Feb 242017
 

What are some of the barriers to increasing diversity in the startup community’s monoculture? Yesterday we had an insight into some of the changes needed at the Women in VC forum held in Sydney.

Samantha Wong, partner at early stage startup accelerator Startmate and Head of operations at Blackbird Ventures, described how Startmate identified some of those barriers among the 51 companies that went through the program and the steps to overcome them.

What Samantha and her team found illustrate how the Silicon Valley model of founding and funding businesses inadvertently creates obstacles for women, older workers, disadvantaged groups and poorer people.

Insisting on Solo Founders

“Previously we had a rule that you couldn’t be a solo-founder. It’s too much work to do it by yourself,” she explained.

There’s good reason for that belief as building any business on your own is hard, regardless of whether it’s a tech startup or a dog walking franchise.

It’s understandable that investors are reluctant to get involved with a ‘one person show’, although a lack of capital is going to make life extraordinarily harder for a sole founder or proprietor.

The myth of the tech co-founder

“You had to have at least one technical co-founder in the team.” Samantha explained, “the reasons for this rule were historical.”

This belief goes back to the origins of the Silicon Valley business model where companies like Apple, Hewlett-Packard, Microsoft and even Google were founded by ‘two men in a shed’ where one was the marketing or sales whiz and the other delivered the product.

Interestingly many of the recent successes like Facebook, Uber and AirBnB haven’t had that dynamic, probably because the technology industries have matured to a point where developer and product managers are established trades or professions are easily available as well as cloud based tools making technology itself more accessible.

So a ‘tech co-founder’ will almost certainly be useful but isn’t essential to get a business off the ground in today’s tech environment.

Being in attendance

“We had a blanket rule of requiring participants to be in Sydney for the full duration of the program,” says Samantha. “The reason for this we know from experience that ninety percent of the program’s value comes from that sharing which happens between founders, the support and the friendly competitive pressure you get from them. It brings the best out of you.”

Startmate changed its policy so only one of the co-founders needs to be in Sydney. While it doesn’t solve the problem of solo founders with family obligations that don’t want to move, it does make it easier for those with dependents to participate.

Dropping the blanket rules

Over the six years Startmate has been running, they’ve seen a change in the nature of startups joining the program. “When the program started in 2011 we gave a small amount of money to a couple of people to build a product and start attracting customers,” Samantha said.

“By 2016 we were attracting much later companies that already had revenue and the program’s focus became growth and fund raising.”

“So instead of blanket rules we started to ask ‘what does this company need to grow in the next three to six months?’ Do they enough resources right now? Is the product good enough to sell? If you can get good answers to those then it’s worth considering them joining.”

The lessons from Startmate in increasing diversity among their intake are instructive and it indicates the limits of the Silicon Valley model that favours young, middle class men over other groups.

For the tech industry, that focus on one group is a great weakness and means investors are missing a world of opportunities. Ditching existing biases and established wisdom could be a very profitable move from everyone.

Feb 112017
 

Last week, the annual Startup Muster report on the Australian startup sector was released, giving investors, founders and policy makers a valuable snapshot of a vibrant sector of the economy.

The 2016 report had 2711 responses to the online survey which the researchers whittled down to 685 startup founders, 239 potential founders and 474 startup supporters.

Compared to the previous years, the replies are an increase from the 602 in the 2015 survey and 385 the year before. It shows how the Australian scene is growing and evolving.

Still a boys club

A key finding from the 2016 Startup Muster report is the changing gender composition of a group that, quite rightly, has been criticised for being too much of a ‘boys club’. This year’s survey found 24.6% of founder respondents were female, up from 17.4 and 16.1 in the previous two years.

One area where Australia’s startup community does boast diversity is in its industry composition with 17% of the country’s startups in 2016 being focused on the most popular category of Fintech. Notably that sector came in at seventh in 2015.

2015 2016
Marketing Fintech
Content/Media Retail
Retail Content/Media
Big Data Internet of Things
Health Education
Education Marketing
Fintech Social media

Also notable in that list was the disconnect between startups and investors. While 17% of Australian startup founders were focused on Fintech, 42% of investors were. The area most of interest to investors was medical technology (47%) with the Internet of Things second (43%).

Over the next few years it will be interesting to see how investment fashions change, in the UK the bottom seems to have fallen out of the fintech boom while global investments seem to have increased. It’s likely Australia will follow a similar pattern to the wider global trends.

Sydney’s decline

Another interesting shift is the balance between cities and states with New South Wales and Sydney remaining dominant but its position slowly falling,

2015 2016
outside capital cities n/a 23.1
NSW 44 40.9
Vic 17 18.8
Qld 16.5 19.3
WA 8.9 7.3
SA 2.9 6.3
Tas 0.6 2.3
ACT 6.4 6.2

The fall in Western Australia is probably due to the state’s economic collapse in the face of the dying mining boom – many of WA’s skilled and affluent workers are moving out rather than struggling with a declining economy.

Efforts by the Victorian and Queensland governments to promote their startup sectors seem to have had some success although the real winner is South Australia, something underscored by US incubator TechStars’ recent launch in Adelaide.

The big question though is how attractive Australia is as a location for startups and investment capital.

Funding woes

In the 2016 Compass Global Startup Ecosystem Ranking report, Sydney fell four points from the 2012 survey to 16th while Melbourne fell out of the top twenty city rankings.

Due to its position as the second lowest on the Growth Index within the top 20, and its comparably weak statistics around Performance, Funding, and Market, Sydney now ranks #16 (down from #12 in 2012).

Compass’ findings show a critical problem for the Australian sector, regardless of its location, industry or founders’ gender – the lack of later stage investment funds.

That lack of funding means Australian startup founders are particularly sensitive to money issues with Startup Muster finding the most common hindrance to people launching startups is life circumstances requiring a stable income. In a high cost society, the need for a regular salary isn’t surprising.

Startup Muster’s 2016 report is a very useful snapshot of the state of Australia’s tech startup community. It serves as a good guide to what business founders, investors and policy makers should be considering.

Jan 312017
 
Will the US Jobs act create American employment and is it relevant to Australia

When the Obama administration approved the US JOBS Act in 2012 it was almost certain the crowdfunding aspects would attract charatans looking to separate gullible investors from their money.

And so it has turned out, with the New York Times reporting how some crowdfunding sites are worried by the poor quality of startups touting for funds on some platforms.

The Times piece follows the story of Ryan Feit, the founder of New York’s Seedinvest who tells how he has rejected substandard proposals only to have seen them embraced by other crowdfunding platforms with often terrible results for investors.

One of the early companies he rejected was shut down by regulators — who labeled it a fraud — after it raised $5 million from investors. And Mr. Feit expects it won’t be the last.

That fraudsters would be attracted to crowdfunding sites is unsurprising and with regulators still working out how to manage investor protection the field is still very much ‘buyer beware.’

High valuations are also an investor warning sign.

Mr. Feit has been particularly worried about companies that have assigned themselves sky-high valuations that will make it hard for investors to ever make their money back. In several cases, companies that he rejected because of their high valuations have shown up on other sites with the same valuations

The unicorn mania of recent years is the cause of this focus on high valuations and is strange for investors as those richly priced stakes are not in their interests or those of employees taking equity in the business. If anything, a ridiculous market valuation should be the biggest warning of all to potential stakeholders.

Ultimately though it may be that crowdfunding equity isn’t about taking a stake in a business but more showing one’s support for a venture suggests, Nick Tommarello, the co-founder of Wefunder.

Mr. Tommarello also noted that many small-time investors so far were viewing their investments more as donations to businesses they like, rather than as investments that will make money.

As JOBS Act equity crowdfunding campaigns are limited to a million dollars each, being the modern equivalent of the ‘friends, families and fools’ may be the future of these capital channels. Hopefully there won’t be too many fools.

Dec 132016
 
Does the digital divide really exist

Earlier this year, Telstra released the Digital Inclusion Index along with its report on measuring Australia’s digital divide.

Last week in Sydney the company hosted a half day conference to look at the ramifications of the 2016 report.

Overall the report was good news with most indicators showing improvements although the gap between the connected and the most disadvantaged has widened since the first index was compiled in 2014.

In general, wealthier, younger, more educated, and urban Australians enjoy much greater inclusion. All over the country, digital inclusion rates are clearly influenced by differences in income, educational attainment, and the geography of socioeconomic disadvantage. And over time, some Australian communities are falling further behind.

The one factor the survey found that is declining nationally is affordability which the authors put down to Australians’ increasing reliance on the internet.

The Affordability measure is the only dimension to have registered a decline since 2014, but this outcome does not simply reflect rising costs. In fact, internet services are becoming comparatively less expensive – but at the same time, Australians are spending more on them.

Sadly affordability isn’t going to improve should the government’s proposed broadband levy of seven dollars a month become reality to subsidise rural users.

That such a levy would be proposed by a government that was opposed to a National Broadband Network and to ‘Big New Taxes’ while in opposition is an irony left for Australian political historians to discuss but it shows how comprehensively the NBN project has failed.

Even sadder is the NBN  isn’t delivering for businesses as it increasingly becomes apparent the network being built will struggle to deliver 21st Century services to most of the nation.

That businesses are struggling to connect emphasises just how serious the digital divide is becoming for the economy – as supply chains in every industry become increasingly globalised regions that aren’t connected risk being isolated from their markets.

Policy makers have to consider the costs of those communities and groups being isolated from the modern economy. If we are going to be serious about building a twenty-first century society then we have to consider how disadvantaged groups and regions access global networks as well as making sure they have the skills to benefit from these technologies.

Mapping the areas of the disadvantage is a good first step but we have to look at how we address the segments of our society that are being left behind.

Nov 042016
 

Friday was a bad day for former startup darlings FitBit and GoPro with both companies disappointing investors.

GoPro, whose cameras for a while defined a new wave of adventure videos, announced a loss of $104 million dollars on the back of production issues and further disillusioned stockholders with a forecast of further poor sales in the upcoming holiday season.

Those shareholders have many reasons to be disillusioned with the camera maker’s shares reaching $98 two years ago after floating at $24. Today they are sitting at $11.

FitBit shareholders have suffered similarly, with the fitness band’s shares falling to eight dollars after listing at $20 almost two years ago. Their announcement of further problems on Friday saw the stock price dropping thirty percent on the day.

It may be easy to scorn investors in hindsight, but both companies were emblematic of a new generation of wearable technology and much of their problems today owes as much to them trying to stay ahead of the curve as it does from smartphones developing most of their products’ functionality.

The travails of FitBit and GoPro are typical of a time when new technology is changing business. Some companies  shine brightly then fade while others have a rocky road to success. We’ll have to wait and see if FitBit and GoPro survive.

Nov 022016
 

A year back this blog asked if Chattanooga’s experience shows how city infrastructure can drive private sector investment.

“The Gig”, as Chattanooga’s civic leaders have branded the city’s broadband rollout, came about because the city decided to treat internet services as a utility like water and roads. Vice Motherboard reports how this has reaped dividends for the town.

As Vice’s Jason Koebler describes, Chattanooga’s unemployment rate has halved since the depth of the Great Recession and in 2014 was listed as having the third highest wage growth among the United States’ mid-sized cities.

There are downsides though, Koebler warns, and one point is that having good broadband on its own isn’t a sure fire bet.

“Like the presence of well-paved roads, good internet access doesn’t guarantee that a city will be successful,” he writes. “But the lack of it guarantees that a community will get left behind as the economy increasingly demands that companies compete not just with their neighbors next door, but with the entire world.”

The advantage Chattanooga had though was its electricity company was owned by the city which meant a major part of the existing infrastructure was already in public hands and made it relatively easier and cheaper to roll out the network.

What Chattanooga does show is a well planned and structured fibre roll out can be done, it is easy or cheap and takes sensible planning. The latter is something other broadband projects can learn from.

Oct 082016
 

This is the first of four stories I did for The Australian on why entrepreneurs are making their way to the United States’ Bay Area. 

A combination of accessible capital, a huge market and a collaborative culture are why startup founders are making their way across the Pacific to Silicon Valley and San Francisco.

Despite their government’s ideas boom and an easier funding climate, Australia’s startups still see San Francisco and Silicon Valley as being the promised land. In this four part series we spoke to Aussie entrepreneurs about why they’ve made the move across the Pacific Ocean.

In a noisy coffee shop just off San Francisco’s Market Street, PixC founder Holly Cardew explains why she moved to the city. “It’s a place you fall in love with straight away – it’s the people and the attitude,” says Cardew. “You can do anything, people don’t look at you as if you’re crazy if you want to do something big.”

Wider horizons

Cardew made the relocation to San Francisco to find funding for Pixc, a photo editing service that in 2014 was one of the first group of startups accepted into Telstra’s Muru-D accelerator program. In moving to the US she found American investors have far wider horizons than Sydney’s business community.

“Investors ask ‘what’s next?’” Cardew enthused, “in Australia, you don’t even think about that. Americans tend to think a lot bigger. Australians aren’t trained to think about it.” Another aspect Cardew highlights about the Bay Area business culture is how individuals are always happy to help out, “people always ask ‘how can I help’ she says.

One of those credited by Cardew and by many of the people interviewed for this is Temando founder Carl Hartmann. In an archetypal open plan shared office in San Francisco’s Financial District Harmann explains why he’s quick to help, “I’m here today because people who were kind enough to pay it forward.”

Being there

Temando, a logistics service founded in Brisbane, was started to address the difficulties retailers had in fulfilling customers orders across Australia. Hartmann moved to the United States at the beginning of 2015 to access North American customers and to tap local capital markets. “When you talk to the SV funds it’s very hard to raise money if you aren’t here,” he says. “In Silicon Valley it’s where the action is. If you’re not here you are out of sight and out of mind.”

“It’s difficult to build those sort of relationships from the other side of the world. When you’re here, things can move along quickly because it’s easy to collaborate on things. It’s easier to work face to face. For us it makes sense to be here,” Hartmann says. “There’s a unique energy where everyone has come from all over the world.”

Jack Gonzales of location mapping service MapJam is an example of how fast things can move for companies in the Bay Area. “Last year we were approached by some of the big players who asked if we had our own map tiles,” he recalls. “We realised we had an opportunity.”

Gonzales was speaking at the somewhat chaotic San Francisco campus of 500 Startups across from the city’s Moscone Convention Center. Mapjam was accepted onto the prestigious startup investment and acceleration program last year.

A goldmine in your backyard

“You have a goldmine in your local backyard and you have to capitalise on that. Sometimes it’s really spontaneous, ‘hey can you guys come in on Friday?’ You can’t do that when you’re overseas,” Gonzales says. “Our main customers are here and I really want to conquer the backyard before I conquer the globe, just within walking distance from here there are thirty major players.”

Australia does have some advantages for startups, particularly in labor costs for skilled developers. “It’s three times more expensive to employ staff in the Bay Area,” says Affinity Live’s Geoff McQueen in explaining why he’s kept the company’s technical team in the firm’s home town of Wollongong

McQueen, who moved to San Francisco in 2011 to seek funding for his venture believes “Australia is a good place to do a minimum viable product or proof of concept” and warns budding entrepreneurs to have more “than just just a PowerPoint pitch” when they decide to make a permanent move.

In McQueen’s view it’s important to at least visit the Bay Area early in the process of developing a business. “Come over as soon as you can – even if you only have a light idea,” he says. “Anchor your visit around a conference, whatever is relevant to your target industry.”

Achieving your aims

Despite not finding gold on San Francisco’s grubby streets, most of the entrepreneurs The Australian interviewed were all happy they’d achieved their aims in moving to the US which vary from easier funding availability, access to bigger markets and a more vibrant ecosystem than those in Sydney, Melbourne or the smaller centres.

Ultimately though everyone mentions the supportive nature of the Bay Area’s startup culture, “people ask what can I help you with,” says Pixc’s Cardew. “You can do anything, people don’t look at you as if you’re crazy if you want to do something big.”