare at a Federal level because the problems we face aren’t on the radar at a Federal electorate level. When the national focus is concerned with the “immediate impact of changes to taxes, healthcare, education and jobs it can be hard to get it refocused on actions that could impact the growth of the economy in five or ten years’ time. “Everybody knows our economy is going to slow with the downturn in demand for our mining sector output. That has to impact unemployment figures, and that’s always in the top three issues federally. That might be the best opportunity to make a case for our industry at a Federal level. “In the meantime, we’d welcome Federal parliamentary members and their advisors to spend a day at BlueChilli — the best way to understand the tech startup industry is to experience it, even just for a day. No media circus, no reflective vests and hard hats, just real innovation and jobs-growth potential.” Matt Barrie, chairman and chief executive officer Freelancer: “It’s tough because the government tends to get confused when it comes to the terms ‘digital’ and ‘startups’. “The word ‘startup’ gets confused with SME. So every time the government comes up with a startup package, it’s broadened to include your local fish and chip shop. While ‘digital’ gets watered down to include all these businesses that aren’t high growth. “There are some politicians aware of the issues, like Malcolm Turnbull, who are going to make changes. “But I think it’s an education issue. Most politicians still don’t really get it, and you can see it in the language when they talk about startups. What will help are the success stories and the good thing is that there are a lot of really amazing companies coming out of Australia.”
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.
Bug-fixing ain’t fun, but is it any better in a onesie? Canva thinks so, holding its first annual fix-it day at Canva HQ dressed in Gen Y’s favourite party gear. We had our first annual fix-it-day at Canva HQ in Sydney - in onesies! Which is your fave? #StartUpLife #CanvaLove pic.twitter.com/9kfCqk1A9v — Canva (@canva) June 19, 2014 Just quietly though, onesies are little passé. Australian startup outed as bidding for Silk Road bitcoin inventory Oops. A list of individuals interested in the auction of the 30,000 bitcoins confiscated from black marketplace Silk Road were outed via BCC email by the US Marshals Service (USMS), in charge of auctioning the FBI seized bitcoins. We found it interesting to note that Australian Sam Lee, co-founder of Bitcoins Reserve was one of the recipients. According to CoinDesk, “the original intent of the email was more specifically to inform the interested parties about an updated FAQ related to the bitcoin auction”. “However, the resulting leaked list details a diverse group of individuals and possible bidders representing members of the bitcoin community and the investment world.” End of the road for Delimiter Renai LeMay has announced he’s closing Australian tech news site Delimiter and taking up a new gig with Greens Senator Scott Ludlum. “The site’s success is a testament to what can be achieved when a writer picks one topic and focuses consistently on that topic for years,” LeMay says in his sign off post. LeMay shares some impressive site stats too: 6000 articles 10.7 million page impressions (currently 120k unique browsers and 350k page impressions a month) 9000 email newsletter subscribers 114,000 reader comments And while we’re personally supportive of anyone trying to get a media startup off the ground – it has to be one of the toughest gigs around – the end of Delimiter is not being mourned by everyone. Many have also taken issue with LeMay’s love for Ayn Rand and the conflict with his new gig. “Still chuckling at a certain wannabe entrepreneur that named his business John Galt Publishing who has now taken a job as a political staffer with the Greens,” wrote one critic. “A Greens’ Libertarian?” mused others. Politicking aside, job well done, we say, and good luck LeMay. Sydney Founder Council cock-ups (continued) It claims to be the work of “five experienced Sydney-based entrepreneurs [the website actually has six]” who “have volunteered to lead the charge on building this collaborative system,” but the Sydney Founder Council has become a rather farcical cock-up for the Sydney startup scene. For starters, the email list for the council clearly identifies everyone’s email, making it a worry for many in terms of spam. The list has also been hijacked by a series of serious claims about improper conduct of others in the community. Freelancer Matt Barrie called the whole thing “the biggest cock-up I've seen yet.” It saw Muru-D’s Mick Liubinskas leave this auto-reply: “Thanks for your messages. Unfortunately due to half-hearted, half-arsed, management by committee, unfocused, part time, squabbling over the startup ecosystem approach by us all (including me, actually, especially me) I'm currently on leave. “Clearly we're not ready for 'the next level' so it's back to the tools – which are working as/with entrepreneurs to build more successful global companies. After we do a few more of those we can all catch up for a beer and whinge about the lack of VC, how the government doesn't understand us and how we should all just work together. “Until then.... global sales solves everything." Got any tidbits? All small items and gossip welcome. Email us at [email protected]
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/
We asked a number of well-known Australian entrepreneurs to share their stories around “faking it ‘til you make it”. Here’s what they had to say: “When I was 17 my friend and I got asked to install a 10 computer network at a local business. It was 1991 and the product they wanted was Lantastic with a 10 kilobyte coax bus network. We said we had done that a number of times and got the job. On Friday at 5pm they packed up and left. We opened the boxes and started reading the manuals. Monday morning at 4am after about four hours sleep all weekend we got it running. Scary. But fun.” – Mick Liubinskas, head coach at Muru-D. “One day I find myself onstage in front of hundreds of tech people. I'm supposed to be sharing stories of building (and let’s face it – fucking up) a life and a business. Suddenly, I realise that I am an imposter. These folks know their shit. They sit tapping on their keyboards with furious determination, simultaneously tweeting, coding and I dunno, maybe internally figuring out some epic longstanding algorithmic problem in their head. These guys eat books of code for breakfast. I on the other hand can barely figure out how my iPhone works and have still never managed to successfully download a movie without my computer, or my face, exploding. “The MC reads out my bio, who is this mythical creature he speaks of? Oh yeah, me. I think to myself, yep I've done all those things. I belong here. But still I feel like a fraud. Am I on glue? How the hell did I get here? Why the fuck did I agree to this? I'm so nervous I almost vomit on my shoes. But here’s the thing, half of them look bored anyways and it’s too late to back out now, so I just roll with it. Instead of telling them what they should do, I just rock up on stage, am more vulnerable than I ever thought possible and I simply tell these folks a story or two. “And what do you know? They like it, they learn something, they laugh, they're inspired. I breathe a silent sigh of relief. But that doesn’t mean that it became easier. But I keep doing it. Constantly. With false bravado. People believe I'm a speaker. They believe I'm an entrepreneur. And one day I wake up and realise that all of a sudden, I am both.” – Avis Mulhall, serial entrepreneur and founder of Think, Act, Change. “When I joined 99designs in January 2009, I was pretty much a one-man show. I worked out of my living room in San Francisco for over a year, building and moderating our designer community, meeting with potential partners, helping customers via a basic online chat system, writing press releases…you name it, I did it. Though 99designs launched in Melbourne, the company was focused on the US market from day one, with an American-English site and all transactions in US dollars. Little did our early customers know that the company’s US presence consisted of just one person working around the clock in a tiny San Francisco apartment! Patrick Llewellyn, our CEO, relocated to join me in 2010, and now I’m one of more than 50 staff in our SF office, with over 100 employees worldwide." –Jason Aiken, product manager, 99designs. "If you sell a product or service to US companies, you need to look like a US company otherwise you'll have a lot of friction. Incorporate a US sub and print business cards with a US address and phone number and route the number to either voicemail, an answering service or your local mobile number. Just be prepared to take a few early morning calls!" – Matt Barrie, CEO Freelancer.com “When I was a theatre director, I would design the brochure before the show. I would get thousands of them printed and tell everybody that this was what they would come and see in a few months. Because I did so, I needed to deliver. Because I did so, I defined my focus and something to target. Because I did so, people know what I was working on and knew how to help. I sung the world into existence.” –Phil Morle, CEO Pollenizer.” And here’s a different perspective on the idea that we should “fake it ‘til we make it” from a blog post by The Fetch CEO Kate Kendall, who declined to share a story saying she didn’t think we should encourage the idea: “I had a micro-epiphany the other day when it came to looking at how I tell the story of my company. For a while, something in my gut wasn’t quite right – I also couldn’t get my head around how to play the game. Then it hit me – that’s because 80% of startup land is bullshit and I hate bullshit. I just can’t do it. I can’t lie (well, not express my version of reality). It’s all vanity metrics, bloated achievements and boring same same. I was viewing a stream of old accelerator pitches the other day and was mesmerised by how impressive each founder was. It was like watching magic. But then I stood back and realised I’d heard of none of the companies and upon a Google DuckDuckGo search, found minimal product or press trails on the web. I questioned if many were still around. “Remember: you can progress and tell it like it is.” – Kate Kendall, CEO The Fetch
Fifteen early-stage startups manned by students from four universities will pitch at the National Demo Day for the INCUBATE program during a Google for Entrepreneurs event today. The INCUBATE program was launched at the University of Sydney and received financial and in-kind support from Google Australia to roll out to three universities: Curtin University in Western Australia, Bond University on the Gold Coast and the University of Adelaide. Students in the program receive 11 weeks of co-working space, mentoring, workshops and $5000. Program manager James Alexander told StartupSmart the graduating companies were expected to be ready for seed investment, and either be launching a product or already have one in the market. He adds the small cohorts have minimised the dropout rate. One team at Bond University and two at Sydney University didn’t finish the program. “Next time we run this, we’re going to have a closer focus on innovation accountability through more rigorous weekly and monthly milestones,” Alexander says. INCUBATE will be releasing a report in the coming months with the key lessons they’ve learned running the program in multiple universities. Alexander says they’ve learned a lot about setting achievable but challenging goals for early stage companies. Learning from the network effects of the national program was always part of the plan. As the rollout began, Alexander told StartupSmart they hoped the program would create a national network of students and entrepreneurs to drive a culture of innovation. “That’s where the potential is: to encourage more start-ups to launch from campus. There is a big gap there at the moment, with too many students leaving universities without being clued up on the start-up scene and how to get going,” Alexander says. The pitch event today will include keynote speeches from Pandora founder Tim Westergren, Freelancer.com founder Matt Barrie and Google Australia’s director of Engineering Alan Noble.
Outsourcing platform Freelancer has this week announced the acquisition of virtual content marketplace Fantero. The deal gives Freelancer ownership of a marketplace with over 1 million items of digital content such as web templates, pictures and scripts, as well as access to the community of around 100,000 content creators. Fantero was launched as photography marketplace buystocknetwork.com by Max Basaraba and Zakhar Chumak. Freelancer founder and chief executive Matt Barrie described the acquisition as an excellent fit. “Freelancers are constantly producing all sorts of digital content, and this is an excellent way to monetise these assets. In addition, the resource will help increase productivity and provide immediate value for those working on thousands of projects posted on Freelancer every day.” This is Freelancer’s second acquisition since listing as a public company in November 2013, selling 6.7% ($14.2 million worth) of shares. The first was a freelance marketplace which enabled four-year-old Freelancer to double their Polish market. According to their first post-listing annual report, the company had net revenue of $18.8 million, up 77% on last year, and a net profit of $753,000, up 3%. “We are land grabbing now, getting into new countries … the challenge is how do we get to a billion quickly and be cost-effective,” Barrie told StartupSmart. “We are reinvesting every dollar we made back into the business.” Over 5.3 million projects were facilitated by the platform in 2013, and almost 10 million people were using the site. Barrie has indicated the funds raised by the listing would go towards new product platforms for users, expanding into international markets and hiring expert staff.
Leading startup conference SydStart has announced a partnership with the Australian Securities Exchange in a bid to encourage more tech startup businesses to list locally. The ASX is providing the venue for two screening days to be held in their exchange theatre prior to the event on May 2. Companies who have purchased a SydStart ticket enabling pitching will be assessed by the SydStart team and several ASX team members and invites to select the startups to star on the SydStart day. Conference coordinator Pete Cooper told StartupSmart the ASX team would be inviting some of their investment community to the event and using the criteria: team experience and fit, momentum and traction, defensibility of the idea at all stages, and innovative thinking. “This is hopefully the start of a more strategic relationship over time to help the tech startup community get more listings and the ASX to continue to grow even with a potentially declining resources industry,” Cooper says. The partnership between the landmark event and the ASX began during the float of online jobs market website Freelancer. “The Freelancer listing created a flagship for tech companies listing locally. It’s great to have a role model,” Cooper says, adding he expects more startups will list in the coming years. “We’re (Australian startups) getting more sophisticated about our response to the challenges here. You can leave your team here and raise money in international markets. It’s a very powerful story for the ASX if you get international funding and have global clients.” Freelancer’s IPO in October was a capital raising event rather than an exit for founder Matt Barrie. Taxi app and payment systems startup Ingogo told StartupSmart last year that they intend to list on the ASX in mid-2014.
Freelancer.com, which became a public company in November 2013, has released its first full year annual report, revealing a net profit of $753,000, up 3% on the previous year. The online freelance marketplace, started by Matt Barrie in 2009, had pre-tax profit of $600,000 and achieved net revenue of $18.8 million, up 77% against the prior corresponding period figure of $10.6 million. It reported its operating net profit was $1.1 million, up 46% from 2012, exclusive of IPO expenses. Freelancer’s gross payment volume was $84.4 million, up 66% on the prior corresponding period. The site’s users increased to 9.7 million. However, Barrie told SmartCompany this morning that figure had already gone over 10 million two months into this financial year. He says the aim is to get to over “one billion users as quickly as possible” on the platform. “There is no reason why all the users of Facebook can’t be on Freelancer,” he says. “We are land grabbing now…getting into new countries…the challenge is how do we get to a billion quickly and be cost-effective.” The site facilitated 5.3 million projects in 2013, up from just over four million in 2012. Barrie says the company is “still in the early days in the space” but shareholders are “very happy” with the inaugural report figures. “We are reinvesting every dollar we made back into the business,” he says. “All of our metrics are improving…we are disciplined and focused on breaking even.” He says the shareholders were supportive of this approach, rather than chasing fast profits. Barrie says in 2013 much investment went into building new product platforms for users, expanding into international markets and acquiring expert staff. “We have opened an office Vancouver, in Manila and our Sydney office is getting too small.” He says the company now has 350 staff internationally. Last week it appointed Daniel Oertli as vice president of products, a former chief executive and co-founder of Roomz. His role will be to head up a global team of product managers and designers. Barrie says that in 2014 the focus will be on scaling up, hiring more expert staff, innovative product development and continuing to reach new territories. It is expanding its range of languages and currency offering. Freelancer floated on November 15 last year, selling around $14.2 million worth of shares, or 6.7% of the company. At the time, Barrie told SmartCompanythis was not going to be an exit plan. “I’m not selling a single share,” he said. “I love this company.” Freelancer is a crowdsourcing and freelancing marketplace, offering work in around 600 fields such as website development, logo design, marketing, copywriting, astrophysics, aerospace engineering and manufacturing.
Incubate, a start-up accelerator program launched and piloted by Sydney University, has announced its first partnership with Adelaide University set to run an Incubate program from January 2014. The national expansion of the award-winning entrepreneurial education program is supported by Google Australia. Students in the Incubate program receive 11 weeks of co-working space, mentoring, workshops and $5000. The Adelaide program will be coordinated by lecturer Claudia Szabo and include mentoring from Google Australia’s engineering director Alan Noble, Freelancer founder Matt Barrie and serial entrepreneur and venture capital investor Dr Michelle Deaker. “This is a great opportunity for our students. It will open up fantastic entrepreneurship avenues. We are very excited to be hosting this program,” Szabo says. National program coordinator James Alexander told StartupSmart they’re midway through negotiations with universities in every state and are thrilled to partner with Adelaide University as their first program in the national roll out. “We were very happy when Adelaide University wanted to be partner, as I’m constantly meeting entrepreneurs who are from Adelaide. There is something in the water down there,” Alexander says. The Incubate team are looking forward to piloting the program in another university context. Alexander says their key questions are about developing the program so it fits well. “The big question for us is can a university host an accelerator program successfully without having to build up the infrastructure that usually accompanies university programs, such as a dedicated commercialisation department, or raising a fund,” Alexander says. He adds the two programs will be sharing resources and mentors, and they have several live-stream mentoring sessions scheduled. “It’ll be great to see network effects of having two programs running across major cities. We’re looking forward to tapping into the Adelaide start-up mentoring community, and sharing what we’ve learned here,” Alexander says. He adds they’re midway through negotiations with universities in every state, and are looking forward to announcing further partnerships shortly. “We’ve got pretty ambitious plans and now it’s only a question of timelines,” Alexander says.
Freelancer.com has ambitious expansion plans. Its CEO says the company, an online marketplace and auction house for freelance jobs, will be the ‘eBay of jobs’. Its prospectus, lodged yesterday with the ASX, is full of similarly lofty statements. “I find it hard to believe that with 7.1 billion people in the world, only 2.7 billion people are on the internet,” wrote chairman and CEO Matt Barrie. “Almost 4.5 billion people are yet to connect. “We are confident that there is tremendous growth potential ahead for the company, as the rest of the world’s population goes online. Today our analytics reports that our users connect from 247 countries, regions and territories. Some of these users have been active as far back as 2000, through our acquisitions. Many use our site to generate an income and feed their families. Some log in every day to do so.” The company, Barrie continues, has always sacrificed profit for future growth. And it seems to be this future growth that is driving the desire to list on ASX. But the IPO is tiny. Freelancer.com won’t see its owners cash out, or see a large injection of funds into the business. When it lists on November 15, it’ll sell just $14.2 million worth of shares, or 6.7% of the company. This is less than one year’s revenue – the company is expected to make $18.3 million in calendar year 2013. In September, the company rejected a $430 million bid from Japanese recruitment site Recruit Co, which valued Barrie’s 46% stake at close to over $200 million, landing him on the Young Rich list. At 50 cents a share, the Freelancer prospectus values the company at close to half what its most public buyout offer has been. With so little script on offer, why bother listing at all, especially given the regulatory burdens associated with running a public company? SmartCompany put the question to Barrie. He said the IPO was very much about setting in place a foundation for the company’s growth while allowing him and his executives to retain a measure of control and flexibility. “We certainly had a lot of options on the table,” he told SmartCompany this morning. “We had a huge amount of interest from late-stage private equity, and from venture capital.” That would be the traditional path to gain access to growth funds. But Barrie says his company has done well on relatively little capital injection to date, and only needs a small cash injection now. “Listing gives us the most flexibility. It allows us to stay masters of our own destiny.” When a company lists, Barrie says, its script is its currency. “So if we wanted to use our stock for acquisitions, and I’m not saying we will, we can do that.” It’s a curious view. Private companies normally avoid listing for a perception of the onerous regulatory burden involved. The level of public disclosure is far higher in a listed company, as is the scrutiny from analysts and the media. But Barrie says there are a lot of misconceptions about listing, citing as a counterpoint the way it’s used by junior miners as a vehicle for growth. “The primary route that junior explorers raise money in Australia is from listing. They’ll raise, say, $1.3 million, and no one bats an eyelid. “There’s a whole misconception that the environment here is like that in the US. But it’s widely different. In the past five years, more money has been raised in equity on the ASX than on the NASDAQ. “If things go successfully for us, we could see technology companies using listing the way miners do in Australia.” Needless to say, for Matt Barrie, this isn’t an exit. “I’m not selling a single share,” he says. “I love this company.” This story first appeared on SmartCompany.
Beep, beep, beep – the alarm sounds and the chances are you do one of two things: (a) leap out of bed with a spring in your step, or (b) roll over grumbling and pretend it’s not yet morning. Successful entrepreneurs almost always fall into group ‘a’. Whether it’s throwing a few punches, jogging or fist pumping to some tunes, one thing is certain – for Australian entrepreneurs, sleeping in isn’t on the agenda. Healthy body, healthy mind is a motto embodied by many in the entrepreneurial community, who put the rest to shame. Early morning interviews, coffees and daily prioritising also feature heavily among the morning activities of the business-minded. SmartCompany spoke to 10 of Australia’s most successful entrepreneurs, ranging from restaurateurs, fitness franchise owners, crowdsourcing platform creators and retail experts, to discover how they begin their day. Early starts While the average worker can get away with sleeping until 7.30am, entrepreneurs are typically up at the crack of dawn (if not before). Board of Directors 12 founder Stefan Kazakis kicks off his day at 5.30am, while five:am yoghurt, founded by David Prior, isn’t called five:am for no reason. “That’s when we milk our cows, but it is a personal thing for me too – I get up every day at 5am,” Prior says. Wealth Enhancer co-founder Sarah Riegelhuth is also no stranger to early mornings. “I wake up every day at 5.30am at the latest and workout,” she says. “I usually go straight to the office from there and shower and have my breakfast.” Exercise Exercise gets the blood pumping and is thought to improve brain function and general productivity, so it’s no surprise entrepreneurs generally start the day with a workout. “I run every day and usually I meet my friends at the Tan [the track around the Botanic Gardens in Melbourne] for a run or do yoga,” Riegelhuth says. “I usually go straight to the office from there and shower and have my breakfast.” KeepCup co-founder Abigail Forsyth starts her day with a morning ride, but unlike some it’s not primarily for fitness. “I always cycle; it’s part of our sustainability plan. My brother Jamie (the other co-founder) also cycles to work and he lives 10 minutes in the other direction,” she says. The founder of iconic Melbourne restaurants David’s and Oriental Teahouse, David Zhou, exercises in a more unconventional way. “I have a quick wash and then I go into the office early and do some exercises on the punching bag, a wooden dummy and speed bag I have set up in different locations around the office. Then I’ll leave again before everyone else arrives and get a bite to eat – it always looks like I’m the last person to arrive,” he says. Stefan Kazakis hits the gym as soon as he gets up, three times a week: “Whether it’s personal training or a cycle class, something to get the blood running.” Jetts Fitness founder Brendon Levenson goes for a more peaceful approach. “I start the day with 10 minutes of stretching and breathing exercises, which is great for getting me focused on the present and setting me up for the day,” he says. Routine While the daily life of entrepreneurs is often unpredictable, their morning routine is an exception. Whether it’s eating the same cereal, running the same route or getting up at precisely 6.02am, a little bit of routine allows entrepreneurs to waste no time thinking about mundane issues like whether peanut butter or Vegemite is better. This article continues on page 2. Founder of online cosmetics retailer Ry.com.au James Patten eats toast with English marmite each morning. “It's a habit I can’t break even though I am now an Australian citizen. I normally make a few early morning phone calls on the way to work for people I am trying to chase down,” he says. “I like to arrive at the office between 8.30 and 9am. I listen to ABC radio and will often spend 10 minutes sitting in the car park mentally thinking about the day with the radio on before I hit the office.” Prior also starts his day in the same way each morning. “I start with a good, long meditation then I do yoga, then I go for a run, then I sit down to a big breakfast of fruit, yoghurt and granola. I’ve been like that for long, long time,” he says. Freelancer.com founder Matt Barrie’s whole day is planned. It’s as simple as “get up, go to work and stay at work”, even on weekends. “It’s all-consuming,” he says. Family For entrepreneurs with families, finding time to spend with their children and partners is often a challenge, but many set aside time in the mornings to see their loved ones. Net-a-porter founder Megan Quinn juggles business commitments (she now has a small consultancy firm called Q&CO) and spending time with her kids. “Unless I'm giving a business breakfast speech, the day starts at 6.15am, when I wake my eldest daughter and let the dogs out,” she says. “After dropping Imogen to the school bus, it's back to turn music on throughout the house, wake my younger daughter and get her off to school. While it's a nuisance having to do two school runs, I love being able to chat one-on-one with the girls at the start of every day.” With three kids, Anytime Fitness co-founder Jacinta McDonell-Jimenez’s mornings are understandably hectic. “I get up around 6am. I’ve got to get my eldest daughter off to high school and then one going to day care, and then the six-week-old baby to take care of,” she says. “For me, it’s really important when the kids are as young as they are to have the time with them. Until they’re at school I wouldn’t look at going back to full-time.” Prioritising Setting priorities is crucial for every business owner to save feeling swamped under an endless pile of tasks. Using the morning to prioritise the day’s tasks is an effective way for entrepreneurs to get the most out of each day. Zhou prioritises his day while eating breakfast, before returning to the office and meeting with his team. “I make sure everyone is on the same page and then we get into action,” he says. Riegelhuth has a daily meeting with the whole Wealth Enhancers team to make sure everyone is on track. “We have an 8.45am dial-in meeting and every one across the country dials in and we go through the challenges we’re facing and the critical numbers and this takes five to 10 minutes and then everyone is on with their day,” she says. This story first appeared on SmartCompany.
It often surprises casual observers that the annual BRW Young Rich edition counts the 100 youngest self-made entrepreneurs under 40. After all, in most industries, awards for ‘rising stars’ and the like cut out at 25 or 30. The reason BRW has to give people 40 years to shine is simple: hardly any businesspeople make a killing by 30. A list cutting off there would be dominated by sports stars and celebrities. And for a business publication, that wouldn’t interest its readers as much. Almost all of the Young Rich 2013, unveiled in the magazine’s flagship edition out this morning, are aged from 30 to 40. The youngest person on the list, MotoGP rider Casey Stoner, is aged 27. SmartCompany spent a fascinating morning dissecting the latest list. Here’s what Australia’s youngest millionaires have in common. Life’s work Most of the Young Rich are entrepreneurs, who started companies and over years helped grow them. Apart from the sports stars and celebrities, there are few employees on the Young Rich. Thanks to Nathan Tinkler dropping off the list this year, there are now two more. Todd Hannigan and Tom Todd made their $84 million joint fortune by leading Nathan Tinkler’s Aston Resources before it listed. In 2011 they lost their jobs, but were given six months’ pay and a whole lot of stock in the process. They sold their stock before things got rocky for the sector. This must be especially galling for Tinkler. BRW doesn’t think his assets exceed his debts. He didn’t make the $18 million cut-off, leaving him entirely off this year’s list. Around this time in 2011, Tinkler was valued at $1.13 billion. Most of the Young Rich have had a good year. Exactly half increased their wealth this year, while only 16 lost wealth. The rest were more or less steady. Tech tricks The full Rich 200 list, for which there is no age limit, is dominated by property developers. But the Young Rich has few of those. Over one in three (34) of the Young Rich made their money in technology, of which 22 were web entrepreneurs. In the top 10, eight started technology companies. These include Atlassian founders Mike Cannon-Brookes and Scott Farquhar, steady at number one with a joint fortune of $550 million. They were pegged at $480 million a year ago. The fastest-rising names in the top 10 are Ruslan Kogan, of Kogan.com, who more than doubled his fortune to $315 million, and Freelancer.com chief Matt Barrie, who’s risen into the top 10 with $185 million (he was pegged at $50 million last year). Both companies are looking at listing on the ASX in the near future, which could see their founders get a lot richer if all goes well. Reinvesting the profits If so, they’d be some of the few Young Rich-listers to turn their business success into serious disposable income. For most of the Young Rich, their wealth is ‘paper money’. They own large stakes in highly successful businesses. If those businesses list or are sold, they can cash in some of that ownership. Until then though, many of the Young Rich are fanatical enough to keep most of their wealth tied up in the one thing. For example, at Kogan.com, the online electronics retailer, shareholders Kogan and David Shafer reinvest the profits every year. Shafer told BRW their remuneration was on an “as needs” basis. “Building something is much more exciting,” he said. Perhaps this need to reinvest profits is driven by Australia’s low venture capital spend. According to a recent PwC report, there is less venture capital available in Australia, relative to our population, than in Israel, the US, Norway, Switzerland, Demark, Britain, or France. When capital to expand isn’t readily available, revenue can be the best source of funds. Slim pickings for women As always with Australian rich lists, there are few women wealthy enough to make the cut-off. Only seven women make the Young Rich, of which the wealthiest is Carolyn Creswell ($55 million), of Carman’s Fine Foods. The next wealthiest is Erica Baxter ($40 million), who is in the process of finalising her divorce from rich list-fixture James Packer, which could see her secure another $100 million according to recent reports. Other women on the list are Lilly Haikin ($40 million held jointly), who bought chocolate café chain Max Brenner to Australia, PageUp People founder Karen Cariss ($25 million held jointly), golfer Karrie Webb ($22 million), MyBudget founder Tammy May ($20 million), and model Miranda Kerr ($18 million). This story first appeared on SmartCompany.
The first ever annual Startup Spring Festival, a celebration and awareness raising festival about the Australian tech start-up scene, now includes over 100 events. The festival will include hackathons and start-up weekends, “walkabout” tours of incubators and co-working spaces, as well as a wide range of educational opportunities and travelling events. Launched in late August, the festival is coordinated by StartupAus, a not-for-profit collective of tech entrepreneurs including Google Australia director of engineering Alan Noble; Freelancer founder Matt Barrie; Shoes of Prey founder Michael Fox, Bill Bartee from Southern Cross Ventures; and Peter Bradd, chief executive of Sydney co-working tech hub Fishburners. The festival aims to showcase the tech start-up scene across the country, in major cities such as Sydney and Melbourne, but also in rising tech start-up cities Brisbane and Adelaide. There will also be events in Perth, Tasmania and Canberra. In August, Bradd told StartupSmart the event was designed to get the good news and momentum building in the tech start-up scene out beyond to a wider audience. “Strategically, we need to show there is momentum to get buy-in from other stakeholders. Government, big corporates and some universities don’t quite understand or believe in entrepreneurs, so awareness is quite important for making change,” Bradd said.
Freelancer.com’s $US400 million takeover offer from Japanese recruitment company Recruit Co has attracted plenty of attention. It’s a hefty chunk of money for a company that grew out of chief executive Matt Barrie’s garage. If the $US400 million offer for the global online outsourcing platform is accepted, it’s likely to be one of the biggest technology company deals done in Australia this year. Here are some of the top technology deals in Australia in the past 12 months whose dollar value has been reported, from data compiled by Charles Lindop of KTM Capital: 1. M2 Telecommunications and Dodo Australia, Eftel In March this year M2 Telecommunications bought phone and internet provider Dodo Australia and telecommunications infrastructure company Eftel for $248 million. M2 said in a statement at the time Dodo and Eftel were highly complementary to its “sizeable” consumer division. “The acquisitions are an excellent complement to our consumer division and combined, our business possesses an excellent capability to grow our share of both the consumer and small to medium business market,” M2 chief executive Geoff Horth said. 2. Corporation Service Company and Melbourne IT Melbourne IT sold its Digital Brand Services division to US-based Corporation Service Company for $152.5 million in March. DBS provides online brand protection and consultancy services to global organisations. “While this was not a business that we had specifically earmarked for sale, given the value creation provided by the transaction, this was an opportunity which could not be ignored,” Melbourne IT chief executive Theo Hnarakis said in a statement. 3. William Hill and tomwaterhouse.com UK betting giant William Hill took a punt on bookmaker Tom Waterhouse’s online business last month in a deal that could be worth up to $104 million. Under the deal, William Hill paid $34 million up front, and a potential further $70 million if certain earnings targets are met. “International expansion is a key part of William Hill’s growth strategy and making Australia our second home is our priority,” William Hill chief executive Ralph Topping said in a statement. 4. iiNet and Adam Internet Internet provider iiNet offered to buy South Australia-based Adam Internet for $60 million in August. Telstra had tried to buy Adam but was thwarted by the Australian Competition and Consumer Commission. “We believe that this transaction provides real benefit to Adam Internet’s customers and staff as it aligns them with iiNet, Australia’s leading ISP in customer service,” Adam’s chief executive Greg Hicks said. 5. Webjet and Zuji Travel booking website Webjet snapped up fellow online travel agency Zuji for $25 million in December last year. Webjet managing director John Guscic told SmartCompany the deal represented a unique opportunity to substantially expand Webjet's marketing footprint, particularly in Asia. “We've known Zuji since its inception and we know they’ve built out a very attractive business in Asia and we have a desire to expand into the Asian markets and Zuji has given us the platform to achieve that,” he said. 6. SMS Management & Technology and Indicium In July SMS Management & Technology bought IT infrastructure and managed services company Indicium for $22 million. SMS CEO Tom Stianos said in a statement at the time: “The acquisition of Indicium supports our growing Managed Services and Infrastructure Consulting capability, and meets our strategic imperative to increase our annuity revenue. This is a high growth segment of the market and Indicium will accelerate SMS’ offer of managed services in the cloud market.” 7. Woolworths and Quantium The supermarket giant took a 50% stake in Quantium, Australia’s leading data consultancy, for a reported $20 million in May. Quantium said in a statement it would provide a “wide range of data, analytical, media and software services to Woolworths as well as help deliver customer insights to Woolworths’ suppliers”. And where would the Freelancer.com deal rank among deals in the world? Pretty highly according to data compiled by Australian investment firm Right Click Capital. While it’s nowhere near the $US130 billion deal Verizon Communications has made to buy Vodafone’s 45% of Verizon Wireless this month, or Microsoft’s $US7.2 billion takeover of Nokia, it’s not far off the €360 million ($US477 million) paid by French payment solutions provider Ingenico for online payment provider Ogone in January.
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.
Tech start-ups have the potential to contribute $109 billion to the Australian economy, or around 4% of GDP, by 2033, according to a new report, which identifies four key ways to unlock the potential of the sector. The report, titled The Startup Economy: How to support tech startups and accelerate Australian innovation, was commissioned by Google and prepared by PricewaterhouseCoopers. Preliminary findings of the report, which provides a snapshot of Australia’s 1500 tech start-ups, were released in March. Google commissioned the report after helping form #startupAUS, a new industry group that is working on a national campaign to promote the Australian tech start-up sector. The group is led by Google Australia engineering director Alan Noble, Freelancer.com founder Matt Barrie, Shoes of Prey co-founder Michael Fox, Fishburners’ Peter Bradd, Southern Cross Ventures’ Bill Bartee and Startmate founder Niki Scevak. Google and PricewaterhouseCoopers have now released the findings of their report, which shows start-ups have the potential to contribute $109 billion or 4% of gross domestic product – and 540,000 jobs – to the Australian economy by 2033. According to PwC partner and economist Jeremy Thorpe, the findings will prove useful as the start-up sector continues to grow. “There is no comprehensive catalogue of start-ups in Australia [but] we believe there’s 1500 start-ups in Australia… The majority are in Sydney,” Thorpe says. “The vast majority of start-ups do not succeed – they actually fail… [Only] 40% of entrepreneurs in the start-up space, when they fail, will start again.” The report highlights four key ways to unlock the potential of the Australian start-up sector: Attract more entrepreneurs with the right skills In the short term, Australia needs 2000 more tech entrepreneurs each year drawn from the existing workforce. In the long term, Australia’s education sector must produce more skilled tech entrepreneurs. Encourage more early stage funding Funding for the Australian tech start-up sector will need to increase. Australia invests approximately $US7.50 per capita in venture capital per annum, compared to the United States ($75) and Israel ($150). Open up local markets to tech start-ups Governments are major consumers, with spending totalling $41 billion in 2012. They can become more start-up-friendly with procurement reform. “Companies can [also] think more innovatively about how they use start-ups,” Thorpe says. Foster a stronger and open culture of entrepreneurship Australia has a considerably higher “fear of failure” rate than nations like the US and Canada, constraining the sector. The tech community is key to changing this by celebrating its own success and becoming more inclusive. According to Noble, this last point is a key takeaway. “This is a good thing – that the community realises the fate of the sector is actually in its own hands,” Noble says. “#startupAUS is a start-up itself. We’re still actually figuring out what the organisation’s structure will look like. It will be some form of not-for-profit. “We want to make sure it’s very much driven by the community itself. It won’t be like your traditional government body – it will be a much more community-led organisation. “A big part of its success will be ensuring we do provide ways for the community to collaborate… and, with any new venture, no one has a monopoly on ideas. “Hopefully the research released today will go some way to helping to inform the debate and get to where we need to go by 2033.”
Google has commissioned PricewaterhouseCoopers to gather data on Australian tech start-ups, and has already released preliminary findings, after partnering with five well-known Australian tech entrepreneurs including Matt Barrie.