Venture capital

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

Ian Maxwell - Credit

Ian Maxwell – Credit

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.


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 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 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

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

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Blackbird Ventures – Dealflow observations in the 8 months since launch – Rick Baker @blackbirdvc

Rick Baker is the Managing Director of Blackbird Ventures, a Sydney based Venture Capital fund raised early this year by Rick Baker, Niki Scevak, and VC Veterans Bill Bartee and John Scull and backed by numerous names in the Australian and US tech scene including Mike Cannon-Brooks from Atlassian, Dave McClure from 500 Startups, Bill Tai the Kite Surfing VC and Southern Cross Ventures. 


Rick Baker Blackbird Ventures



I wrote this piece as a newsletter to our investors a few weeks ago.  We thought we’d share it to give you some more insights on what’s out there and what we’re looking for.

After 8 months since the fund opened, we’ve logged 226 companies in our database and seen another 100 or so that weren’t worth logging. Add to this 260 Startmate applications, and we’ve seen a lot of business ideas.

From this deal flow we’ve made 9 investments and have one more in progress.  So we’re getting good at saying no!  Nevertheless we’re very happy with the deal flow coming out of the Aussie tech ecosystem at the moment.


Here are some observations from the deal flow so far, our filters and what we’re looking for:

Blackbird Investment Map - Credit

Blackbird Investment Map – Credit

1. Sources:

As would be expected, by far the majority of deal flow by quantity comes from our email address. This is despite us and our website imploring founders to find a warm introduction to us through their networks.

By far the majority of quality deal flow comes from the Blackbird community of investors, founders and Startmate. We’ve been very pleased with the way this is developing and all of our investments to date have originated from these sources. It’s given us a number of opportunities that are outside the general flow of usual sources: accelerators, incubators, angel groups and well-known founders in capital cities.

There is a third category, which is investment advisors – i.e. people who promise to raise money for young companies for a cut of the raising or equity. While there are some good advisors with interesting companies, we’re a little cynical of deal flow that comes from this source as it tends to indicate a founder who is not able to get to us directly, or does not know or care about fund raising.  Fund raising is such an important part of the early years of many tech startups, that this is a factor we have to take into account. They also tend to come with 60 page business plans and detailed forecast spreadsheets to justify high valuations!  We haven’t yet found a company introduced by an advisor that we’ve really fallen in love with, but this may change of course. [By the way, this is not a dig at the advisor community and we we certainly take all companies introduced to us seriously.  I’ll try to write some more detail on this soon, but please do feel free to comment below if you think differently.]

2. Stage:

As you know we have a strong focus on companies that have a product in the hands of a “core group of happy customers”. While revenues are not essential, it’s often the best measure of this.  So we’ve quickly filtered out a lot of pre-product, pre-revenue businesses, pointing these founders to the angel communities.  We have only made one exception to this rule: Canva, where the founders had built a previous business in a similar area and I (Rick) had been mentoring the founders for some time.

It’s encouraging that we’re seeing more and more series A stage companies, where the business is around 2 years old and starting to generate decent and growing revenues. We love companies with $30-100k in monthly recurring revenue and seem to be finding a steady stream of these! We still see very little Australian capital targeting this space. Our key collaborator is Square Peg Ventures, and we hope to continue investing alongside them.

3. Global vs local:

The second quick filter is businesses that do not meet our passion for global markets. The majority of Australian deal flow is either Aussie focussed, or Aussie first. We are constantly challenging founders to think bigger and smash local boundaries from day one. Each of the businesses we have backed so far is truly global, with founders who have a real passion to be the best in the world, rather than the best in Australia.

4. Scalable business models:

One of the key attributes we’ve become more and more focussed on is finding scalable marketing and sales models. This usually comes in the form of digital and content marketing, with only light touch human sales efforts. We are particularly avoiding business models which require scaling up sales teams in Australia and around the world. We think this is a difficult model to execute from Australia.

5. Founders with an authentic connection to the problem they’re solving:

Finally and most importantly, we’re looking for founders who we think have a real passion and expertise in the area they are tackling. We have to believe that this person has a better chance than 99.999999% of the global population of being able to have insights to crack apart a market. We’re not interested in people who want to be entrepreneurs for it’s own sake, or have chosen random problems while gazing at their navel. We want founders who have become immersed in their niche and have a driving passion to make it better. They are rare, but we love it when we find these founders, and have found them in all the companies we’ve backed so far.

That’s all for this month. Please do keep your antennae tuned to find great businesses to send us! or fill out the form to contact via



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AngelEd Sydney 2013 – Teaching Angel Investors to make better technology investments


In Australia too often Angel Investors have to play the role of a Venture Capitalist for technology startups, given we have only a handful VC funds in Australia with capital for very early stage ventures. (drive around the car park at the end of Sandhill Rd in Silicon Valley and you will find more VC firms than we have in Australia).

We simply don’t have the depth of institution money for this asset class to justify a big field of venture capitalist’s and I believe that between the growth of Angel Investors and Crowdfunding,  the Australian Venture Capitalist will become less relevant as time goes on.

Over the years I have been both impressed and dismayed by Angels Investors in Australia. To be clear I am not talking about high tech founders that are putting their exit funds back into new investments, these guys can look after themselves.

I am primarily talking about the Angel with good net wealth probably from the sale of a traditional business or family money or a successful corporate career looking for something interesting and exciting.

Financially astute? Mostly. Experienced in technology startup investments, much less so.

To the Angels credit they are very active and constantly running conferences and pitchfests, on the other from deals that I see they often seem unaware of the risks of very early stage technology companies and the life cycle of a funded tech company.

From my perspective having started my first startup in 1999, I have a good historical perspective and it seems to me that the startup scene and the number of investable startups has grown significantly in the last 5 years.

Due to the efforts of people like Pollenizer, Startmate, Pushstart, Incubate, Innovation Bay, ATP, Sydstart Australia now has a thriving startup scene.

The challenge is that without cash to fund these businesses and only a small venture capital base many of the investable companies will struggle to grow or have to move to the USA to get funding.

So it seems to me that any attempt to educate Angels and expand the base of Angel investors has to be a good thing for both the Angels and for the Australian Startup scene.

AngelEd 2013

Innovation Bay (Ian Gardiner) and Pushstart (Kim Heras, Roger Kermode & John Hains) have joined forces to help educate and grow the base of Angel Investors in Australia by launching the inaugural AngelEd 2013 on Thursday 7th November.

Both these teams have played a significant role in growing the startup scene locally and are now aiming to help grow the investor base in the same way.

If you’ve thought about investing in tech startups but you’re not sure how to, you are not alone.  Some of the questions AngelEd aims to answer

  • Where do you start?
  • Where do you go to find the startups to invest in?  
  • What do you need to be aware of?  
  • Is there a science to it?
  • How successful are tech angels in Australia and what’s their approach?  
  • Is angel investing a legitimate asset class worthy of consideration?

If you are not involved in the startup scene on a daily basis, you may find it difficult to get good deal flow.

AngelEd 2013 aims to introduce new Angel investors to the process of investing in high tech startups, getting access to good quality investable deals and minimising the risks of investing while increasing the chances of picking a winning startup.

Why are they doing it?

There are many indicators that point to the fact that there are loads more startups but not enough angels who actively invest, and therefore not enough money to support tech startup innovation.

Put simply, “we are making more, better companies at a rate that exceeds the country’s ability to support and fund their growth”, as identified by Pollenizer based on the Startup Genome Report and Angel Investing Survey finding.

AngelEd aims to build a greater pool of knowledgeable angels to better support our high-tech entrepreneurial community and create more international success stories.

You can register here

Great list of speakers.


Thursday, 7 November

2.30 – 3.00pm

3.00 – 3.15pm
Welcome and Introduction
Ian Gardiner, Innovation Bay & Kim Heras, PushStart

3.15 – 3.45pm
Angel Investment:  Market Update and World Trends
Bill Bartee, Blackbird Ventures

3.45 – 4.45pm
Angel Know How – The Secrets to Success:  Learn from seasoned tech investors

3.45pm  Andrey Shirben
4.05pm  Alison Deans, Netus
4.25pm  Luke Carruthers

4.45 – 5.30pm
How to invest it?  Funds, syndicates, direct….
(Panel discussion)

  • Kate Carruthers (moderator)
  • Niki Scevak, StartMate & Blackbird Ventures
  • Tony Faure, Chairman – Pollenizer, The Sound Alliance, Torque, Soda Card/Dealised
  • Melissa Widner, General Partner & Co-Founder, Seapoint Ventures
  • Anthony Pascoe, Angel Investor & Chair, ImageBrief

5.30 – 5.45pm
Short break – tea, coffee, snacks

5.45 – 6.05pm
“A Date with an Angel”:  The entrepreneur’s perspective
Dean McEvoy, Co-Founder & ex-CEO, Spreets

6.05 – 6.35pm
Tech Start-up Pitch: Innovation Bay Style
Two tech startups – 5 min pitch followed by panel Q&A

  • Ian Gardiner (moderator)
  • Brett Kelly, Kelly & Partners

6.35 – 7.00pm
The Dry but Essential: Legal, Tax & Due Diligence Considerations for angel investors

  • Legal: Paul Miller, Deutsch Miller
  • Tax:  Paul Masters, Tax Leader, Deloitte Private
  • Due Diligence:  Macquarie Private Wealth

Session concludes


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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


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.


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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My experiences launching – Alex Stamp – Student Entrepreneur


This is the first article in a series of articles from entrepreneurs that have been through Incubate, the University of Sydney Incubator program. Alex Stamp launched along with Mike Titchen and Luke Fries in 2012 as the first group of businesses in the Incubate program. Cloudherd is trying to solve the problems that farmers face when trying to sell their cattle, it’s a very inefficient market that seems to be stuck in the 1900s and Cloudherd is trying to drag it into 2013 with an online Auction system and cattle inventory application.

Cloudherd Team left to right - Luke Fries, Mike Titchen, Alex Stamp

Cloudherd Team left to right – Luke Fries, Mike Titchen, Alex Stamp


Hi, my name is Alex and I’m an entrepreneur.   Sounds like something from Alcoholics Anonymous doesn’t it? Well let’s face it, entrepreneurship and start-up culture can be downright crazy sometimes, especially if you’ve just starting out in your professional or working life. There’s a lot to learn and not everyone is so fortunate to have the learning experiences that can transform people’s way of thinking about business and technology. That’s why I’m writing this short series of articles, to help the young entrepreneurs and even aspiring entrepreneurs save a lot of time, grief and heartache. I’ve been very fortunate myself to learn from some top quality mentors, especially through Incubate, (the student business incubator launched by the University of Sydney Student Union), whilst I’ve been working on my start-up CloudHerd but there were still many things that I wish I had learnt beforehand.



This post is mainly about the first stage an entrepreneur goes through, the ideas stage. The next posts will cover the execution of the idea and finally not what to do. I hope you find it informative.


The old tired cliché is that ideas don’t matter. This is a meme propagated by various guilty parties, most notably investors looking for the most sweat equity out of you as possible, programmers who want to be free to reuse code in lots of different projects and rapacious industry giants looking to steal your idea and throw resources at it. The idea matters, the execution matters more, but the idea still matters. If you build a house on sand or if you don’t let a tree establish a solid root system then you will have an extremely poor root structure indeed. Lots of countries essentially monetise ideas through the patent system, so how can an idea not matter?

I spent a lot of time in Matt Barrie’s Technology Venture Creation class at University of Sydney thinking through a whole

Matt Barrie - Freelancer

Matt Barrie – Freelancer

range of ideas. Knowing what I know now, some of them were idiotic, some of them were too hard and some would never make money. So you probably have a great idea about now and you’re reading this article to figure out how to go forward with it. Just don’t. Stop and do some due diligence first, stop and prepare some documents and stop and canvas your idea with some relevant people.

Matt thought 2/3 of my initial ideas were terrible and I was one of the lucky ones, we all got hammered about stupid ideas in his class. You probably won’t be as lucky to have access to someone who can hammer you so hard as to refine your idea into pure, naked steel but you need to work out whether or not your idea has potential. I would recommend the following structured brainstorming process, in addition to the various lean business canvas propaganda that keeps floating around:

  • Does your idea solve a real problem? The corollary to this is that sometimes you have to lead the market a bit. Ideally you should have some first or at least second-hand experience in this area, otherwise you will have difficulty designing product features. Investors might also laugh you out of the room, despite the value of an outsider’s view.
  • Will your idea make enough money to cover its costs and support your team? This whole start-up business is too hard outside cushy fiefdoms like Silicon Valley, where the revolving door of big tech companies and venture capitalists makes entrepreneurship less risky, to slave away for nothing. The investor wants a return, make sure you get one.
  • Will the physical/software implementation of your product be within your capabilities within a time period that will not drive you over the edge? So it’s cool that you have an idea about a sonic based sensor network for rural applications…..but do you have any idea how to make this? Do you know if it is even going to work? What about software for it? This is something that we should have spent a lot more time on; if you can’t get information on this make sure you ask an expert.
  • Will you actually be able to make any money out of the first version of your product? When we finished our first release of the Cloudherd inventory system no one would use it, even for free. It just didn’t have enough features for our test users and as such we were really flogging a dead horse (Ed: or cow…) with our marketing and other business development activities. Make sure you can make money with version one of the product unless you have a big trust fund or some other form of support, see point below for more on this.
Cloudherd App

Cloudherd App

  • Will my financial resources stretch far enough to let me work on the project for as twice as long as I think it’ll take? No one cares about your product, you got fired from your part time job, you have no money in the bank and you have to pay the rent. What do you do? The project will take a lot longer than you’d think if you are a first time entrepreneur or relatively inexperienced developer and as such you need to have some fallback for life’s necessities.

Of course I could continue the list forever and waffle on about this subject for hours but I’m going to try and focus and bring the story back on track. Focus is something you, the baby entrepreneur, should be fanatical about.


You can have side interests, side projects, or spend time on a few dead ends but in the end you can’t spend too much time on side projects if you want your main project to succeed. You do need to preserve your mental health and retain some identity outside of your start-up so a few other interests are good. If you don’t, you’ll be depressed once demo day happens and no one wants to invest. This does happen, especially in Australia.

Indeed focus begins at the idea stage, don’t try to include every possible feature in an attempt to differentiate your product or you’ll fail at about month six or seven.

Focus on your team’s technical skills, if you have a team, and focus on what you can actually implement. Moonshots are not recommended for your first start-up, even though you should always have ambition. I’ll talk more about doing and the actual implementation in next weeks article, which has an expected arrival time of 7.5 days,(the 0.5 is wiggle room, you always need some wiggle room as a start-up).

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The next big wave of internet investment – Bill Tai @kitevc presentation @Fishburners

Bill Tai - Credit

Bill Tai – Credit

I attended a presentation by Venture Capitalist Bill Tai of Charles River Ventures last week, (apparently the largest Sydney Tech Meetup ever) at @Fishburners.  Bill is a mad keen kiteboarder who teamed up with Susi Mai to create Mai Tai Global a group of exclusive events where Venture Capitalist, Industry and Entrepreneurs get together to talk business and kite surf at fantastic locations around the world (Bill seems to love his work).

He made the observation that successful internet companies achieved explosive growth when they removed friction from existing real world processes.

Google = Accessing Information

Amazon = Commerce

Facebook = Keeping in contact with Friends

Twitter = Broadcast

Uber = Getting a good Cab/Town Car fast

Internet Waves of Growth and Investment

Bill outlined the early waves of internet investment and growth

  • Wave 1  Raw physics silicon chips etc Intel, nVidia and TI
  • Wave 2 Cisco, Dell, Juniper, 3com, Bay Networks, Sun –  Switches, Routers and Server hardware providing connectivity
  • Wave 3  Connected boxes Cloud services, Amazon EC2,  Rackspace

The first 3 waves were very capital-intensive, with companies raising $100s of millions,  10 years ago even for a small play startup you had to raise millions of dollars to buy servers, fit out a data centre put everyone in groovy offices and run a huge launch party to get the buzz going.

The 4th wave is far more capital efficient, they work from home, use Open Source software, use Cloud Computing and pay by the hour and most of their tools or free or almost free. As a result startups are launching successfully on $20-100k and getting enough traction to either get to cashflow or at least to a series A round.

  • Wave 4 Is essentially about User Interface’s pulling data from cloud via APIs or big databases

As an example one of Bill’s investment’s Tweetdeck was written by unemployed IT contractor who liked Twitter but didn’t like the user interface and decided to build something better, he started with $300k angel round, $1m Series A and then $3m Series B and then sold for a rumoured $40-50 million to Twitter a few years later.

What’s next

Wave 5 will be about Big data, collecting and storing data being created by our mobile devices and the estimated 50 billion smart devices which have some sensor and computing capability but are not traditional computing devices, collectively grouped as the Internet of Things.

  • Personalised Health Data
  • Internet of Things
  • Personal Genomics
  • Unstructured data is everywhere, he gave the example of a Map being full of data, but most of it is not sitting in tables on a database.When you add Structured Data + unstructured data = info
  • Traditional Analytics + big data = provides rapid insights with immense value

One of Bill’s investee companies Treasuredata has a dream team of entrepreneurs and investors including Bill,  Jerry Yang and James Lindenbaum from Heroku. The data platform has just passed the milestone of 1 trillion records uploaded and on the current run rate expect to hit 2 trillion records next quarter.

He made the comment that “Old world winners” such as Walmart really understood their data well.

New world winners are virtualising physical assets and turning them into Virtual Assets. Examples were Uber, AirBnB, VMware and Dropbox generating huge databases with tags and meta data about physical assets.and unlocking huge value in the process. 


Bill seems to spend a lot of time out here (for a US based VC) and has made a quite a few investments including the recent $3m round in Canva after founder Melanie Perkins spent 3 years pitching him.


Canva Founders

One of the things he finds attractive is some of the grant programs such as Commercialisation Australia’s Early Stage Commercialisation grants which offer matching funds which basically double the VCs investment.

We were starting to see big global tech companies formed and emerging from Australia such as Atlassian, Freelancer and others, where the businesses were becoming significant on the world stage or leaders in their space.

Increasingly investors were putting funds directly into Australian Pty Ltd companies rather than forcing them to move to the US and form a Delaware company.

Other companies Bill mentioned included

  • Tableau a big data analytics platform that allows users to upload data and use their slick front end to analyse data in real time without using any database or excel queries 
  • Scribd new deal monthly subscriber deal where you can read unlimited books for a flat monthly fee, they are trying to become the Netflix for books
  • Glyde a used goods site which allows users to buy and sell used Smart Phones and Tablets but will expand to other used goods as the market depth of each category hits critical mass.






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10 Ways to Kickstart your Startup – Part 4 – Bootstrapping – Convince your first customers to finance your startup

Startup financing cycle

Startup financing cycle (Photo credit: Wikipedia)

Many people don’t think its possible to get a customer to fund your business, but it really is, especially where you have a product or service that is not a commodity.

Recently when mentoring a startup I suggested this and they were shocked, they didn’t believe it was possible, however some months later they had managed to get one of their new business customer to accept the idea of paying upfront for the still to be completed product (and the revenue arrived before the fundraising they were holding out for).

Many entrepreneurs are stuck hoping and wishing they can raise capital, truth of the matter is it can take 3-12 months to raise your first round (or never), customer revenue on the other hand could only be a few weeks away.


If you are solving a difficult problem and you can convince a few customers you have a compelling new solution (albeit with some rough edges) there is every likelihood that you can convince them to pay up front or pay to develop additional features that meet their needs (which hopefully just happen to be in your roadmap).

This concept is missing from the Startup Financing Cycle graph above and there is every chance that tapping your customers for finance will get you through the Valley of Death or at the very least reduce the amount of capital you need to raise and allow you to retain more equity.


Given you can only grow a business as quickly as you can turn cash (I will go into more depth on how to accelerate your funding later in the 10 Ways to Kickstart your Startup series) bringing revenue forward by getting customers to pay upfront is much more common than you might believe.


Kickstarter is the modern consumer incarnation of this method but it has happened for as long as companies have existed, Kickstarter has just found a mostly frictionless method to facilitate this on a global scale and connect non businesses or would be startups and consumers.



When I started my first business I would insist on payment in advance, we turned over $4m in our first full financial year so I simply didn’t have the cash to fund this and there was no other way for me to do business.


Surprisingly very few people actually rejected this, especially when you explained to them that you were growing so quickly this is the only way you could fund the growth. You have to be ready to be a bit embarrassed about this, but you have to suck it up as it may be the only way for you to succeed.

I am not anti Venture Capital, quite the opposite, however I tell most Startups I meet that their ability to retain their equity is a function of how much pain they are willing to put up with and they are better off turning to VC when they are growing so quickly they can’t fund the working capital required to support the growth, which is a fantastic position to be in.

So a few suggestions on how to do this (primarily for the business market)

  • If you are selling a new technology or type of product, explain to the customer exactly what stage you are at, show them the product, tell them what the risks are and what your plan is, assuming you meet their previously unmet needs and they trust you and they can see the product is going to work for them, ask them for a deposit or get them to place and pay for an order. If the tech guy tells the purchasing and finance guy this is the only way to get the problem solved then often they will simply pay you, it’s amazing to see this turn up in your bank account.
  • If you are selling an existing product and its a large order (above your financing capacity) ask the customer what you can do to make the deal more attractive, for example is there an extra service you could throw in if he can pay upfront, something that might save their team a lot of time but might not take your team much time, or can you coordinate a late night or weekend install/upgrade?
  • If you are selling a service ask for a commencement fee.
  • If a customer has a particular need, tell them you are happy to build it to their requirements if they can fund NRE (Non Recurring Engineering) costs. Ideally the feature you develop will be part of your roadmap and you have managed to get the customer to help fund your development costs.
  • In large roll-outs, get customers to pre-purchase and pay for large orders and release it from your stock as they need it. It’s pretty easy to convince them you will keep it ready for them and they don’t have to worry about delays, you get paid both for the cost of the product and your profit (if you are working with a distributor, place an order on the stock and get it secured but ask them to only part ship for you, that way you only pay as you use it, but you have the customers cash, I will give an example of a sophisticated version of this below with Dells supply chain)


English: Dell Logo

English: Dell Logo (Photo credit: Wikipedia)

One of the best corporate examples of this is Dell. Dell gets paid in advance for the majority of their orders.

When you place an order you pay upfront via the Website (which everyone thinks is normal) but they don’t supply the product for another 7-21 days.

When you place your order they usually don’t even own the parts that they will use to build your product yet.

Here is how it works

  • You place your order
  • You pay upfront
  • The order is sent to the factory
  • The suppliers are required to be within 50km of Dells assembly plants and have their parts and trucks ready to go.
  • Dell orders the parts to make the batch of product they are scheduling that day
  • The supplier trucks are all lined up on one side or outside the plant.
  • When the truck rolls across the plants threshold, Dell now owns the product (note, most companies are invoiced when a shipment leaves the supplier warehouse, not Dell, suppliers don’t get to invoice until it hits their assembly line).
  • They assemble the PC and ship it to you
  • They pay their suppliers in normal commercial terms of >60 days (according to an analysis of their accounts their average debtor days could be as much as 80 days

So if you can convince your customers to follow some or all off the above methods there is every chance you can get your startup off the ground and be doing business without seeking external funding. Good luck

As always I welcome questions and comments, leave a message below and I will respond

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Way to go guys – gives Australian Students 10,000 free places worth $10 million




Learnable the programming focused MOOC has launched their election campaign with a bang doing what no politician is capable of this year (but will probably take credit for) by offering free enrollment in one of their 3000+ programming courses for 10,000 Australian students.

This is a fantastic gesture and I would suggest a very low-cost way of getting major traction on their platform.

Learnable was launched in 2010 by Matt Mickiewicz and Mark Harbottle the founders at Sitepoint who also are the founders of and Most of the competition in the MOOC market seems to focused on University courses and whilst there are numerous pay per class websites, I’m not really sure anyone has managed to get this working at scale.

Whilst Learnable has been relatively low-key since their launch, SitePoint’s was a long time success originally in the web design and SEO space with a very active forum in the early days. Judging by the photos on Flickr the Sitepoint team seem to get along really well.

SitePoint Preliminary Knockouts - 01

SitePoint Preliminary Knockouts – 01 (Photo credit: Sentience)

Their first outside investment came in 2011, as they announced a $35 million investment in 99designs led by venture capital firm Accel Partners.

Pricing is not unreasonable compared to doing a day course or the commercial training market and it would be very difficult to find these sorts of resources in one place otherwise, you can choose monthly at $29 per month with unlimited courses and text books or $15 per month if billed yearly. Yearly access for less than the daily rate of a face to face training course sounds like a pretty good deal to me.

Congratulation guys, nice guesture and a very effective marketing campaign, what comes around goes around, you guys deserve to be successful.


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