3 Ways to Fund Your #Startup

At a recent forum organised by Startup Victoria, co-founders and advisors discussed alternative ways of funding a startup. Part of Startup Week, the event was hosted by inspire9 and sponsored by BlueChilli and Slush Down Under.

button-41706_1280Bootstrapping

Doug English from CultureAmp talked about the benefits of bootstrapping, especially for B2B startups: “You have fewer clients, but with bigger budgets, and fewer of the hassles associated with a consumer startup.”

Initially, the founders used consulting work as a means of funding themselves, but focussed on specific market segments and customer domains – in short, they got paid to learn about their clients.

Having several co-founders was also helpful in providing “cheaper access to more labour”.

However, they have learned a significant lesson from those early consulting gigs: although they were able to secure upfront lump sum payments for client development work, they are still supporting some of those initial product features and functions, without necessarily getting paid for it. Whereas, if they had aligned product development with their client road map, they would have been able to generate recurring and iterative revenue from new product features. In short, annual payments and subscription fees help with the cash flow!

There was also the opportunity cost of bootstrapping, instead of bringing in external funding. The team realised that pursuing VC funding was always going to be a long haul, so they decided against it; but they then found themselves in the position of receiving an unsolicited approach from a VC source.

Note: CultureAmp recently closed a Series A round of funding for $8.1m.

Crowdfunding

Alan Crabbe, co-founder at Pozible explained how the team had seen a trend in crowdfunding projects in music (Europe) and film (US), and saw an opportunity in the visual arts. A key strategy was to use story-telling through video to help artists pre-sell their projects. Success can be rapid – one Brisbane project was funded within 3 hours. Globally, $5bn raised has been through crowdfunding – but beware domain name squatters…

Three trends have helped crowdfunding as an alternative funding platform:

  • Social Media – to provide critical mass
  • Online Video – experiencing exponential growth
  • Payment Innovation – e.g., PayPal etc.

Alan had a number of tips for anyone contemplating crowdfunding their startup project:

  1. Use social media comments, likes and other feedback to validate your idea
  2. Taking a more hands-on approach means they have a success rate of around 60%
  3. Find your audience first – typically among the FFF (“family, friends and fools”) and your other networks

As for equity-based crowdfunding, he observed that nothing happens quickly in Australia, but predicted it might be a reality within 6-9 months’ time.

Note: a couple of local platforms that resemble equity-based crowdfunding are already in operation: VentureCrowd and ASSOB – but as with anything of this nature, read the small print, and make sure the model is right for your business or startup idea.

R&D tax breaks

The final speaker was Sean Moynihan from PwC who talked about some of the R&D tax incentives available from the government. A major hurdle for many startups is that these tax breaks are generally only available to companies that have notional R&D deductions of at least $20,000.

Other programs such as the Export Market Development Grant are being phased out, and even incentives for product design must be able to demonstrate research activity and expenses. Since these initiatives can largely be described as “matching” programs, they can be summarised as “no taxable revenue, no grant available”.

PwC have launched their own service to assist companies navigate the R&D claim process.

Although an estimated $1.8bn will be made available in R&D grants this year, less than 10% will go to startups.

Note: the closing date for grant applications for the year ended June 30, 2014 is April 30.

Conclusions

Although there is a noticeable change in VC attitudes, most early-stage funding finds its way to B2C startups, because B2B is just “too hard”. However, even angel investors want to see an established client base, a revenue stream, and a well-defined team of founders.

With lower tech and product development costs in mobile apps and software tools, bootstrapping is a more realistic option for many startups, and the received wisdom appears to be to hold out for as long as you can before bringing in external funding.

Crowdfunding is gaining traction for specific projects or more tangible products (including some apps) – but legal and other restrictions means it’s not really a viable option for raising equity. (Maybe P2P lending for businesses will offer alternatives to a bank overdraft, a personal loan or even secured lending?)

Next week: Taxing the Intangibles – coming soon to a screen near you!

 

How to Survive a #Startup Weekend

A rite of passage for any startup founder or budding entrepreneur is a weekend hackathon, and a Startup Weekend is probably the best way to throw yourself in at the deep end. As part of Startup Week, the York Butter Factory hosted Melbourne’s first fintech event. Here’s how I managed to survive the ordeal….

IMG_0210

Your correspondent in full flow at the Final Pitch…

Rather than provide an hour-by-hour account of my experience (the schedule is on the website and you can read the Twitter feed), here’s my thoughts on what it takes to participate and get the most out of the experience:

Courage

Take a leap of faith, step up and pitch an idea at the open mike session on the first night. Not only does this force you to craft your message, it also helps overcome any nervousness or awkwardness in joining a room full of total strangers with whom you will be working for the next 54 hours. My idea didn’t get enough votes, but it did spark several interesting conversations with other participants, such that I will probably take it further.

Stamina

Pace yourself. Yes, you could spend every available hour on finishing that customer validation, or refining the pitch, or making sure your demo site is up and running – all of which are important – but you also need to make time for rest, sleep, eating (all catering is laid on) and exercise. Again, 54 hours is a long time to spend on a single activity.

Open Mindedness

I had some idea from the program notes what to expect, but I still didn’t really know what it would it be like. So it was great to just go with the flow, to see what would happen. The format, structure and schedule (as well as the rules and requirements for the Final Pitch competition), pretty much define what goes on. But your attitude and willingness to be open to new ideas determine how much you get out of the experience.

I should also mention the value in having direct access to so many experienced mentors throughout the weekend – although I know from the experience, it’s hard not to get too defensive when mentors find fault with your project, and difficult to remain true to the idea when some of the feedback is contradictory.

Teamwork

Building teams to collaborate on a startup idea forms the basis of the hackathon model. As my own idea did not get enough votes at the open pitch, I looked to join a team that was a good fit in terms of the idea, the mix of skills to complement my own, and the ability to execute. As a “non technical” participant, I was extremely fortunate to be part of team that had a great balance of back-end and front developers, design skills and mobile deployment. Plus, given the theme was fintech, it was fantastic working with people from a banking IT background. (It also helped that several team members were veterans of Startup Weekend.)

Defining Roles

Although we didn’t spend a great deal of time creating or defining roles within the team, each of us played to our strengths, by self-determining what we would work on, and what our contribution would be. The only tricky decision was choosing who would present the Final Pitch to the panel of judges – but a process of elimination, preference and negotiation resulted in yours truly taking on the role.

Tools

In addition to the various software, hosting and domain name resources provided to each team, I was impressed by how many other tools the team plugged into – such as Trello, GoogleForms, Hangouts, ThemeForest, CanvasModel Design and Launchrock – most of which were free. We also spent some time reviewing competing and complementary products as part our MVP validation.

Less Is More

We could have spent a lot of time on customer validation – but we chose instead to talk to 3 or 4 key target customers for the MVP (qualitative), and run an on-line survey (quantitative) which generated around 100 responses overnight (not bad considering it was a weekend…). We also had more content than we actually used: the lean canvas business model was used sparingly, as was a competitor heat map; but it also meant that when we came to developing our pitch presentation, we had the luxury of being able to take stuff out and only focus on the important and most relevant points. Thanks, also, to a presentation template that one of the team had just used at a recent management course!

Practise

Having been chosen to make the Final Pitch on behalf of the team, and despite quite a lot of experience in making business presentations and in public speaking, I was extremely grateful for the coaching, feedback and rehearsals the team put me through. Getting to know the material, understanding the anchor points and how to navigate from topic to topic, helped me to give a presentation that flowed logically and hopefully demonstrated that the team had met the competition brief.

The Result?

Unfortunately our team did not win, nor did it place in the top 3. The judges pinged our presentation for being “too confident”, and for not demoing our prototype (we did briefly put up our beta website) – but given the working prototype mostly comprised some backend coding, it wouldn’t have been that interesting from a visual perspective.

Notwithstanding our disappointment on the night, the team is planning to get together to see how far we can take the idea, and separately I’ve been asked to join a new team at an upcoming hackathon.

(If anyone is interested, we designed a P2P payments tool called PayMee)

Next week: 3 Ways to Fund Your #Startup

Update: Health, AusPost, eTaskr and Slow School

Over recent months, I have blogged about health and the digital economy, the challenges facing AusPost, the progress of eTaskr and the birth of Slow School of Business. Here are some updates on each of these topics:

IMG_0211Apple launches developer platform for health apps

On top of launching “Health” with iOS8, Apple has released a software tool called ResearchKit designed to help researchers and developers build and test new health apps.

I think that while we hear a lot about the Internet of Things (#IoT), health is one area where the connection of the physical and the digital will really deliver tangible benefits (not just a fridge with a screen…).

Australia Post plans to raise the cost of sending letters

In the wake of declining letter volumes (and poorer financial performance), AusPost is considering jacking up the price of letter postage, and introducing a 2-speed letter service.

While this is not a surprising move, it does seem shortsighted. Given the increase in parcel volumes, especially from e-commerce and small online purchases, I reckon AusPost would be better off with more refined domestic parcel rates. For example, using exactly the same dimensions and weight, I can either send an item as a “large letter” for $2.10 (which is perhaps too cheap?), or as a “small parcel” for $7.45 (which is incredibly expensive for an item that might cost no more than $25). Maybe different band rates of 50g, from 100g up to 500g (the current weight limit for a small parcel/large letter) or even 1kg  might be a better option, coupled with improved payment and lodgment automation? Just saying…

etaskr secures seed funding

Described as a “private label elance”, etaskr is a graduate of the AngelCube accelerator program, and was a finalist at last year’s Big Pitch organised by Oxygen Ventures.

Following their appearance at the Big Pitch, etaskr have recently closed $1.3m in seed funding from Oxygen Ventures. As mentioned in an earlier blog, etaskr is starting to see traction among corporate clients, including overseas markets, but the nature of the B2B sales cycle has meant that investors, incubators and accelerators are traditionally wary of such startups. Hopefully, this latest development will start to change market perception.

Slow School founder in the news

Finally, Carolyn Tate, the founder of Slow School of Business has been busy launching a new program of short courses (including Three of the Best) a new website and a new book. Oh, and she’s also become a B Corp. (Declaration of interest: I am a participant in, and adviser to, Slow School.)

Previously featured in Slow Living (required reading for the Slow Movement), Carolyn has taken a simple idea based on collaborative and peer-to-peer learning, and created a potentially disruptive platform for professional development and corporate training. Slow School is also tapping into the growing trend for people to work as independent contractors, freelancers and consultants (rather than permanent employees), and the dynamics of the digital economy where participants are also looking to make deep, personal connections rather than just online “friends”.

The new normal?

Post GFC, we’ve been told to expect a low/slow/no growth environment – that this is the “new normal”. I would add to that digital disruption, non-traditional commercial models and emergent ecosystems as being the other key influences on how we do business in this new environment. From what I have skim-read of the latest Intergenerational Report, the language is still couched in traditional terms of “jobs”, “productivity” and “industries”. Yes, there is mention of innovation, demographics, technology and flexible workplaces (i.e., deferring retirement?), but nothing that inspires me to think our political leaders understand what is really going on within the startup economy and the broader digital movement.

Next week: How to survive a Startup Weekend

Personal vs Public: Rethinking Privacy

An incident I recently witnessed in my neighbourhood has caused to me to rethink how we should be defining “privacy”. Data protection is one thing, but when our privacy can be compromised via the direct connection between the digital and analog worlds, all the cyber security in the world doesn’t protect us against unwanted nuisance, intrusion or even invasion of our personal space.

Pressefotografen mit KamerasScenario

As I was walking along the street, I saw another pedestrian stop outside a house, and from the pavement, use her smart phone to take a photograph through the open bedroom window. Regardless of who was inside, and irrespective of what they were doing (assuming nothing illegal was occurring), I would consider this to be an invasion of privacy.

For example, it would be very easy to share the picture via social media, along with date and location data. From there, it could be possible to search land registries and other public records to ascertain the identity of the owners and/or occupants. And with a little more effort, you might have enough information to stalk or even cyber-bully them.

Privacy Law

Photographing people on private property (e.g., in their home) from public property (e.g., on the street outside) is not an offence, although photographers must not cause a nuisance nor interfere with the occupants’ right of quiet enjoyment. Our current privacy laws largely exclude this breach of privacy (unless it relates to disclosure of personal data by a regulated entity). Even rules about the use of drones are driven by safety rather than privacy concerns.

Since the late 1990’s, and the advent of spam and internet hacking, there have been court decisions that update the law of trespass to include what could be defined as “digital trespass”, although some judges have since tried to limit such actions to instances where actual harm or damage has been inflicted on the plaintiff. (Interestingly, in Australia, an act of trespass does not have to be “intentional”, merely “negligent”.)

Apart from economic and financial loss that can arise from internet fraud and identity theft, invasion of privacy via public disclosure of personal data could lead to personal embarrassment, damage to reputation or even ostracism. (In legal terms emotional stress falls within “pain and suffering”).

Data Protection Law

The Australian Privacy Principles contained within the 1988 Privacy Act apply to government agencies, private companies with annual turnover of $3m or more, and any organisations trading in personal data, dealing with credit information or providing health services. There are specific provisions relating to the use and misuse of government-derived identifiers such as medical records and tax file numbers.

The main purpose of the privacy legislation is to protect “sensitive” information, and to prevent such data being used unlawfully to identify specific individuals. At a minimum, this means keeping personal data such as dates of birth, financial records or hospital files in a secure format.

Some Practical Definitions

The following are not legal definitions, but hopefully offer a practical framework to understand how we might categorise such data, and manage our obligations towards it:

“Confidential”

Secret information that must not be disclosed to anyone unless there is a legal obligation or permission to do so. (There are also specific issues and exceptions relating to “classified information”, public interest matters, whistleblower protection and Freedom of Information requests.)

“Private”

Information which is not for public or general consumption, although the data itself may not be “confidential”. May still be subject to legal protection or rights, such as the right of adopted children to discover the identity of their birth parents, or the right of someone not to be identified as a lottery winner.

“Personal”

Data that relates to, or can specifically identify a particular individual. An increasing issue for Big Data, because data that otherwise resides in separate locations can now be re-connected using triangulation techniques – scrape enough websites and drill down into enough databases, and you could probably find my shoe size.

“Public”

Anything that has been published, or easily discoverable through open search or public database retrieval (but, for example, does not include my past transactions on eBay unless I have chosen to disclose them to other users). My date of birth may be a matter of record, but unless you have authorised access to the relevant database or registry, you won’t be able to discover it and you certainly shouldn’t disclose it without my permission.

Copyright Law

One further dimension to the debate is copyright law – the ownership and related rights associated with any creative works, including photographs. All original content is copyright (except those works deemed to be in the “public domain”), and nearly all copyright vests with the person who created the work (unless they have legally assigned their copyright, or the material was created in the course of their employment).

In the scenario described above, the photographer would hold copyright in the picture they took. However, if the photograph included the image of an artwork or even a framed letter hanging on the wall, they could not reproduce the photograph without the permission of the person who owned the copyright in those original works. In some (limited) situations, a photograph of a building may be subject to the architect’s copyright in the design.

Curiosity is not enough justification to share

My personal view on all this is that unless there is a compelling reason to make something public, protecting our personal privacy takes precedent over the need to post, share or upload pictures of other people in their private residence, especially any images taken without the occupants’ knowledge or permission.

Just to clarify, I’m not referring to surveillance and monitoring by the security services and law enforcement agencies, for which there are understandable motives (and appropriate safeguards).

I’m saying that if we showed a little more respect for each others’ personal space and privacy (particularly within our homes, not just in cyberspace) then we might show a little more consideration to our neighbours and fellow citizens.

Next week: It’s OK to say “I don’t know”