The rise of the start-up accelerators – Page 2 of 2 – StartupSmart
This success, in turn, is being fuelled by a fast-growth, low-cost, minimal barrier environment for start-ups, particularly in the tech space.
“This model is changing the start-up environment in Australia and globally,” says Heras. “Before the question was ‘How do I get money to build my technology and systems?’ Now it is, ‘I have all these platforms already – how can I tailor them to create a business?’”
“Businesses now have all the tools. It’s their job as entrepreneurs to create something and find a market for it.”
So where does that leave Australian VCs? Heras suspects that they will treat the start-ups emerging from initiatives such as Startmate and PushStart as “deal flow”, proving the next stage of capital, maybe via “super” angel funds. But the equation isn’t as simple as it once was.
“VCs in Australia can’t remain where they are – there’s no room for them in the web and mobile space because there is no need for them,” Heras says. “I think they’ll focus on clean tech, biotech and even hardware.”
“I know some VCs at Starfish and Southern Cross ‘get it’, but many come in way too late. I talk to start-ups who say they don’t need the money then, which is the conundrum that VCs face.”
“When they eventually come knocking, start-ups are already profitable. Atlassian is a perfect example – it was able to go to the US to get a huge round. It didn’t need to raise funds locally.”
With Accel, and others, increasingly eyeing up opportunities in Australia, it would be easy to think that local VCs are under the pump, forced to focus on other areas or act as affiliates for the major US players.
However, John Dyson, investment principal at Starfish, one of the largest VC firms in Australia, rejects the notion that there is scant investor focus on start-ups.
Dyson says that around half of Starfish’s portfolio has turnover of under $2 million, citing investments in up-and-coming companies such as Nitro PDF Software, Mimetica and iCiX, which has just expanded to California.
“We feel we keep in touch with early-stake start-ups pretty well and we’ve made a bunch of investments that have been super successful,” he says.
“Like any industry, there are different types of VC, so it’s hard to generalise. But I don’t think you can be a conservative VC. You have to be optimistic and take a calculated risk sometimes.”
Dyson says that Starfish is currently seeking a “handful” of start-ups to soak up the remains of a $185 million funding round that kicked off at the end of 2007. He insists that local VCs still have a vital role to play for emerging entrepreneurial talent.
“For Australia to produce a pipeline of great companies, they need capital at all stages, through to IPO,” he says.
“We are seeing an aggregation of angel investors and more capital for early-stage companies, which is a positive development. I see that as complementary to what we do. We manage around $400 million and we want to see that going into better-managed companies.
“There’s got to be a combination. Companies can raise an initial $500,000 and then come to use 12 months down the track for a $3-4 million cheque. We certainly aren’t moving away from that space – of our four last investments, two were with very early-stage companies.”
The idea that you can launch your company on $10,000 and be sipping a latte with Mark Zuckerberg in Palo Alto within a year without significant outlay is a misnomer, according to Dyson.
“It takes a lot longer, and far more capital, than people think,” he says. “If you need to go to the US, we can help you do that.”
Whatever the role of local VCs, it’s clear that the push to create the ‘Australian YCombinator’ isn’t set to slow down any time soon.
“The US accelerators will be tier one, but there will be heaps more in Australia,” says Heras. “With various niche plays in universities, I think there’s room for 10 accelerators to take place throughout the year. There’s real momentum in the sector at the moment.”