Silicon Valley

SydStart 2014 Live

Feel free to use the images if you like them, please just send a credit back to Startup88.com

 

We are on the edge of a monumental opportunity for out nation and ourselves

State of the StartClover Moore

Clover Moore

 

 

Alex Greenwich Independent Member

Great to see local government looking to support business of the future rather than propping up industries of the past.

Wow a politician that gets it!!

Alex Greenwich

Alex Greenwich

Immigration reform

Attract Talent

Visas for Startup Entrepreneurs

 

Matt Barrie

Everything going to software

Matt Barrie

Matt Barrie

 

Need a scalable business, one that customers gorw fater than costs.

Incremental cost of introducing a customer is approaching zero for software

Not scalable – Human Services

 

Max number of students or customers, limited to the number of people you have on payroll.

 

A scalable business on the other hand might be software that powers a services business.

 

Looking for markets the size of Texas

If you had choice of Team, Market and Product you have to choose Market and Team first, product

No Problem

No Product

No Market

 

Secrets that no one knows about, what do you believe that no one else does?

Big uncomfortable secrets

How do you create products that change a million peoples lives.

Back of the Napkin Sanity Check

 

How do I sell $1m in revenue?

How do I make $1m in profit?

How do I avoid a one hit wonder?

What is the Sustainable Advantage?

 

Announced Freelancer had purchase Warrior Forum

Warrior Forum

Warrior Forum

 

Ric Richardson

Demonstrated a new invention that was a shutter over the top of the Google Glass camera window.

Ric-Richardson

Ric Richardson

 

Melanie Perkins – Canva – Startup Myths

 

  • Myth 1 The best place to start is with a cool idea –
  • Big Problem is more important
  • Solve a problem that people care about
  • Myth 2 Successful companies are born overnight – Took 7 tears to get Canva started, 3 years in parents living room
  • Myth 3  The Goal is to raise investment ASAP – Lie, raising money is a time bomb, very dangerous position unless you have massive growth sooner or later your company will explode –
  • Dont raise investment prematurely
  • Myth 4  Getting Investment is quick and easy – Not true it takes a long time and many attempts  – Lessons – Build relationships with investors early

Melanie-Investor-Objections

Melanie-Perkins-Canva

Melanie Perkins-Canva

  • Myth 5 – Startup can be built in a weekend, if not successful just pivot – Startups take long time to get established

Mike Cannon-Brookes

Just ordered a Tesla –

Mike Cannon-Brookes-SydStart

Mike Cannon-Brookes @SydStart

Doing 300,000 builds a week, 10,000,000 users a week.

50% of new customers on SAAS systems, the rest are behind the firewall, 3x trials come from downloads behind the corporate firewall.

<30% of Revenue is SAAS, the rest is behind the firewall, IT Admins want control, they don’t want to lose control.

Got Accel Partners (VCs) on board for $50m, when you get bigger you end up with much bigger problems to solve that the original team cant deal with. In order to grow you need to start employing much better professional management and teams.

Money keeps you alive, but the contacts and the right investor and their network is what helps you grow and move through the problems you experience when you grow massively.

The feeling of meeting a major celebrity and realising they are just like you and that they were just as excited to see you.

Everyone is just making it up, everyone is feeling like they all are making it up and wonder why they made it (classic imposter syndrome) You live in fear that someone will show up one day and say you have been faking it for 10 years you are under arrest.

You will become legacy at some point, someone will try to replace you.

Some days it feels like you are checking every single box to make sure you have screwed up in every possible way.

If you can’t smell the fire burning you havent been looking hard enough, because in a growth company its happening somewhere.

Are we producing enough engineers in Australia? Mike: Not enough, its not even a real question, we have to be producing more engineers

We have no option to but to massively increase our engineering capability.

Hard for the Government to help, they can’t force people to do CompSci, however we could change school curriculum, Computer Science & engineering needs to be part of school from a young age.

When asked about regional startup programs, Mike mentioned that he thought most of the regional programs was bunkum, there isn’t sufficient critical mass, not even sure we have critical mass in Sydney but its getting there, so its just not possible to get the density in the regional people.

Tech industry needs a lot of radical atoms based in one area that are bouncing off each other and networking, this doesn’t work in a regional or remote setting.

 

Panel-SydStart

Niki Scevak  from Startmate+ Blackbird + Lauren from Lightfox

Needed a really good startup accelerator that could get people to the US, Blackbird came after getting runs on the board with Startmate.

Funding Situation: Now possible to raise $500k here, and very possible to get $5-10m but not much in between. Not enough depth in the market to do this.

Niki + Mike went to UNSW together and dropped out to start their first business together.

Good VCs often come from journalism backgrounds because they constantly have to assess new businesses.

Niki: Atlassian was the 100th bug tracker, Campaign Monitor was the 100th email, nothing new with any of them they just changed the existing model.

Niki: Looking for first time founders who look like a joke, looking for unique insights that no one else believes.

Lauren McCloud Flightfox- been through Startmate and YCombinator access to 30 or 40 different advisors.

Niki: Thinks location will become irrelevant, Silicon Valley is not the default choice anymore until after you have started to get traction.

Flightfox is a marketplace of genuine flight experts. These experts have an extraordinarily deep understanding of flight routing, loyalty programs and airfare pricing.

You can use Flightfox by launching a trip request for any of our experts. Your chosen expert will review your trip details, ask any necessary questions, and work as hard as they can to find you the absolute best flights.

Our most loyal customers use Flightfox because they want to travel father, wider, better and cheaper. They also save a planeload of money by leaving it to the professionals.

Mike:  The Valley doesn’t do everything right, almost no successful e-commerce companies have come from Silicon Valley, thinks that we have per capita Centurions ($100m) or Unicorns ($1 billion) equal or better than the US.

Matt: Hears about companies everyday from AU that he has never heard of with $10-50 million revenue.

Niki: Thinks Envato is a $ Billion company that no one knows about, but along with a lot of other companies unless they do a financing round you dont have an external valuation or validation. Pepperstone FX $70b in Forex transactions a year.

Niki: Thesunrise.co is a new conference organised by Niki that has 9 founders of big growth companies talking about very early years.

Pete: What do you guys read or follow everyday?

Mike: Stratechery is a one man band

Niki: QUIB

Lauren: Growthhackers.com Hackernews.com

Matt: Andrewchen.com

 

Adir Shiffman Catapult

Every team and player in the AFL and ARL, half the NFL, Hockey League.

Whats the most interesting use case, the Judiciary in the AFL using it work out if an athlete has committed a foul from the deceleration data.

Around 500 customers worldwide. Next competitor 10% of that. Marketshare of 80-90% but still a very small market.

However still staying in Headquartered in Australia, engineers are better to work with her and less .

Mark Cuban invested alongside others total $6m. Great PR,

VC market is not developed enough, Super Angels are more common.

However there is a lot of Institutional Money that most people don’t know about, family funds and very quite funds which

None of their raise came from US or AU VCs, it was all private money.

If you want your pants down around your ankles go pubic, if you want to keep the business a little private then stay private.

Hates being number 1 in market, always have number 2 over your shoulder but you cant look behind you need to keep running and new innovation, however its the most rewarding position.

If you are starting a sports startup then you should do it, even though its probably going to fail, you should do it anyway if you are very passionate. You cant keep Australia as your market, needs to be global.

How did they get their first customer, lied and begged :).

3-5 Year Vision – 3-5% Global penetration. Market should be 100x in 5 years, its only execution risk, we want to stay the largest player in the sports market.

Dean McEvoy

You are not as good or bad as your idea, if some one says you are great, you shouldn’t take it to seriously, if someone thinks you are shit, same thing.

Matt Symon

If you have a great idea and are working on it, eventually investors will find you, when you need it you are going to struggle, nothing more desperate than an entrepreneurs hunting for cash.

Found that telling a personal story about his experience getting a loan when he came back to Australia and what a terrible customer experience it was the investors really understood the problem being solved.

 

Muru-D – Annie Parker & Charlotte Yarkoni & Mick Liubinskas

Mick Liubinskas

Mick Liubinskas

Charlotte – Telstra wasn’t sure what the journey was, brought over from the West Coast USA to look at new startup models.

More good Australian startups wandering the streets of the Valley than Sydney and Telstra felt that they needed to do something to drive the creation of new startups and to help Australia become a great place for entrepreneurs.

Annie ran seven different accelerator programs in Europe.

Muru-D-Panel

Muru-D-Panel

Annie – We give Startup capital to pay for noodles, a great workspace, 6 months of incubation to help you get from startup to first funding.

All 9 of the first round made it through, and all of them have a path to funding or already have funding, customers or some way to fund themselves.

Mike: Day one Global Businesses, with a focus on sales revenue from day one.

James Windon – Brigade.com

Worked at Facebook Causes with Sean Parker of Napster

20,000 non profits

2 billion tranasctions

James Windon -Bridgade

James Windon -Bridgade

A year ago teamed with Sean Parker to form a not for profit to address connecting citizens to the the mechanics of politics.

Brigade

Needed to work how to get people to get involved in good causes, rather than make them feel like they had to do something, they managed to get them to work out how to make them want to get involved in supporting good causes.

Everyone knows they need to eat their Broccoli but everyone really just wants to feel good eating Bacon.

1. Make it something people want to do, not what the should do

2. Focus on end uses and networks to create leverage

3. Focus on creating a social effect – mutual reciprocity obligation feedback

Bacon

Hugh O’Brien- Undaunted – A Life in Training

Fear struggle,

The only easy day was yesterday.

There is something innate in the attempt to do something difficult, without the prospect of award.

The Value Lies in the Attempt

Max Kraynov – JetRadar

Just raised $10m

Advice to help you secure an A Round financing.

Started with a $400 W0rdpress Blog

Startup Bus

Elias Bizannes. 46 buses Globally. Reason he runs the bus is that he sees engineers like Brando who started Instacart who has turned from a nervous engineer to running a $500 million business.

This weeks startups

Failpage.co –

404 pages as a service to create a good experience from a 404 error page. Allows to you create a custom 404 page to to engage,  monetise and capture customers that otherwise would have closed the browser on your site.

8 Customers since launching a few days ago, aiming at 100 by the end of the week.

Failpage

Diner Companion

App to to geolocate and book a dining companion. Trying to eradicate loneliness.

Mick: Tinder for Business or Diner companion, how is the problem, depression, whats it worth.

 

EndressMe

Personalised Shopping and ordering service

Ed:

People of the Sun

Bringing Investors together to invest in Solar Power on other peoples roofs. Allows Already has 3200 SQM of roof space committed. 30,000 Watts Solar Array ready to go, 100 investors ready to commit and have raised $20k in 4 days. Great

Spexy.me

Custom 3D Printed Glasses

Ed: Love it

 

 

Heading to Silicon Valley to raise capital in 2014? Here is what you need to know.

Inna Efimchik

Inna Efimchik

Inna Efimchik is a Partner at White Summers Caffee & James LLP a Silicon Valley & San Francisco based Law Firm and specializes in assisting emerging technology companies in Silicon Valley and entrepreneurs seeking to establish themselves in the Bay Area. Inna can help with incorporation, financing, and licensing services as well as general corporate counseling.

If you are traveling to the Silicon Valley to raise capital for your startup from abroad, you can save yourself a lot of time and make the trip more efficient by preparing thoroughly and doing your homework before the trip.

Inna offers a free 1/2 hour consultation to foreign entrepreneurs coming to the Valley, you can contact her via the form at the bottom of the page.

Here are some things that should not be overlooked:

The Right Time to Fundraise in the Silicon Valley

Silicon Valley is a fantastic place to visit almost any time of year. We have great weather here year-round, many tourist attractions within a stone’s throw of one another, and fantastic sights for the nature enthusiast.

But if you are planning a trip to the Silicon Valley with the goal of raising venture capital for your foreign-based startup, to avoid disappointment, set the right expectations, and make the most out of your trip, consider whether your startup is primed and ready for this step.
San Francisco Sunset District - Credit SF Brit http://www.flickr.com/photos/cnbattson/

San Francisco Sunset District – Credit SF Brit http://www.flickr.com/photos/cnbattson/

Ready for U.S. Fundraising

The best time for a foreign startup to come to the Silicon Valley to raise venture capital is when it can make the following statements (truthfully):

  • We raised a small seed round of capital with a local venture capital firm and angels
  • We have publicly launched our product in our country
  • Our product has gained significant traction in our domestic market
  • We are ready to launch our product on the US market
  • We are opening an office in the US that will be handling US operations and marketing
  • Our management team has already relocated to the US (or is relocating to the US within 3-6 months)
  • Our CEO reads, writes and speaks fluent English and is able to present our company to US investors, strategic partners, and clients in a clear, competent and confident manner.

Almost there

If a startup meets some (maybe 4-5) but not all of the criteria on the left, it does not mean that the founders should not come to the Silicon Valley to fundraise. But it does increase the likelihood that this is going to be the first of several trips. A startup at that stage may still be able to successfully raise capital from Silicon Valley VCs, but it may easily take 6 to 12 months or longer and multiple trips to get to a term sheet.

Raising money in the Silicon Valley is difficult, even for companies that fit all of the criteria above. So a company that does not, has a higher hurdle to overcome.

Still, I believe the preliminary trip, if approached correctly, with due preparation, forethought, and the right expectations, can be instrumental in laying the groundwork for a future financing by giving the founder an opportunity to establish contacts, by growing the founder’s professional network in the Silicon Valley, and by clarifying areas of improvement in the startup’s fundraising position.

More work to do at home

A startup that either has not launched a product, or has launched a product but it has not seen significant adoption domestically, and that has not received support from its local investors, has more work to do at home before venturing out to fundraise internationally. That is not to say that such startups should not attend international conferences or take business development trips, whether to the Silicon Valley or elsewhere. I just think it will be more productive to realize that it may be too early to be fundraising abroad in earnest, so the trip, if taken, should have other purposes and expectations attached to it in the founders’ minds.

The Chief Executive Officer

To state the obvious, the right CEO makes the difference between a startup that gets venture capital funding and one that does not. As we said above, to be successful at raising capital in the United States, the foreign CEO has to have fluent written and conversational English, though he or she may speak with an accent and many do. The CEO must also have the personal and business skills that make him or her a good person to represent the startup in investor meetings.

But what if the CEO does not have good English? Unfortunately, neither engaging translators to assist in pitch meetings, nor hiring U.S. promoters or U.S. investor relations specialists to help with fundraising, actually works.

Ultimately, the investors have to believe that the core team has what it takes to succeed, and if the investors have a language barrier with the CEO, they will simply not have sufficient basis to form that belief. The solution is one that is true for all companies, local or foreign – if the CEO is not the man (or woman) for the job, find a CEO who is!

In startups, one of the founders is the CEO by necessity. Sometimes it is the right fit. And at other times it is not. Sometimes it is the right fit for the country, where the startup is based, but not for the U.S. Any company that hopes to be successful must recognize wherein lie its team’s weaknesses and fill them with new hires. If the current CEO will not be able to fundraise successfully in the U.S., the startup should entertain the idea of recruiting a U.S.-based CEO or another CEO in their country with solid “western” experience.

In that situation, the current CEO can take another title, whether it is President, Chief Technology Officer, Chief Financial Officer, or whatever else best fits his or her strengths. Unfortunately, relinquishing the helm can be a major pain point for founders. I am sure some of my readers are wincing as they read this advice.

The bottom line

If the founders of a startup believe they absolutely must raise capital in the United States, and if, after honestly assessing the strengths and weaknesses of the current team, they realize that they do not have the right candidate among them for the job, then they have to reconcile themselves to the difficult reality that such candidate must be found elsewhere.
The same, incidentally, goes for filling any other holes that stand in the way of a startup’s success in raising capital in the United States – these holes must be (a) identified, (b) evaluated, and (c) resolved, preferably prior to the founders investing very heavily into their U.S. fundraising efforts.
However, it may also be the case that, despite some initial flirtation with the idea of coming to the United States to raise capital, the founders will ultimately decide that their chances of raising funds domestically, or in Europe, or in Asia will be better than in the United States and will come at a lower cost (emotional, financial, temporal).

 There may be a lot of investment capital aggregated in the Silicon Valley, but there are oh so many contenders from all over the world all vying for it!

Preparing for the Trip

Research

Before your trip, sign up for startup networks, groups and mailing lists, to receive announcements about upcoming events. You should know which venture capital firms and super-angels are investing in your space. You should research and consider which strategic investors you should target, if any. Based on your research, prepare a list of 10 to 20 people that you’d like to meet while you are here. This list is aspirational, so if you do not get the opportunity to meet all of them, you have not failed.

LinkedIn

LinkedinCreate a LinkedIn profile, if you don’t already have one. Connect to me on linked in here. If you have one, check to see if it’s time to review and update it. This is your business resume. Most professionals rely on it!

Don’t be lazy – take the time to write-up prior projects and experience, your education, and anything else relevant to what you are doing and to who you are now. This is your chance to tell people what you want them to know about you!

Note that LinkedIn is also a great place to do your own “diligence” about the people you’ll meet while networking, through introductions, or otherwise.

Video Presentation

If you have the resources, create a short video teaser and post it on YouTube or Vimeo for easy sharing with new contacts. A few excellent examples are below. Notice how effective it is if the teaser can demo your product or service. A picture is worth a thousand words. And a video is worth at least a thousand pictures, charts and graphs.

Videos work well to get you a foot in the door (not seal the deal for you). Before an investor takes the time to read your executive summary, in fact, before he even makes the decision about whether it’s worth his time to do so, it is helpful if you can get him excited (or at least curious) about your product or service.

The way to do it is by offering information in an easy and fun format – video – that appeals to the viewer’s emotions, not just his intellect.Executive Summary / Presentation. VCs don’t read business plans.

They just don’t have enough hours in the day to screen companies based on their business plans, and, frankly, with business at an early stage, a business plan reads more like astrological predictions than fact.

Executive Summary & Pitch Deck

Still, if you are talking to an investor at a networking event, or have been introduced to an investor by email, he will want to see something in writing about your company. You will be expected to send an executive summary (a one-pager that introduces the investor to your company and piques his interest) or, more frequently these days, an investor slide deck (8-10 PowerPoint slides that serve the same purpose but are easier on the eyes).

Instead of trying to work with your team back home when you are already here, faced with a time difference and time pressure, prepare this before you come. You may have to adjust it based on the feedback you receive from investors, but if you have a solid draft, it will make your life easier.

A really well-made executive summary or deck can set apart your startup from the rest and give you a fighting chance at a more involved look from the investor.

You can work with designers and advisors to help solidify your message in your materials. But do not hire someone to write them for you. You have to own your materials, and by that I don’t mean the legal sense of ownership, but in the sense that you stand behind each word in that document and, if prompted, can expand in verbal or written format on any of the points made in it!

Ed: I like Pollenizers Pitch Deck http://pollenizer.com/universal-startup-pitch-deck & http://bestpitchdecks.com/

U.S. Phone Number

With your Google account, you can get a free Google Voice number and set up call-forwarding from that number to your temporary U.S. number.Google Voice also offers voicemail functionality. Make it easy on your callers – record a greeting with your name and the name of your company, so that they know they reached the right number.

Credit Cards

The most common and convenient payment method for most things that you’ll need to buy on your trip will be a credit card. Every online purchase will require it and some merchants (like car rental places) will take your credit card number as a security deposit, even if you pay cash.When getting ready for your trip, make sure there is money in the account tied to the card that you are taking with you. To really play it safe, take several credit cards tied to accounts at different banks. It is best to call ahead, and let your bank know that you will be in the United States. Sometimes banks will suspect identity theft and block your card, if there is unexpected activity on your card in a foreign jurisdiction. Nothing quite makes travel so uncomfortable, as having your credit cards lock up, when you are relying on them as a primary payment method!Driver’s License. While you are visiting California, you are permitted to drive with your valid foreign license. Make sure to take it with you, as you are packing for your trip, and that it does not expire during your trip (rendering it no longer valid)

Basic Principles of Effective Networking in Silicon Valley

If you have meetings with investors and interesting contacts already lined up for your trip, then you may want to skip the networking events altogether. They are a lot of work and will really wear you down. But if you are still building up your network and need to fill out your trip calendar, networking events are a great way to get exposure to a lot of people fast.

Because networking is hard work, if you are going to do it, you might as well make the most of it. My suggestions are based solely on my own personal experience and reflect either what has worked for me or my observations of the behavior of others. There may be other effective networking tactics, so if you are feeling anxious about this, read a few more articles (or books) for a deeper dive.

Set the Right Goals

Make sure you set the right goals and expectations for yourself when you go out to network. Chances are that you will not meet and win over an investor at a networking event (unless the event is a pitch competition than you win, and frequently not even then).

What you should really be hoping to do is to ingratiate yourself with three to five well-connected individuals, who will make introductions for you to people in their network. Note that those people that you get introduced to may not be your investors either.

The goal of networking is to grow your network because you never know where your investors, customers, or even future employees may come from. Approach networking with an open mind, and good things will come!

Business Cards

Business cards are cheap, so stock up and bring enough. Sure, if you run out, you can add the person you are speaking with on LinkedIn during the conversation or take his card and write your name on the back of it. But coming unprepared does not characterize you well, and if there is a chance someone will keep your pretty business card around and will remember about you some time in the future when it could be advantageous to you, you can be sure they’ll toss your info scribbled on the back of their card. LinkedIn is good, but unless you have a stellar memory for names, it can be hard to find contacts. So, personally, I prefer cards. But don’t mistake handing out cards for networking. If you hand out your card like it’s on fire, but don’t cement it with at least 3-5 minutes of solid conversation with the folks you gave the card to, you may as well have thrown it in the trash

Cool Business Card - credit http://cardrabbit.com/cool-business-card-alex-faure/
Cool Business Card – credit http://cardrabbit.com/cool-business-card-alex-faure/

Your business card should be in English and should contain

  • Your company name (and if you have not registered the company, the name that you think you will use)
  • Your name and title
  • Your corporate domain & email address
  • The address of your physical office (if any), and
  • Your U.S. phone number.

Note that you don’t have to spell your name on the card the way it is spelled in your passport. Feel free to spell it in a way that will make it easy for English speakers to read. This will save you time and annoyance, unless, of course, you like correcting people and having off-topic conversations about foreign names, the English language, pronunciation, etc.

 Dress to Impress

Startup Bus Tshirt - credit  http://www.projeggt.com/project/startupbus/summary/
Startup Bus Tshirt – credit http://www.projeggt.com/project/startupbus/summary/

When you go to events, you want to be memorable, stand out in the crowd. That way, when someone you spoke to for a few minutes wants to introduce you to someone else at the event, he can find you again in the crowd. As with anything, you have to be careful not to overdo this, because if you are too outlandish in your wardrobe, you might be memorable, but it won’t score you any points. The trick is to stand out in a positive way.

At the very least, if you have a T-shirt with your company’s logo, wear that. It may not be very original, but it will be a good conversation starter, and people with a visual memory are more likely to remember the name of your company if it’s written across your chest.

Forget your Comfort Zone

Networking is not comfortable. It would be easy if we could show up at an event, and relevant contacts would line up to meet with us in an orderly fashion. In fact, that’s not what happens at all. You are lucky if you are approached by another networker looking to strike up conversation. More frequently, you find yourself in a room surrounded by small groups deeply immersed in their own private conversations. They look intimidating.

But if you stay within your comfort zone and hover in the corner, waiting to be approached, you will be wasting precious time. So try to make eye-contact with someone in a group, to see if they’ll welcome you to join them, or just shamelessly insert yourself into the group and when there is a pause in conversation, extend your hand and introduce yourself. At a networking event, no one will think worse of you for doing so. Sometimes, the topic of discussion will be so narrow that after a few uncomfortable minutes you will decide to leave to look for another place to park, but the more polite networkers will attempt to integrate the newcomer into their conversation.

If your English isnt perfect you will fit right in.

More than half of the people you will meet at any tech networking event in Silicon Valley will not be native English speakers. Speaking with an accent is very much the norm. So don’t sweat it, and focus on the conversation, not on what you may perceive as your linguistic shortcomings.

Stay Positive

If you want to leave a positive impression, you have to radiate positive energy. If you complain about your suppliers and customers, or put down your partners, employees or investors, it leaves a bad taste with the person you are speaking to. So focus on the positives!

 Everyone loves to help people who are already successful, and to whom everything (apparently), comes easily. Be that person!

Keep it light

Keep the conversation light. If you want to make more than a single connection at an event, you will need to move quickly from one conversation to the next. Keep in mind that no matter how passionately you feel about public policy or politics, a tech networking event is not the place to get entangled in a heated debate, whether about the conflict in the Middle East, the shortcomings of the Obama administration, a woman’s right to abortion, the right to bear arms, or U.S. world domination. In general stay away from religion and politics, unless it is to say that you are hoping that the Startup Visa initiative passes, which you won’t get any argument on from anyone here.

Finally, remember to smile! There is nothing so disarming as a genuine smile, so it is going to be your best networking weapon!

Listen First

When you engage in a one-on-one conversation with someone at a networking event, even if you are burning to spread the word about your amazing company, recognize that everyone there has a story.

If you practice active listening – paying close attention to what the other person is saying, reading their body language, asking follow up questions, sharing information that they may consider valuable, and looking for ways you could help – you will find people more interested in your story, and willing to help, whether with advice, introductions, or empathy

Don’t be a salesman

Think about how you feel when you are approached by a salesman. What’s your first reaction? I know mine is, “No, thank you!”

The last thing you want to do at a networking event is to be perceived as a salesman. Instead, you want to be seen initially as someone who is easy and interesting to talk to and eventually, as a good long-term contact.

Followup

You have to follow up, if you don’t want all that networking to have been in vain.

If you promised to send your executive summary, do so within a few hours of the meeting, if you can, and within 24 hours at most. If the person you talked to promised to send you something, follow up with them after the meeting and remind them. They have busy lives, so take the initiative!

When you are networking, you are building up your social capital, so don’t just be dependable when it can stand to benefit you. If you promised a networking contact to send the name of an app that slipped your mind during the conversation or to make an intro to a good web designer, do it.

The greatest value of networking is in the long-term connections that you form. For this reason, strong follow up is essential. Invite contacts that you make at a networking event that you would like to make a more permanent part of your network to meet with you for coffee sometime that week. Almost no one will turn down a coffee offer, unless (a) it’s a VC, or (b) you are perceived as a salesman

Have patience with the process and try to enjoy it! Networking does not produce immediate rewards, but it does pay off in the long-run!

Preliminary Investor Research

Unfortunately, there is no shortcut to finding investors who invest in your industry, in your stage of company, and in the amounts that you need. Finding them requires research, research and more research. However, the better that you know your industry, the clearer it will become to you who the key investors are in the space.

That does not mean you will know every small fund and angel who has ever invested in a company of a similar profile. But it does mean that you will know who the trend-setters are, which investors have a few “hot” companies in your space in their portfolios (your worst and fiercest competitors), and whose investment could take your company to a whole new level.

AngelList

Angel-listAngelList is a popular matching platform for companies and investors. There is even an opinion among some in the community that a startup looking for funding has to have a completed a thoughtful profile on AngelList, as its online resume for investors, of sorts.

But in addition to providing investors with information about your company, AngelList allows a registered user to see past closed transactions and to search by financing stage and amount raised, though not by industry.

Despite the name, AngelList is not limited to angel investments. When I did a quick search for “done deals” over the past three years using the parameters Seed Round with $1-2M raised, out of the first 8 hits, 6 are VCs (Google Ventures, SoftTech VC, Charles River Ventures (twice!), Ecosystem Ventures, and Andreessen Horowitz).

National Venture Capital Association

National Venture Capital Association has a searchable directory, which contains over 400 venture capital firms who are members of the association, and which can be accessed by buying an annual subscription from NVCA ($325).

VentureBeat

Venture-BeatVentureBeat is a wonderful resource with daily articles on deals, such as acquisitions, funding, and IPO. Unfortunately, there does not appear to be a meaningful way to search VentureBeat to show all past deals for companies in a particular space and at a particular stage.

But in the spirit of staying current on technology investment trends generally and in your space in particular, it is worth subscribing to their weekly newsletter. It doesn’t take long at all to scan it for news (and names) relevant to your industry.

Quora

Quora is a popular public question and answer platform.  The scope of questions runs the gamut from requests to describe being homeless to product recommendations for new moms.

Many entrepreneurs and investors are active members of the Quora community, making it a very good place to look for investor lists and reviews.

 Lists of VCs

 

TechCrunchThe-Midas-List

 

 

 

Business-Insider Medmarket-Diligence

Entrepreneur

Fierce-Biotech

 

The-Funded

 

 

Ed: Where ever possible get an introduction via your network, your chances of raising capital are greatly increased as a referral vs cold calling or email.

Startup & Tech Events

The remarkable thing about the Silicon Valley is that if you wanted to do so, I am fairly certain you could go to a different startup event every night of the week and to some daytime ones on the weekend if you were willing to travel 30-40 miles and did not have very specific criteria for the types of events you were pursuing. When you are only here for a week or two with the goal of meeting as many people as possible, going on an event binge may not be a terrible idea!

Event Aggregators

The first place to start your search for events is on event aggregators. Some of my favorite ones are the StartupDigestMeetup.com, and Eventbrite. Because there are so many events going on at once, no one aggregator can hope to list them all.

Startup-DigestYou can sign up for a weekly newsletter from StartupDigest that comes out on Mondays and which lists events for the upcoming week with prices (many events are free and most of the rest only have a nominal cost) and cities where the events are held.  The list is curated, so the events presented are supposed to be high quality. I would recommend signing up for this newsletter in advance of your trip, so that you can start registering for events ahead of time.

Eventbrite

Meetup and Eventbrite are not picky about the events they list, so you have to make the judgment call. For one, make sure there are many other people attending the events for which you are registering. Also note that a number of events listed on Meetup require you to purchase tickets on

MeetupEventbrite, so pay close attention to event registration instructions!

 

 

 

Accelerators & Incubators

The myriad of accelerators, incubators and co-working spaces in the Silicon Valley are incessantly vying for their spot in the startup ecosystem spotlight. The rest of us are the beneficiaries of their competition and of the well-developed ecosystem, for we have a great selection of events to attend at those venues, whether educational, purely social, or demo-oriented.

Note that inclusion in the list does not constitute a recommendation on the merits of the venue for its primary function as an accelerator, incubator or  a co-working space, on which I remain silent. But as far as events go, they are usually open to the public!

 

SV Forum Logo-4colorSV-Entrepreneurs

NestGSV   Plug-Play

Parisoma  HubbayArea

Founders-Space Startup-Socials

Nextspace

Getting Around Silicon Valley

San Francisco Trolley Car

San Francisco Trolley Car

Transportation needs will vary between travelers. Generally speaking, getting around the Bay Area without a car is difficult, expensive and fairly unpleasant. Fortunately, renting a car is easy, and anyone used to driving in a major city should find driving in the Bay Area a breeze.

Despite this, depending on your meeting schedule, you may not need a car, especially if you plan on spending most of your time in San Francisco. If this sounds about right, scroll down to find out about your options for getting around the city (and about why you’ll see cars with pink mustaches all over town)!

Driving

If you are planning on driving, you can rent a car for the entire duration of your stay or, if you anticipate that parking will be nonexistent or expensive where you will be staying, and you only plan to make infrequent trips by car, by the day.

As long as you have a smart phone and will purchase a SIM card with a local 3G/4G connection, you can save yourself a little cash and go without a GPS (which the car rental places usually offer as an add-on). Using your Google Maps app you will get better driving directions around the San Francisco Bay Area than those offered by many specialized GPS devices.

ExpediaTo find a car for the full trip, you might do a price comparison between different car rental places on Expedia or Kayak, or another similar service.

 

KayakNote that the San Francisco Airport, where you will likely fly into, has the following car rental counters on-site: Alamo, Avis, Budget, Dollar, Enterprise, Fox, Hertz, National and Thrifty.  You can check their websites directly and look for promotions.

ZipcarFor shorter car trips you may consider Zipcar, a popular car-sharing service. Once you have a Zipcar account, reserve a vehicle online for as many hours as you think you’ll need. Then pick up the car from the Zipcar lot closest to you (there are many all over the Bay Area). The cost of fuel is included! And if you are running late, you can extend the time of your rental. Zipcar offers a wide range of options, whether you want to travel in style in a fancy BMW or Lexus, need an SUV for extra cargo space, or just need a regular compact sedan.

Taxis

Expect that getting around in a cab around San Francisco, and especially if you venture out of the City into the greater Bay Area (given our distances) will be quite expensive. If you like your taxis and feel comfortable with the cost, LuxorYellow Cab, and De Soto are the better-known taxi companies, although there are some up-and-comers, like Green Cab. Check out their websites for phone numbers. Some of them have apps to simplify the reservations process. But the traditional taxi industry is evolving with exciting new companies making a name for themselves.
Lyft-SFUber UBER and Lyft are two well-regarded services that offer ride-sharing services in San Francisco (and UBER does in the Bay Area too). Using an app customers are matched up with drivers in the area. The app estimates and lets you know the fare ahead of time, so that there are no surprises.

Read their Yelp reviews for the raves and the rants, and see if ride-sharing is right for you.

 BART

The Bay Area Rapid Transit System (BART for short) is the closest type of transportation in the Bay Area to a major city subway or metro system.

BART’s most notable accomplishment is that it connects commuters from the East Bay (Berkeley, Oakland, and even as far south as Fremont) to downtown San Francisco and travelers to San Francisco International Airport.

BART runs fairly regularly (though nowhere close to the Moscow underground) and usually on time, unless of course, there is a strike, like the one going on now. You can find BART schedule on BART’s website, and there are a number of mobile apps for iOS, Android, and Windows platforms, with real-time updates on train schedules.

A multi-use BART ticket can be purchased from a machine at a BART station. A one-way fare from Fremont to San Francisco is $5.65.

ED: In my experience first time in the Valley jumping on the BART at the Airport and being delivered in downtown was very easy

Caltrain

Caltrain pulling into San Jose - Credit Lucius Kwok http://www.flickr.com/photos/luciuskwok/

Caltrain pulling into San Jose – Credit Lucius Kwok http://www.flickr.com/photos/luciuskwok/

To navigate between San Francisco and the Peninsula or the South Bay using public transportation, you can take advantage of our above-ground railway system, Caltrain.

Caltrain runs in a linear fashion from San Francisco at its north end to as far south as Gilroy. However, expect to walk or take a cab from the Caltrain station to your final destination because public transportation on the Peninsula and in the South Bay is virtually nonexistent.

Unlike BART and the typical subway systems in major metropolitan areas, Caltrain trains run with gaps of 20 to 40 minutes and sometimes even further apart. If you plan to use it, check the schedule ahead of time. You can find the train schedule on Caltrain’s website, and there are a number of Caltrain-approved mobile apps for iOS, Android, and even Windows platforms, that include up-to-date schedule information, which can also be found on the Caltrain website.

A Caltrain ticket needs to be purchased at the station from a ticket vending machine. The price is calculated based on the number of “zones” between the point of departure and the destination (typically between 1 and 3 for most travel within Silicon Valley) and ranges from $3.00 to $7.00 for a one-way ticket.

MUNI

If you really want to go native, within San Francisco City limits you can attempt to travel by MUNI, which consists of the bus system above ground and the light rail below. The cost is $2.00 per person for up to 90 minutes of travel, including transfers. The machine on the bus takes coins and bills, but it does not give change. Once you pay, you will get a fare receipt (a paper ticket), which will state the time when it expires. Make sure to keep your receipt if you plan on making transfers!

ED: For Train Spotters The light rail has a great old collection of trams from around US and the world MUNI with old restored Trams Paul Sullivan seems to have captured most of them here http://www.flickr.com/photos/pfsullivan_1056/

Where to Stay in Silicon Valley

The San Francisco Bay Area is simultaneously a very small and a very large place. Regardless of where you decide to stay (between SF and San Jose), you can, in a matter of one to two hours, depending on traffic, find your way to any meeting or event in the Silicon Valley.  On the other hand, if you have a busy schedule, you’ll want to minimize the amount of time spent driving, or in public transit, and maximize the value of your time.  For this reason, it helps to stay in or near the hubs of startup activity.

San Francisco

San-Francisco-Evening - Credit - http://www.flickr.com/photos/jdub1980/

San-Francisco-Evening – Credit – http://www.flickr.com/photos/jdub1980/

In San Francisco, the area called SOMA (south of Mission) boasts the greatest density of startups, startup co-working spaces, startup accelerators, startup incubators, and startup-oriented events.

If you are looking to be within walking distance of startup-oriented events each night of the week, SOMA is hard to beat.

Golden Gate Twilight - Credit - http://www.flickr.com/photos/jdub1980/

Golden Gate Twilight – Credit – http://www.flickr.com/photos/jdub1980/

Mountain View

Mountain View is home to Google and Microsoft, and a slew of other tech companies. Naturally, there is a pretty well-developed startup scene in that area as well, with a number of startups events.

Hacker Dojo is a startup community center / co-working space in Mountain View, and Red Rock Coffee on Castro Street in Mountain View is the unofficial startup hangout, where any time of day you can find yourself sipping coffee next to a small group of founders working on their business plan or working out code kinks.

Redwood City

Our office is located in Redwood City, which is on the Peninsula about half-way between San Francisco and Santa Clara. Because of its prime location, Redwood City is starting to really pick up in terms of startup events.

There is a large incubator in Redwood City, called NestGSV, which holds many startup events. One of the larger startup networks, called 106Miles holds its monthly events in Redwood City (as well as in Palo Alto and San Francisco).

Palo Alto

Stanford University Tower -Credit Luis Garcia http://www.flickr.com/photos/luisjoujr/

Stanford University Tower -Credit Luis Garcia http://www.flickr.com/photos/luisjoujr/

Palo Alto is a lively university town (next to Stanford University ) that many startups and VCs are attracted to for its historic downtown feel with quaint coffee shops and a variety of cozy restaurants. Due to the two cities’ close geographic proximity and to a marked difference in ambiance between the two, the VC crowd, when outside the office, can more frequently be spotted in cafes on University Avenue than in downtown Menlo Park.

Downtown Palo Alto at night Credit Salar Hassani http://www.flickr.com/photos/shassani/

Downtown Palo Alto at night Credit Salar Hassani http://www.flickr.com/photos/shassani/

ED: Palo Alto is in my mind arguably the home of Silicon Valley with the birth of Hewlett-Packard just a few blocks from Stanford. For anyone who wants to see history and be inspired this Garage launched a multi-billion business thats over 50 years old and helped launch high tech industry in the Valley.

HP Garage in Palo Alto - Credit wikipedia.org http://de.wikipedia.org/wiki/User:Twam

HP Garage in Palo Alto – Credit wikipedia.org http://de.wikipedia.org/wiki/User:Twam

 

Menlo Park

The famous Sand Hill Road, where the majority of well-known venture capital firms are headquartered, is in Menlo Park. But aside from these renowned neighbors, Rosewood Hotel (featured above), and perhaps Café Borrone on El Camino, Menlo Park has little to boast by way of startup life.

 

Service Providers to Meet While You are Here

Startups that plan to have a U.S. presence will need to build a framework of trusted service providers to serve their legal, accounting, banking, and other needs.

While many of these matters can be handled from abroad, there is nothing like meeting in person with service providers with whom you plan to build a long-term relationship while you are already in the Bay Area.

Legal

Taking your business into the United States means that you will need experts to help you navigate local laws and local transactions.

Although legal services are not cheap, they are an important investment in your startup’s success. You will be relying on your attorneys heavily to guide your actions and provide advice and counseling, so pick attorneys whose expertise you trust and who understand that their role, especially with foreign startups, goes far beyond crunching out forms and pushing paper.

Corporate & Securities

At the very least, you will need attorneys who will document (a) your startup’s flip to the United States, which will be a prerequisite for getting investment from U.S. funds, and (b) the investment itself.  These attorneys specialize in corporate and securities work, and you want to make sure they focus on startup work specifically.

Patents

In addition, you may be looking to file patents to protect your intellectual property in the United States, if you have not already done so.  While some of the larger firms have both corporate and patent attorneys housed under one roof, many startups choose to work with specialized IP law firms on their patents and with specialized corporate practices on their formation, flip, and financing matters.

Immigration

Finally, it is very common for foreign entrepreneurs to want to meet with immigration counsel during their trip. A foreign management team relocating to the U.S. needs visas allowing them to work here. Frequently, immigration services are provided by small specialized practices and solo practitioners, though our firm has an immigration practice in addition to our corporate & securities and trademark practices.

Accounting

A corporation is a stand-alone legal entity and must file tax returns with the IRS on either an annual or a quarterly basis, depending on its revenues. It must make the filing even if it has no tax liability at the end of the year and even if its losses far exceeded its gains.

 The United States tax code is complex, to say the least.  A savvy tax accountant can not merely competently fill out the tax forms, but advise on ways to make the business less likely to be the subject to an IRS audit.

Note that in the United States, unlike many other countries, legal and tax services may not be provided by professionals within the same firm, which is why well known international accounting firms like Deloitte or KPMG do not offer legal services in the United States and focus solely on their core area of expertise – accounting.

But a startup does not need its tax accounting done by a Big Four accounting firm. There are many smaller local accounting firms that offer services at a more reasonable price point and more than amply satisfy the requirements of startup accounting.

Note that the word “CPA” after the name of a professional signifies that the individual is actually licensed to practice accounting. While it is not illegal to perform accounting work without having the CPA license, it is important to be aware of the distinction.

Our firm has established relationships with several accounting firms, which we routinely recommend to our clients. A corporation is a stand-alone legal entity and must file tax returns with the IRS on either an annual or a quarterly basis, depending on its revenues. It must make the filing even if it has no tax liability at the end of the year and even if its losses far exceeded its gains.

The United States tax code is complex, to say the least.  A savvy tax accountant can not merely competently fill out the tax forms, but advise on ways to make the business less likely to be the subject to an IRS audit.

Note that in the United States, unlike many other countries, legal and tax services may not be provided by professionals within the same firm, which is why well known international accounting firms like Deloitte or KPMG do not offer legal services in the United States and focus solely on their core area of expertise – accounting.

But a startup does not need its tax accounting done by a Big Four accounting firm. There are many smaller local accounting firms that offer services at a more reasonable price point and more than amply satisfy the requirements of startup accounting.
Note that the word “CPA” after the name of a professional signifies that the individual is actually licensed to practice accounting. While it is not illegal to perform accounting work without having the CPA license, it is important to be aware of the distinction. Our firm has established relationships with several accounting firms, which we routinely recommend to our clients.

Banking

A U.S. bank account is one of the perks and requirements of a U.S. corporation. Often, collecting credit card payments through a U.S. business checking account is easier than doing so through a foreign bank.

Since 9/11 and the passing of the Patriot Act, it has become virtually impossible to open a bank account without physical presence in a U.S. bank branch.

With that in mind, even if you have not yet formed a corporation in the United States, you should consider visiting a bank, preemptively. Talk to a bank representative, show your ID/passport, whatever they require, so that when you do form a corporation, you can send your certificate of incorporation and EIN and will need not make a separate trip to the United States to open the account. It is a good way to save yourself some time in the future.

Our firm has established a good relationship with Citi Bank and Comerica Bank.

Local Advisors

Advisors may not be the first thing that comes to mind when thinking about service providers in the startup ecosystem.  But they provide an invaluable service to startups and should not be overlooked. The right advisors can make a big difference!

A foreign startup especially might benefit from the expertise of a Silicon Valley advisor if the goal is ultimately to expand the business into Silicon Valley and establish a presence here.

An advisor serves three primary functions: provides advice to founders on high-level strategic matters, makes introductions to contacts in his network, and his name carries prestige.

While you are here, take the opportunity to meet with the individuals you are considering as advisors, to make sure there is a personality fit and that their network is a match for your company’s needs, such that their intros would actually be valuable. Someone who is well-regarded as an industry expert does not automatically make a good advisor to your company.

 

Office Space & More

If your startup is going to have a footprint in the Silicon Valley, you should think about office space for your team, once they relocate.

Visiting a few local accelerators, incubators and co-working spaces will help you decide whether that is the way to go for your startup. Especially if your team in the U.S. will initially be small, there may be advantages to being in an environment with other startup teams, sharing resources and providing sounding board support to one another.

White  has co-working space available to our clients for free during their U.S. trip (up to 2 weeks) and for rent for longer periods.

 As always we want your comments and experience.

To book your free 1/2 hour session with Inna please fill out the following form

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Australian Venture Capital – Can We Escape From Past Failures? Ian Maxwell

Ian A. Maxwell is a veteran Technology Entrepreneur and Venture Capitalist. He is currently CEO of BT Imaging, Chair of Instrument Works and Co-Founder of Accordia IP as well as a partner at Zetta Research and an Adjunct Professor at RMIT. He has a PhD in Chemistry and has either founded or worked at Memtec, Allen & Buckeridge, Redfern Photonics, Sydney University Polymer Centre, James Hardie, Viva Blu, Enikos, Wriota, RPO and Instrument Works. You can connect with him on Linkedin au.linkedin.com/in/maxwellian

Ian Maxwell - Credit Linkedin.com

Ian Maxwell – Credit Linkedin.com

Disclaimer: I would like to say that in what follows any resemblance to real venture capitalists, public servants and entrepreneurs, living or dead, is purely coincidental. If anyone I know is reading this article I would like to say that you are, of course, the  exception to any broad generalizations that I may make in this article.

Introduction

I have been asked many times for my opinions on why the Australian Venture Capital (VC) sector has failed. The answers to this question are pretty complex and often I get the feeling that a listener might not get the full picture. Hence I decided that this is a subject worthy of an essay.

Firstly though, has Australian VC actually failed? I find that it’s always worthwhile testing the hidden hypothesis in a question such as the one posed here. People often anecdotally claim things to be true without ever providing evidence for their assertions.  However in this case it is pretty easy to validate the hypothesis.

For example, an Australian Venture Capital Association Limited report (see http://ict-industry-reports.com/wp-content/uploads/sites/4/2013/10/2009-Evolution-of-Venture-and-Private-Equity-Capital-in-Australia-AVCAL-Apr-2009.pdf) shows that all 37 Australia venture capital funds between 1985 and 2007, many of which included government funds, had an average return on capital of minus 5.4%. Even the upper quartile of funds only averaged 3.3% return, whereas venture capital is not deemed successful until it returns 20% on capital, due to the high risk factors associated with this investment class. Indeed fund managers typically do not share in fund profits until the 20% hurdle is reached. Returns on Australian VC funds have not improved since 2007, in fact just the opposite.

Looking through the industry reports I noted a 2013 effort (see http://ict-industry-reports.com/wp-content/uploads/sites/4/2013/09/2013-Economic-Impact-of-Venture-Capital-in-Australia-AVCAL-May-2013.pdf) which extols the economic impacts of Australian VC. You can read this article as an attempt to get our government to continue investment into the VC sector on the basis that, although a financial failure, the VC sector creates all sorts of positive economic impacts for the country. The key quantitative claims in this report are:

  • “VC-backed firms make up only 0.01% of GDP but 10% of all business R&D expenditure in Australia”. I would comment that R&D expenditure is an input and I would rather see a measure of outputs (e.g. revenues or profits). The truth is that a large fraction of the R&D expenditure in Australian start-ups has no economic return as highlighted by the poor return on VC investment.
  • “Top VC-backed companies Cochlear, ResMed and SEEK alone employ nearly 7,000 people”. There has to be a statute of limitations on using these old companies as icons of VC investment. They were all started in the last millennium; in 1981, 1989 and 1997 respectively. The reason these companies are listed is that there has been no VC-backed equivalent success stories of similar scale since 1997.
  • “Australian VC-backed companies accounted for $4b in assets and $2.8b in sales in 2011”. Yep, and that a good fraction is from the three companies listed above.
  • “VC-backed companies make up a fifth of ASX healthcare market cap”. Now that is not something I would boast about. This sector is zombie-central.

Ok, now I have got that out of the way, I think we can happily assert that the VC sector in Australia has been a financial failure and that it also has had somewhat dubious economic impacts. So why is this?

The answer lies in four key categories; the investment model, the people, the deal flow, and investment scale. I will discuss these in order.

The Australian VC Investment Model

The investment model that has been attempted to be introduced by most VC’s in Australia has been the Silicon Valley ‘General partner/managed funds’ model. Implicit in this approach has been a desire to re-create a mini-version of Silicon Valley here in Australia. Well this hasn’t worked and I doubt it ever will. Silicon Valley exists to serve the whole world, and not just California or the USA. Deals and entrepreneurs flow to Silicon Valley from all over the place, including Australia.

Silicon Valley VC is very ‘fashion-driven’ – in any given decade there are the industry sectors of choice where deals are being done and then there is everything else, where they simply won’t invest. The reason for this focus is due to Silicon Valley’s continued desire to invest in only high-growth industries and low-capex technology plays where they can get a more guaranteed return on their investment. Also Silicon Valley VC’s are very reluctant to leave the herd else they will look pretty silly when a deal goes south. Historically, areas of interest have included semiconductor, software, photonics, pharma, cleantech and the internet (the one that is still going strong).

The semiconductor sector is a good case study – there were once hundreds of investments into fabless Semico companies designing new chips for various applications. If successful these companies would be acquired for many times their revenues in the high-growth bubble-like market of the day. Today of course the semiconductor market has settled back to slow single-digit growth rates because the world has been saturated with chips. Merger and acquisition (M&A) values are down and VC investments into this sector are now quite rare.

If Silicon Valley VC has the capital and the machinery to invest into the key segments du jour then what role does a local Australian version of a VC industry serve? The claim of the local VC industry is that they can serve to either compete with Silicon Valley (which is ludicrous) or act as an intermediary, where the seed capital to get companies up and running is sourced locally and then the successful companies can transition to the more highly capitalized US market. This latter claim, while it has appeal, is also mostly false. It is my experience local investment is both under-scale and under-skilled, and hence any VC seed capital into an Australian start-up usually serves to slow that company down and delay its transfer to a more sensible domicile.

One key aspect of the Silicon Valley investment model is that typically 2% of funds under management go directly into the pockets of the fund managers every year, for up to ten years, quite independently of their performance. This makes this model very lucrative even if the funds are never profitable. Many of you will realise that this is a very dangerous structure in ‘rent-seeking’ Club Australia.

I would argue that the local copy of the Silicon Valley investment model simply hasn’t worked but it is far easier to point out the model’s deficiencies for the local environment than it is to suggest a useful alternative; more on this later.

The People

Another cause for the failure of Australian VC is the people.

In the US, after a few years of working in a specific industry and then after achieving a high quality MBA, an individual may join a VC firm as an Associate. Then after working their way up to Principal they might become a partner or leave to create their own VC firm if they have forged a good reputation. Alternatively a successful CEO, after selling a company, might join a VC firm as a venture partner, essentially seeking the next big deal. All individuals in US VC firms will normally have a single-sector focus where they are extremely well-networked and can qualify people and opportunities with a high degree of success.

Contrast this with Australian VC firms where virtually no-one have gone through this apprenticeship program. Most are former entrepreneurs and finance or corporate types. Entrepreneurs think that because they have been on the receiving end of venture capital that this makes them qualified to manage VC funds. This is like you or I arguing that because we went to school we are qualified to be teachers. The financial & corporate types drift down from the top end of town into VC for many reasons but mainly because it looks like a cushy ten year gig with guaranteed income, where they can use their existing networks to extract investment funds from unwitting limited partners (LP’s; investors in VC funds). Of course the financial types are even less qualified to manage VC funds than former entrepreneurs since they usually have had no contact with start-ups or any experience in a tech sector. And corporate types, while sometimes having worked in a tech corporation, usually have very little appreciation for what it takes to create a company from scratch as opposed to being a little cog in a big machine.

Another problem with Australian VC is that it is a small segment and there is not enough deal flow for any investment manager to focus on a single sector. As a result we have a bunch of ‘generalists’ who know a little bit about a lot of segments. This often makes their investment decisions very dubious. In the US a typical partner will have a very good personal relationship with the key M&A decision makers at the half a dozen corporations that will eventually line up to buy a start-up that the partner is about to invest in; this is rarely the case in Australia.

Of course if the VC’s are singularly unqualified for the job so too are the entrepreneurs that they invest in. This is a case of the blind leading the blind. If I was forced to list the single most important thing in any investment decision I would have to respond that it is the CEO of the company. The right person will make the most of every opportunity. It takes skill, energy and luck to make a start-up successful. The right person brings the skill and the energy – and the right investment manager can identify the great entrepreneurs with one eye closed and at 100 paces at dusk. And the wrong investment manager, with fund-lifetime constraints forcing them to invest quickly, will forever make compromised decisions as to the types of deals and the types of entrepreneurs that they invest is, and this is what usually happens in Australia.

Deal flow

The lack of quality deal flow in Australia is a case of the ‘emperor’s clothes’. The myth that is propagated through our media is that there are endless high quality tech opportunities in Australia but what is missing is investment capital, usually followed by calls for government to supply more of this, free of charge. Arguments for the high quality deal flow are usually accompanied by a nod to the usual chestnuts, being the Hills Hoist, the Victor lawn mower, the ute (my personal favourite), Resmed, Cochlear, and more recently Atlassian (which was originally bootstrapped by the founders and then later received US venture capital; what they are still doing here is a mystery). Statistically speaking one cannot make an argument for an investment class (like VC) based on statistical outliers like Resmed or Cochlear; any argument has to be based on mean returns because all financial markets and their players regress to the mean over time. And our mean return on VC investment is negative which highlights the low quality of our deal flow.

My personal belief is that the claim that we have endless high quality tech opportunities in Australia is utter bullshit (sorry there is no softer noun that portrays my thinking on the matter). We are in fact very short on quality deals in Australia. Recall that a quality deal has to have many rare properties; it has to solve a verifiable and large problem or create a verifiable and large opportunity, the entrepreneur needs to have a track record in an industry as well as in start-ups, the technology must be genuinely novel, the sector has to be in high-growth with bubble-like exit values (high multiples on revenue or EBITDA) at the time of exit, there has to be a source of highly qualified people to employ, there has to be local investors (at least two) who get it and have networks in the industry, collectively the VC’s need to be able to put tens or hundreds of millions of dollars into the deal and not choke it with under-scale investment,  there has to be a large local market, there has to be a large local exit opportunity or two, and the list goes on.  You may now understand why a smart entrepreneur will take his or her deal to Silicon Valley! And also why I argue that we are short of high quality deals.

Even if you only measure deal flow by the quality of the technology or technology inventors I would argue that we under-perform in Australia. One reason for this is that our university sector is incentivized by their grant schemes to cluster their research efforts into highly competitive technology segments where they can get high citation counts for their papers, but also where innovation is very hard to achieve solely because of the crowded nature of these areas. Additionally our academics are not employed by any measure of their entrepreneurial nature; just the opposite in fact. Another reason why we have a low number of technology opportunities it that our private sector is dominated by corporations that are users of technology rather than vendors of technology; this means there are few spin-outs or people leaving our corporate sector with relevant technology development skills or insights into what problems are truly worth solving.

Investment Scale

I have mentioned this above, but typically Australian VC is awfully under-scaled. VC’s funds exist as small as $20m. After subtracting management fees, this might mean that such a small VC fund can at most invest $1-3m into a single deal. Well there aren’t many modern tech start-up opportunities that can be successful at that scale, and what we find is that these small VC funds end up choking their investees as they look to avoid dilution and keep control in subsequent larger funding rounds. That is, there is a bias in the Australian VC market towards trying to fluke high-value exits with small investments and a lot of praying.

A part of the problem in the Australian VC market is that a large slab of the limited partner funding has come from government sources. I recently talked to a public servant whose reply when asked why the government keeps investing in sub-scale Australian venture capital firms, after 30 years of losing substantial amounts of government cash  was ‘Well, it took 40 years for Silicon Valley to take off’. He failed to note that Silicon Valley always had profitable venture capital firms from the get-go and that the US government played a minimal role in its development.

More recently Australian superannuation funds have finally realized how unprofitable the Australian VC sector is and have pretty much completely pulled out. This is proof, if still required, that Australian VC sector has failed. It also means a further shrinkage of the average VC fund size in Australia (of those remaining) because of a greater reliance of small government schemes like the IIF scheme, thus further guaranteeing failure of this investment sector.

I believe that government should not invest into VC funds because they make very bad LP’s. This is because they are not driven purely by a profit motives, they are also driven by policy requirements with any number of political overtones and also a fear of negative publicity; this leads to all sorts of weird constraints on those VC fund managers accepting government funds. If government insists on trying to create a tech sector then more useful activities could include creation of incentives via the selective removal of the myriad of government taxes and regulatory hurdles, or via repayable loans. I also argue against government grants of any type, R&D or otherwise, to business – all financial input from government should be loans repayable by businesses once they achieve a pre-agreed capacity to repay the loans from profits derived from the investment of any such loans.

Government stimulation is best placed into comprehensive development of plans to create new industries,[1] and in this context the development and early implementation of policy framework, selection of technology sectors for national focus, acquisition of key intellectual property to be later on-sold to private enterprise, creation of tax breaks on new ventures and also for their investors, R&D tax schemes, ‘export-only’ patent box schemes, delayed-repayment loans for business development, initiation of local consumption through government purchasing (only on products that are not otherwise available) and also the development of local consumption schemes (to create early local customer demand for emerging product niches).

Is there a VC Opportunity in Australia?

Just recently I have talked to a few people who are convinced that there is an opportunity for a new VC model in Australia, with the inherent assumption that the prior failures of Australian VC has been due to the investment model. They are, in my opinion, deluded patriots. But good on them for their optimism and I for one don’t want to talk them out of their efforts. Rather I would like to frame the problem comprehensively so that they don’t waste their efforts solving non-problems and ignoring real ones.

So is there any role for a local VC market? Just possibly there is, but probably only in segments where the local VC market is not competing with Silicon Valley. This might appear to be counter-intuitive since Silicon Valley obviously picks the highest return market segments. However because they just about ignore all other sectors any future Australian VC sector would be well placed to target these lower return segments simply because they are less competitive. Who knows, we might also be able to attract foreign deal flow to Australia! I have said it before we need to get over the idea that any local tech sector has to be based on proudly developed local innovations.

This statement then flies in the face of the fact that about 99% of all current start-ups in Australia are internet deals. But our internet start-ups are competing with Silicon Valley equivalents with 10-100 times the funding; statistically speaking, what chance do our start-ups have? I would say to the entrepreneurs of our internet start-ups; if you really want to make it big then please get on a plane to Silicon Valley and don’t come back.

What about the investment model? Clearly we don’t have the LP’s to invest into managed funds so we may as well get entirely away from the managed funds concepts. In fact I think any new model should not have management fees at all just so that we can be assured that the managers are incentivized by profits rather than guaranteed salaries. Recently I have heard of groups trying to promote investment funds by equity crowd-funding, by corporate partnership and by alternative stock exchanges. Other ideas also exist. I have absolutely no conviction that any of these models, by themselves, solves all existing problems. Typically what these new investment models do is access money that is easier to get and possibly requires a lower return on capital than typical VC LP funds; that is these new models are targeting ‘dumber’ money. Trust me on this; dumb money leads to dumb outcomes. The possible exception is corporate partnerships – but we hardly have any corporations that are global vendors of technology solutions. So it would have to be foreign corporations; this is starting to look hard.

The people will define themselves. Those promoting these new investment models will only be successful if they have the ‘right stuff’ anyway. And they won’t be successful unless their new model provides sufficient investment funds for their startup opportunities. They need to have excess capital so that they can break through walls and solve as many of their problems as possible just with capital. Remember this might mean more than $50-100m per deal.

And government? To be honest I think government is best advised to stay right away from the sector. Although they are well intentioned, every time that they promote funds to VC, a raft of the usual characters swarm around to extract that money as their own stipend. Government is probably best placed by removing the very hurdles to new business that they themselves have created with legislation. Just starting and owning a business in Australia is ridiculously complex and expensive.

Having said all that, I still come back to the problem of the lack of high quality deal flow in Australia. This is the biggest hurdle that we have to face if we want a thriving tech sector and an accompanying investment model.

Our university segment is not a source of reliable deal flow, and this won’t change unless we create an alternative university sector with a primary focus on commercial outcomes. Our corporations are primarily users of technology and not vendors of technology; maybe someone could usefully create a database of our corporations that are most actively focused on selling technology solutions to the world, and round these up as part of an investment model. Our government of course could do something very unusual, like creating an Asian-style five year plan to create a whole new industry from scratch; that might promote some deal flow. Or we could look to source deal flow from overseas and import technology opportunities much like we import ‘Australian’ sports stars from the developing world.

I am sure that some readers might have other ideas for deal flow that I have not thought of.

As a final note, I am pretty sure there are those that will find this article offensive. I could have written it five years ago; I only do so now because it is petty clear that the 30 year old experiment into recreating a little Silicon Valley in Australia is just about over. We have to look to the future if we want to create a thriving tech sector in Australia, and we can only do this successfully if we are honest about what has failed in the past. So please please forgive my offence; I too may be a deluded patriot.

 


[1] For more details on this see http://www.scribd.com/doc/162429121/Australian-Manufacturing-a-Framework-for-a-New-Future

As always we would like to hear your views on Venture Capital in Australia

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Start-up Advice for Australian Entrepreneurs – Ian Maxwell

Ian Maxwell

Ian Maxwell

Ian A. Maxwell is a veteran Technology Entrepreneur and Venture Capitalist. He is currently CEO of BT Imaging, Chair of Instrument Works and Co-Founder of Accordia IP as well as a partner at Zetta Research and an Adjunct Professor at RMIT. He has a PhD in Chemistry and has either founded or worked at Memtec, Allen & Buckeridge, Redfern Photonics, Sydney University Polymer Centre, James Hardie, Viva Blu, Enikos, Wriota, RPO and Instrument Works. You can connect with him on Linkedin au.linkedin.com/in/maxwellian

Introduction

It seems that just about every day I get some young, or not so young, tech entrepreneur wandering into my office at Surry Hills looking for advice as to how to get their new ‘company’ funded. I say ‘company’ in quotation marks because at least half of these companies are simply concepts and there isn’t even a business plan or a Powerpoint summary, let alone a corporate entity.

Picture1b

BT Imaging’s QS-W2 – used by Chinese Solar Cell Manufacturers

I view these entrepreneurs through a number of filters:

  1. The Internet and ‘the rest’. The Internet guys all want to do, for example, some groovy game concept, a B2B disintermediation play, or a web/phone app. ‘The rest’ is composed of ‘old school’ ideas such as medical devices, scientific instruments, electronics, clean-tech, you name it.
  2. In the Internet camp about 99.99% are ‘me too’ and only the odd individual actually has a new idea in an area of ‘white space’. This doesn’t worry anyone since they are all convinced that their particular spin on the area will be naturally loved by the webizens and that they will be the winners.
  3. A large proportion of the entrepreneurs have zero experience in the industry that they want to launch themselves into, so it’s a good guess that their ideas have little or no value. I do find the odd person who has actually worked in an industry and spotted a real and verifiable problem or opportunity to work on.
  4. Very few of the entrepreneurs have done an ‘apprenticeship’. That is, worked in someone else’s start-up in any role, and learnt on someone else’s coin and time. Many think that a couple of books read, maybe a course or a forum or two, a couple of weeks in an incubator space, a few coffees with some grey beards and, presto, they know it all. I try to explain to them that it’s not what you know, but how you act, often under pressure, that counts and that this can only be learned on the job. I give the analogy to plumbing or sailing, also jobs where an apprenticeship is needed.
  5. Experience aside, not too many of my visiting entrepreneurs have what I would call the ‘right stuff’. This is very hard to define, but after 14 years in venture capital and start-ups I can spot an individual who will ‘die in a ditch’ to make their company successful, and these are rare individuals, often driven by what the psychologists would call ‘issues’. These people are great for investors but rubbish for their families. It’s a case of being careful what you wish for.
  6. Some entrepreneurs have few responsibilities, being young, unmarried and also with a few dollars in the bank. These guys can afford to spend a year or two living on the smell of an oily rag whilst they try to get their company up and running. I really feel for the more entrenched guys that have a mortgage (in Sydney no less!), a couple of kids in private school, and a penchant for a corporate salary. This latter category has so many more constraints on them with respect to getting a start-up funded. (ED: Pretty sure you are describing me)
  7. Most, say 90%, do not have any idea how to develop a plan to execute their business ideas. They need help, and lots of it, from people with a lot more experience.
  8. More worryingly, out of the hundreds that I have shouted a coffee , I have probably only one guy that had a clear idea of how to build enterprise value and who was going to buy his company, and why. The rest had no idea that the company itself is a product to investors.
  9. A very large fraction of the entrepreneurs are men or boys. There are very few women wanting to be tech entrepreneurs in Australia. A discussion of this fact represents a rabbit hole that I do not wish to enter. But do please excuse me for any gender bias in the language of this article resulting from this observation.

Show me the Money…

The one concern that all the entrepreneurs want to discuss with me is how to get funded. They know some of the options and this all comes out in the first five minutes of our coffee:

“What do you think of crowd funding?”
“Is there anyone actually investing venture capital money in Australia?”
“What do you think of [so and so] Angel Investor group?”
“Do you know much about [so and so] government grant body?”
“Would you advise us to go to Silicon Valley?”
“Do you think we should go for [so and so] entrepreneur of the year award?”
“Our [so and so] University commercialization group is suggesting [such and such]. What do you think?”

Just for completeness, my answers are; hate it, no, hate them, yes, sometimes, never, oh dear!

They never ask three other pertinent questions, namely:

“Do you think we can bootstrap our company?”
“Do you know any corporate investors that would be interested in what we are doing?”
“What do you think of China?”

My answers are; sometimes, sometimes, mixed.

So now that I have set this up, here is my investment advice. This is given so that I can refer potential coffee partners to this article, ahead of the coffee, in an attempt to cut down on these meetings. I am very time poor and this might save me a few coffees. My wife thinks I am addicted – she may be right; but it’s the coffee I am addicted to and not the proffering of free advice.

If you are an Australian entrepreneur with an idea that you just can’t let pass by, then here is an investment how-to guide, to be followed in strict order from Steps 1 through to 5.

Step 1. Silicon Valley

If it’s a good idea and needs lots of capital to be successful then go straight to Silicon Valley, do not pass go, and collect $200m. How do you know if your business needs tens or hundreds of millions of dollars? Well look at comparable companies that are getting funded in Silicon Valley and see how much capital they are raising. If they are raising a lot then so must you or else you will be dead before you start. Going ‘viral’ is effectively a myth – it all comes down to marketing dollars.

Just as an aside, if there are no comparable companies being funded in Silicon Valley then go to Step 2 or stop right now and give up. Remember Silicon Valley attracts deals from all over the world. It is not US-centric; it is the Venture Capital center for the world. So please don’t do yourself a disservice by dealing with a want-to-be branch office. And if Silicon Valley isn’t investing in your space that is because they aren’t getting the required returns on their investment in your space – take note.

When you do go to Silicon Valley you actually have to move there and not just visit occasionally. Get networked. Most likely they will hate your idea and hate you even more, but they will never tell you this. This is the time to morph the deal into something else, find an experienced CEO and Chairperson, and keep at it.

A final word on Silicon Valley; what they have its lot of venture capital and amazing networking opportunities (to corporations and individuals). This doesn’t mean it’s all good – there is a huge spread of capabilities among Silicon Valley venture capitalists. But the Americans are awfully good at solving problems and grasping opportunities with the use of excessive capital – a skill that doesn’t exist in Australia.

Step 2. Bootstrap

If your type of company isn’t being funded in Silicon Valley then you either give up, OR you can decide to ‘bootstrap’ the business. No, this is not Kickstarter; this is a little known and very old concept where you grow the business slowly, get profitable on some small & genuine sales, and then reinvest all the profits into continued growth. The initial capital to get the business off the ground is your own, or from friends and family (that should be paid back and not become equity holders). In this model you never get investors that take a large slab of your equity. After a few years our banks might even lend you a dollar or two, if you are lucky.

If this appeals to you then you probably still need to get acquainted with some experienced entrepreneurs that can help you develop a business strategy and plan. Let them have some equity, maybe even invest a little play capital – it will be well worth it.

Step 3. Corporate Funded

If your type of company isn’t being funded in Silicon Valley but it needs too much capital, prior to revenues, to bootstrap, and you are still convinced that you want to do it, then you should contact the large corporations in your space and ask for funding. Some actually have venture groups and many others are willing to get into operational and S&M partnerships with start-ups. Normally to make this work you will need some people working with you that have credibly in the market space and that are known to the corporations that you want to approach. Find these people and try to convince them – you will learn a lot from the experience.

Step 4. Chinese Investors

If none of the above appeal to you and you just happen to be of Chinese heritage, then you can always opt to consider China as a source of investment. Just note though, the Chinese aren’t all that keen on investing in Australian businesses unless they are lifestyle, agri- or resources deals. So if you have great technology concept and you really want to get investment from Chinese sources then you are going to have to really take it to China; lock, stock and barrel. They love their local IPO’s. My ‘how-to’ advice for going to China is pretty much the same as that for Silicon Valley – so refer above.

Step 5. Government Grants

If you got to Step 2 or Step 3 and stopped, then by all means tap the myriad of Australian Federal and State government grant schemes in order to extract all that you can. If you head to Silicon Valley or China this won’t be necessary.

A Final Word

I will leave my critique of crowd-funding, angels investors, local venture capitalists, the myriad of Australian tech awards (with or without cash prizes), and university tech offices for another day, or maybe not. To be honest, I can’t see any value in offending them. But, be warned, here there be monsters.

A final word; you all need to realize that living in Australia is a great lifestyle choice but it’s a crap choice for building a tech start-up. If you stay here then you are in a swimming race with weights strapped to your body. On the flip side, to loosely quote Frank Sinatra, if you can make it here then you can make it anywhere!

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