Paul Wallbank – Brilliant Communications

Category: Investment

  • Can Singapore become a global VC centre?

    Can Singapore become a global VC centre?

    While Silicon Valley grabs most of the headlines about cool new businesses Singapore has been quietly building its own position in the global venture capital industry.

    SingTel, the city state’s main telco operator, setup their own venture capital fund in 2010 with Singtel Innovate investing between S$100,000 and thirty million in various ventures.

    The strategy from SingTel, which is closely aligned with Singapore’s government, is a very canny one – it allows the telco to move beyond being a “dumb pipe” just providing the phone network and fits into the nation state’s aim to be one of the centres in an increasingly Asian centred global finance system.

    Yesterday SingTel launched a new Australian startup venture, the Optus Innov8 Seed fund which offers investments of up to A$250,000 in new start up businesses in return for equity or other stakes.

    To identify the right investments SingTel are partnering with various start up groups and incubators in Sydney and Melbourne which is an interesting way to filter out unsuitable businesses.

    Being funded by a telco, the Optus Innov8 program is naturally focused on the technologies that are going to help their business in an evolving market, the areas they are currently looking at are mobility solutions and digital convergence.

    For Singtel and Optus this is a long term investment as equity stakes in new technologies will position the business well as their industry evolves and margins come under pressure in their core telco market.

    To businesses looking for investments, the Innov8 program is a welcome addition to the funding landscape but Singtel also offer access to Asian markets with operations in India, Indonesia, the Philippines, Thailand, Pakistan and Bangladesh.

    Edgar Hardless, the CEO of SingTel Innov8 says “if you’re looking at going into the Indian market, we can help with introductions. Same with any of our other markets”.

    Those introductions are useful but probably more important is the market intelligence that a partner like SingTel can bring on board. Understanding foreign business conditions is a great advantage for a foreign venture.

    Asian markets can be tough, particularly for Australians who have been bought up with a US centric view of the world, but there are plenty of success stories. There is a successful group of entrepreneurs catering to the massive Indonesian market while companies like Dealize have moved their head office to Hong Kong.

    Dealize was part of the Pollenizer incubator which is one of Innov8’s partners. At the launch, Phil Morle of Pollenizer pointed out that his business has set up a Singapore office to take advantage of the favorable investment conditions there.

    While Innov8’s program is relatively small, it’s a much needed addition to Australia’s start up and venture capital scene and will help some new businesses in the app and mobile space.

    Hopefully a few other corporations are looking at SingTel’s lead and thinking how they can tap into these new industries that may disrupt their own.

    For Singapore, the city state has always had a number of advantages for the finance industry. By expending into new financing new sectors they are securing their own future in the 21st Century.

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  • Looking at the wrong curve

    Looking at the wrong curve

    “We don’t understand it, there’s a property shortage but prices are going down,” bleats the property expert in a recent interview.

    Property booms are always excused with claims of “shortages”. The US, Ireland and the UK in recent years property markets all collapsed despite business and political leaders claiming there was a “property shortage”.

    The shortage meme happens because the property spruikers, economists and finance writers focus on the wrong curve – they look at the supply curve and assume prices are going up because there isn’t enough property to go around.

    What drives speculative booms is easy credit – demand driven by access to money drives speculation, not supply shortages.

    Australia’s long term property boom which started in the late 1960s and went onto steroids in the late 1990s has been driven by access to credit. Banks were prepared to lend to property buyers, who were increasingly speculators, and government policies favoured those speculating on property over investing or building businesses.

    The crisis of 2008 was the end of the easy credit era and the Australian property speculation boom is over. For the policy makers, politicians and economists the basis of the 1980s corporatist ideology is crumbling around them.

    No ideologue lets go of their beliefs easily – that’s why Western governments who bought into the corporatist worldview are pumping trillions of dollars into supporting zombie banks and releasing constant stimulus packages to prop up the property market.

    Like the communists of the 1970s, today’s corporatists are looking at choosing the statistics that suit their ideological views.

    To support their beliefs they look at the wrong curve and then wonder why the world isn’t working as they thought it would.

    Times have changed. Have you?

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  • Can Sydney become a smart city?

    Can Sydney become a smart city?

    How does a city become smart? That seems to be the question of the moment as countries and cities around the world try to figure out how to catch a little bit of Silicon Valley’s magic.

    As part of the 2012 City Talks series, the City of Sydney hosted a discussion on how the city can become a smart city;

    Sydney is bursting with talented, creative and forward-thinking people. How can we harness the energy of government, education, businesses, media, and creative thinkers to create space for innovation?

    While it’s questionable that a “creative space for innovation” is a worthy objective – albeit laden with buzzwords – it’s certainly true that Sydney, along with other Australian cities, has the components to be a entrepreneurial centre, the question is how does the city harness the various talents across the different sector.

    Working to advantages

    Rather than aping Silicon Valley, New York or Ireland all cities should be exploiting their natural advantages. Fast Company Magazine recently looked at how Oklahoma City has advantages over its bigger cousins in New York and California.

    For Sydney, and Melbourne, those strengths include an educated, multi-cultural workforce with first world legal systems in a similar time zone to the world’s major growth markets.

    One of the tragedies in Australia’s marketing over the last twenty five years has been the failure to mention the ethnic diversity of the nation. This is huge competitive advantage that is barely being discussed.

    What can governments do?

    At the Sydney City Talks event, Lord Mayor Clover Moore said that creating a smart city requires “the same incentive to be given to innovators and creatives as is given to property investors and mining companies.”

    That change requires state and Federal governments to change laws and businesses, particularly banks, to pick up on those price and policy signals.

    Education too needs reform although this needs real consultation or we’ll end falling for short term fads or copying the damaging anti-teacher jihad that has infected the US.

    A welcome change for many Australian innovators would be changes in government procurement policies as currently all levels of government prefer to deal with the local offices of large multinationals. As the Queensland Health Department debacle shows, these organisations are often less competent than local providers.

    Making those changes though will require major reforms to policies and laws, something that neither major Australian political party at any level has the courage or vision to do.

    That the NSW Digital Action Plan is now in its thirty-first draft speaks volumes about the inertia among the city’s, state’s and country’s political and business leaders.

    Ditch the Silicon

    Probably the first failure of imagination is the “silicon” tag – US entrepreneur Brad Feld skewers this nicely in his blog post on The Tragedy Of Calling Things Silicon.

    Sydney has already has a group called “Silicon Beach” which has spread out to Melbourne and the Gold Coast and it’s interesting that both Google Australia’s CEO and Engineering head want to co-opt the name.

    On of the suggestions was “Silicon Banana” a tag which brings to mind the phrase “kill me now please?” to anyone already uncomfortable with the ‘Silicon’ label.

    The “Silicon Banana” idea comes from the curved shape of Sydney’s ‘digital heartland’ which curves from Darling Island to the west of the city and curves around the edge of the city centre through Surry Hills across to the film and television facilities at Fox Studios.

    Describing Sydney’s centre of innovation as lying within the ‘banana’ illustrates the lack of thinking outside the current app and web mania. It also neglects the bulk of Sydney, particularly those parts of the Western Suburbs where languages such as Mandarin, Cantonese, Korean, Vietnamese, Arabic or Hindi are spoken.

    Once again we neglect those assets because they aren’t white, Anglo or living in the prettier parts of the city.

    Does it have to be Sydney?

    We should keep in mind that the Silicon Valleys of the past haven’t been the biggest cities – Silicon Valley itself is barely a city and San Francisco is not one of the US’ biggest cities.

    It’s quite possible that an Australian centre of innovation could be any one of dozens of smaller towns such as Geelong, Wagga or Cairns.

    The problem in Australia is, once again, property prices. Compared to the US or Europe, housing and office rents aren’t substantially cheaper outside the big cities unless you’re prepared to move to seriously blighted parts of the country.

    Spinning the wheels

    Probably the most disappointing thing of the ‘smart city’ discussion is just how bogged down we’ve become – there was little in the City Talk that wasn’t being spoken about five, or even ten, years ago. Things have not moved on.

    Creating a smart city isn’t about picking winners among industries, suburbs or groups. To really be smart we have to give the opportunities for clever people to succeed.

    Simply jumping onto today’s technology fad or mindlessly aping Silicon Valley is to squander our advantages and not learn from the mistakes of others.

    The real worry though is just how little progress is being made in seizing today’s opportunities. It doesn’t bode well for tomorrow’s.

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  • Too much money

    Too much money

    Having too little money is the problem for most businesses, for a few though the opposite is the case. Overcapitalisation can be as fatal to a venture as being starved of funds.

    In the dot com boom of the late 1990s we saw young companies being swamped with too much money which was squandered on flashy offices, comfortable chairs and expensive executive diversions.

    Most of the businesses failed as staff didn’t have to worry about gaining and retaining customers while investors didn’t put pressure on managers or owners to perform.

    The hospitality industry is particularly prone to this, with cafe and restaurant owners plunging hundred of thousands – sometimes millions – into expensive fit outs and ridiculously expensive kitchen equipment.

    Most of these overcapitalised outlets fail because the owners have spent too much on setting up the business and not enough on staffing or providing for ongoing costs.

    We’ve seen in the past few years many celebrity chefs teaming up with flush investors to build expensive restaurants with these ventures rarely ending well.

    The story of Justin North’s chain of restaurants going into administration is a classic case of this, as the Australian Financial Review describes it;

    The Norths, both in their mid-30s, don’t have a wealthy financial backer. They poured in all the cash they had and sold kitchen equipment and other assets to finance the venture.

    Westfield kicked in an undisclosed amount.

    Ostrich-skin leather tabletops, hand-printed wallpaper, and a huge custom-designed Fagor induction stove imported from Spain (the first of its kind in Australia) contributed to the huge fit-out cost.

    In a statement to employees, the North Group said its “businesses are currently in financial difficulty”.

    “The administrators are now in control of the group’s assets and affairs and intend to trade the business in the ordinary course whilst undertaking an urgent review of the financial position and explore various restructuring options,” the statement said.

    For much of the Australian hospitality industry, the Norths’ problems are a glimpse of the future – the success of the Australian and Chinese stimulus packages in keeping their respective nations out of the mire the US and Europe indirectly led to a boom in restaurant spending and investment.

    We saw that boom manifest itself in the opening of pretentious restaurants and the explosion of food blogs as desperate PRs flogged their clients’ venues to the media.

    There’s a lot of journalists and food bloggers who are going to find a welcome improvement in their eating habits as the fine dining market now sorts itself out.

    It’s going to be tough for those who’ve invested too much or the smaller suppliers to those restaurants.

    An area we should be critical of journalists is with headlines like “Restaurant Group Collapses“. A business going into administration is not “a collapse”, it’s in fact the opposite where the shareholders, directors or creditors seek to find an orderly way out of trading difficulties.

    Putting out the word that a business has “collapsed” makes the task of salvaging the enterprise much harder for those working to fix the problems.

    The Norths have taken the honourable and sensible option. While putting a business into administration can be a brutal process – particularly for the shareholders, investors and smaller creditors – it at least shows the group’s founders have acknowledged the problems in their businesses and are looking to fix them.

    All too often, we ignore the fact our businesses are going broke and don’t take the action needed to save them. Doing it early means less pain for everyone.

    Having too much money is often worse than having too little money, although most of us would love to be in the position of having big money backing our ventures.

    We often talk about learning from failure and not stigmatising entrepreneurs who’ve given it a go and failed, how we treat Justin and Georgia North will be a good measure of whether we are really an entrepreneurial culture.

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  • Raising venture capital is not the measure of success

    Raising venture capital is not the measure of success

    “Those guys are successful, they’ve raised half a million from investors,” one startup commentator recently said about a business.

    Is raising money the benchmark of business success? Surely getting investors on board is part of the journey, not the destination.

    Having some investors coming on board means others share the founders’ belief their idea is a viable business and it’s a great ego boost for those working hard to bring the product to market.

    That cash also exponentially improves the survival chances of the business – too many promising ventures fail because the founders haven’t enough capital.

    While it’s an important milestone in the growth of a business, raising capital is not the end game. Only minds addled by the Silicon Valley kool-aide believe that.

    In fact, if you’ve set up a business because you hated working for a boss, you might find your new investors are the toughest task masters you’ve ever worked for.

    Good luck.

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