Tag Archives: #startups

Oxygen Ventures brings some fresh air to Australia’s #Startup Community

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Last week, Larry Kestelman’s new investment vehicle, Oxygen Ventures gave 5 local startups the opportunity to bid for a share of A$5 million in funding at the inaugural Big Pitch night in Melbourne (#thebigpitchAUS).

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The Judges at the Big Pitch

 

The #Startup Contenders

Drawn from over 300 applicants, the hopeful candidates (in alphabetical order) were:

Bluesky  Shopping portal for leading fashion and lifestyle brands.

ECAL On-line event and brand marketing calendar launched by E-DIARY.

etaskr Enterprise productivity solution that allows employees to ‘bid’ for in-house projects based on their expertise.

KartSim New go-kart game for PCs, from developer Black Delta.

WeTeachMe Booking platform for short-courses and special interest classes.

After each contestant made a short presentation, they were questioned by a panel of judges, comprising CEOs, entrepreneurs, corporate advisers and business development experts from a range of well-known organizations. Most of the questions related to the startups’ revenue projections, funding requirements and growth opportunities – but some were grilled in more detail about their business models and financial performance to date.

How did the participants fare on the night?

The Joint Winners were ECAL and WeTeachMe – with the People’s Choice Award (based on audience votes) going to KartSim.

My sense is that ECAL came out on top (with A$2.5m of funding) on account of their early success in signing up a number of high-profile sporting franchises in the USA and Australia, demonstrating their growth potential – otherwise with 1 million users, but only $440,000 in revenues, you’d have to think the business model would struggle.

WeTeachMe was successful in attracting A$2m in funding because the business model is simple, it falls into the growth category of lifelong learning, and the platform had already achieved significant productivity gains for its commercial clients. Plus it has the potential to scale up and go international.

With KartSim, I admit I have no interest in computer games, but it would seem to me that with a headful of (virtual) Steam behind it, the developers might be better off tapping into crowdfunding opportunities, as the early interest suggests ready and eager buyers out there, enabling a successful commercial launch without giving up any of the equity.

Feedback from the panel on Bluesky suggested that despite offering a ‘one-stop-shop’ for consumers, the margins generated from the sales commission model would be insufficient to cover fulfilment costs (so it would only ever be a transactional purchasing platform); nor would the retailer aggregation model ever be allowed to encroach on brand or retailer loyalty schemes, thereby limiting the options to develop added-value services for customers.

As for etaskr (which I have featured before), it is still one of the few B2B startups that I have seen, which may make it appear less attractive to potential investors, since there seems to be some wariness around anything that is not consumer-focussed, or that does not play in a 2-sided market. Personally, I think this type of productivity tool is just the sort of tech startup that we need as it taps into the technological, organisational and demographic changes facing the modern workplace, and current attitudes towards job structures, collaboration and employee engagement and retention.

Footnote: What is ‘Disruptive’?


Interestingly, one of the Big Pitch sponsors was Uber (current darling of the startup community – if not of taxi drivers) which has been making presentations around town on what it takes to market a disruptive startup.

For me, there are three key attributes to a #disruptive startup:

  • Technology
  • Business model
  • Market engagement

A business like Uber ticks all three boxes – its proprietary technology comes in the form of the algorithms that track things like customer usage and vehicle capacity (not so much the apps which are similar to other peer-to-peer and #sharedeconomy solutions); the business model is rather like a network of city franchises (a common global platform with local autonomy); and the disruptive market entry strategy is designed to by-pass highly regulated industry structures – although Uber also likes to stress that it is working with taxi regulators.

Of the five startups that competed at the Big Pitch, only etaskr brings an element of disruption, because it is using a technology solution to challenge traditional notions of what a job is, and allows companies to tap into in-house resources that they might not otherwise be aware of. KartSim has some proprietary programming, but at the end of the day is just another computer game. WeTeachMe and Bluesky are trying to bring operational efficiencies to disparate markets, but they are both broker-aggregators, and don’t appear to have proprietary technology or unique business models. And ECAL is a neat content management solution to a problem that companies have been aiming to solve in other sectors – such as travel, education and health services – although it is not trying to break the existing market nexus between suppliers and customers.

But full marks to Oxygen Ventures, its partners, sponsors and the participants themselves for bringing a fresh perspective to the startup pitch night experience.

Show me the money! (or: Startup Anxiety…)

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Last week’s Lean Startup Melbourne event was entitled Doubts to Dollars – dealing with early stage uncertainty in startups and drew a crowd of close to 400 people, making this regular forum as THE networking venue for the local startup scene.

Of course, the evening’s festivities would not have been possible without the generous support of our hosts, inspire9, and sponsors BlueChilli, Startup Victoria, the Startup Foundation and the Kussowski Brothers. To kick-off proceedings, Daniel Mumby from the Startup Foundation pitched at older would-be entrepreneurs (“those with responsibilities like families, jobs, mortgages…”) in support of his organisation’s new accelerator program, which kicks off this month, under the banner of “Think and Break Free”. Next, a team of successful entrepreneurs was assembled, to discuss key startup topics, including:

  • Idea
  • Team
  • Finance
  • Product/Market Fit

On the panel were:

  • Sydney Low, co-founder of former Australian ISP, Freeonline back at the dawn of the century. (Check out his YouTube channel for some marketing archeology from the early days of web surfing, when internet access was dial-up, iPhones were a twinkle in Steve Jobs’ eye, and “social media” meant the gossip column in your tabloid newspaper.)
  • Samantha Cobb, who is founding CEO at biotech AdAlta, and who has a background in IP commercialisation.
  • Justin Dry, co-founder at wine startup Vinomofo, and one of the people behind Qwoff, an online community for wine enthusiasts.

The initial discussion covered some of the basics to consider before launching your own startup venture, such as product testing, market analysis, listening to customers, getting honest with yourself, and protecting your IP. There was also a surfing analogy – about timing/positioning yourself to catch and ride the wave, rather than trying to paddle out to the breaker….There were also some very personal observations (including painful lessons) such as how to deal with failure (“keep pivoting, fail fast”), maintaining staff motivation when deals don’t complete, the importance of building prototypes (“even if it’s just a PowerPoint slide”), and the value of having confidants (on the board, and among key investors). However, the evening’s recurring theme, dear to many past, present and future startup founders and entrepreneurs, was all about the money – not just where it comes from in the early days of any startup (angel investors, venture capital and private equity); but how easily it can disappear.

The panel of speakers emphasised the importance of cashflow (i.e., “making payroll”), and knowing how fast or how far your money may need to go in early stage growth and the initial product development stages:

First, assuming you are not fully self-funding, you need to convince an investor of your idea. Both the team and the investors need to believe in the founders.

Second, really challenge your market/product fit – be open to telling people what you are doing so you can get validation. (Note to local startups: the Australian culture, whether it’s the tall-poppy syndrome, or a lack of trust, means people tend to hide new ideas…)

Third, work out what your cash burn rate might need to be. Stick to the capex budget as much as possible, manage the milestones (“next step of value”), and be prepared to double the costs/double the development time. Maybe spend more on marketing than on the product development – better to have an MVP that is bringing in revenue, than waiting for the perfect product that never ships….

Finally, a member of the audience wondered about the best route to establishing a startup: “should I learn to code, work for another startup, or get a job at a big firm?”. The succinct advice from the panel: “just do it.” While it may be tempting to do side projects to keep the money coming in, they may prevent you from making progress (or they become the startup). As one participant put it when describing his own new startup venture: “there is no Plan B; it’s Plan A or bust!”

POSTCRIPT TO JANUARY’S LEAN STARTUP MELBOURNE: In an earlier blog on Lean Startup Melbourne, I discussed some of the obstacles facing local startups in getting funding, and the challenge of engaging institutional investors in the startup community. Two recent developments suggest that debate on this topic is starting to gain some traction:

1) Catherine Livingston, incoming President of the Business Council of Australia, spoke on ABC Radio National about the need to connect institutional funds with domestic assets and investment opportunities that tend to get overlooked by local investors (at about 6′ 15″ into the interview).

2) Westpac bank has called for industry and regulator collaboration to provide better access to financial data on startups, and SMEs in general, in support of developing risk-based funding options for new businesses.

Are Start-Ups a young persons’ game?

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Last week’s Lean StartUp Melbourne meeting was devoted to the AngelCube accelerator program. Given some of the high-profile start-ups that have come through this process, it was hardly surprising that nearly 400 people turned up to hear various AngelCube alumni share their personal experience (as well as to enjoy some free beer and pizza, courtesy of the evening’s sponsors: inspire9, BlueChilli, Kussowski Brothers and PwC).

First up, there were lightning talks by 3 successful program graduates: the team behind fantasy sports app developer C8 Apps, Ash Davies from self-publishing platform Tablo, and Phil Bosua, the technical genius at LIFX who designed the WiFi-controlled LED bulb. All of them vouched for the benefits of the AngelCube program, and offered key learnings – such as “fail hard, fail fast, fail forward”, and the value of having a disciplined weekly cycle of iterative product builds. Access to quality mentors was also a key factor.

Then Indi from OutTrippin joined the guys for a Q&A panel session, facilitated by AngelCube co-founder Nathan Sampimon.

Some of the accelerator program insights on the night were quite revealing –

  • it’s all about product-market fit
  • a solo founder will usually struggle on their own
  • be prepared to either pitch or pivot at the weekly program reviews
  • the $20,000 seed funding (for 10% of your business) doesn’t go far…
  • a B2B concept is less likely to be accepted to the program (due to longer sales cycles)
  • the model is founded on lean methodologies, frequent iteration and getting to an MVP
  • people with at least one start-up project behind them tend to do better
  • the AngelCube angels are investing in the team as much as the idea

But are start-ups really only for young(er) people? This question has been posed by Dan Mumby, from Melbourne’s StartUp Foundation, which offers a different sort of program aimed at would-be entrepreneurs who may have all the trappings of middle age: family, job, mortgage…. which means they have different personal and financial risks to consider.

On the other hand, as at least one AngelCube participant said, if you are serious about founding a start-up, “your first job is to quit your job”.

Another, broader challenge facing the local start-up community is a lack of serious investor interest. According to one panel member, “In Australia, getting funding is a joke unless you are literally digging for gold”. This may change with the launch of VentureCrowd an early-stage equity funding platform. (But it looks like it will be a struggle – at the time of writing, none of the 20 or so deals publicly showing up on VentureCrowd’s website have attracted any funding.)

An alternative funding model, based on the sweat equity principle, is a venture bank, like New Enterprise Services that essentially matches ideas with expertise through a risk-sharing process.

I always recall the advice I was given by one serial entrepreneur when I asked him whether start-ups are for everyone (regardless of age). He replied: “Unless you can afford to invest at least $20,000 in your idea, and support yourself for at least 6 months while you develop it, then maybe it’s not for you.”

10 Obstacles to Startup Funding in Australia

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The increasingly popular Lean Startup Melbourne kicked off 2014 with a session on Melbourne’s Startup Ecosystem. And while the tag of World’s Most Livable City is a draw card for attracting startup talent, the apparent lack of institutional investor interest in the startup movement is creating a barrier to funding options.

The Panel: Susan, Brendan, Leni - Chair: Indi Photo by @marksmithers via Twitter

The Panel: Susan, Brendan, Leni – Chair: Indi
Photo by @marksmithers via Twitter

After the traditional beer’n’pizza, an audience of around 300 people was first treated to a couple of lightning talks: Scott Handsaker’s presentation on Melbourne’s startup infrastructure was a great survey of the networking events, meet-up groups, co-working spaces, incubators, tech co-founders, angels and media resources. It also confirmed what everyone already knew, that the local startup community is thriving, and represents a positive force for change and innovation especially in the SME space (which is traditionally seen as the backbone of Australia’s economy). This was followed by Simon Moro’s guide to offshoring/outsourcing development and coding projects – including many helpful and practical tips.

Then came the main event, a panel discussion chaired by Indi from OutTrippin featuring serial entrepreneurs and startup gurus Susan Wu, Leni Mayo and Brendan Lewis. (For a brief but succinct write-up, see my fellow blogger Chris Chinchilla’s account.)

The main takeaways for me were:

1. Strong local infrastructure, but not yet as robust or scalable as Silicon Valley, London or even Dublin (Melbourne ranks #18 in the world)
2. Great community enthusiasm, but not clear what the role of government is or should be (e.g., should public money be used to “pick winners”?)
3. An established coterie of successful angels and VCs, but total lack of interest in the sector by institutional investors (e.g., still focused on investing only for profit, not in changing market behaviours)

In fact, the conspicuous absence of institutional investors at this type of event simply underlines why they actually represent a barrier to funding options for local startups. Here are 10 reasons why I believe instos have not engaged with the local startup community:

  1. They don’t understand the technology – this is not a new complaint; I have heard many entrepreneurs and corporate advisers bemoan the lack of appreciation for new technology developed locally.
  2. Not made here – conversely, there is suspicion about successful technology from overseas that is not yet proven in Australia (which is a challenge for local licensees seeking to develop local market opportunities).
  3. Preference for asset-based lending – partly influenced by regulatory attitudes, banks and other lenders prefer to lend against secured assets, such as plant, equipment or the family home. However, many startups and young entrepreneurs don’t own such assets (or their businesses are designed to be less capital-intensive). Instead, especially in the early stages, they would like to see funding based on cashflow lending linked to their current and future revenues (which are increasingly subscription and annuity based).
  4. Don’t understand the business models – with new technology come new business models, which traditional lenders and investors struggle to get their heads around. Traditional lending criteria are tied to traditional business concepts.
  5. Restrictive investment criteria – post-GFC, banks are more risk averse, and the regulators are also stifling investment product innovation with more stringent risk and regulatory capital management. In addition, institutional operating costs are eating into investor and lender margins, and local investment banking is diminishing, especially as foreign banks continue to scale back their local presence or exit altogether.
  6. Lack of a credible second board for smaller listings – if you don’t want, or cannot justify the cost of a full IPO on the ASX, then your options for raising wider shareholder capital are limited to platforms like ASSOB or NSX, neither of which have quite the same profile as London’s AIM or Hong Kong’s GEM.
  7. Restrictive crowd-funding options – yes, there are active crowd-funding platforms available in Australia (e.g., Pozible), but in most cases the “investor” has to be rewarded by tangible products and services (which has stymied some crowd-funding efforts by local film-makers), otherwise the financial market regulators might come knocking on your door. (This may change, if/when VentureCrowd begins to launch.)
  8. Tax structures can favour equities – without getting all technical, the use of franking credits by Australian companies offers considerable benefits to their shareholders via relevant tax concessions. As such, this makes equities (especially highly liquid stock) attractive to institutional and retail investors, and therefore inhibits the use of alternative funding options.
  9. Limited corporate bond market – most corporate bonds in Australia are bought by institutional investors, and despite various attempts to stimulate demand among retail investors, the vast majority of individual investors can only access these bonds via managed funds (which carry manager fees and other administrative costs), or more complex financial instruments such as hybrid securities. The institutional market itself is not especially liquid (there is limited trading activity), and if the federal government scales back public borrowing, this reduces the availability of treasury benchmarks for corporate bonds.
  10. Lack of loan syndication – it is common in many overseas capital markets to establish small syndicates of institutional investors to participate in corporate lending opportunities. This can help spread the risk for lenders, and diversify the funding base for borrowers. However, because of the loan sizes, and the highly concentrated banking market, there is little need or demand for loan syndication among Australian banks.

Until there is a better way to fund local startups beyond the initial rounds of angel and VC money, Australian entrepreneurs will continue to beat a path to Silicon Valley to raise capital. The irony is, a lot of Australia’s $1.6tn in assets under management are allocated to US money managers to invest back in Australia – in my opinion, this is an expensive boomerang. Instead, we need to build better dialogue (and more direct dealings) between the local startup community and our institutional lenders and investors.