Paul Wallbank – Brilliant Communications

Tag: investment

  • Rethinking education in a time of a declining middle class

    Rethinking education in a time of a declining middle class

    The role of higher education is changing in the face of technological and economic change as this World Economic Forum article describes.

    Education is one of the keys to staying competitive in an increasingly technology driven society on both a personal and societal level. Individuals and nations that neglect their education investment risk are left behind.

    One of the starkest examples of this are America’s lower middle class and the rise of Donald Trump.

    In an article for The Atlantic, former George W. Bush adviser David Frum, describes how economic uncertainty for America’s relatively unskilled workforce are pushing back against their falling living standards.

    The angriest and most pessimistic people in America are the people we used to call Middle Americans. Middle-class and middle-aged; not rich and not poor; people who are irked when asked to press 1 for English, and who wonder how white male became an accusation rather than a description.

    You can measure their pessimism in polls that ask about their expectations for their lives—and for those of their children. On both counts, whites without a college degree express the bleakest view. You can see the effects of their despair in the new statistics describing horrifying rates of suicide and substance-abuse fatality among this same group, in middle age.

    That these people are supporting Donald Trump – and their counterparts in almost every Western democracy – is not surprising as they losing in the new economic order and the technological changes which are eliminating or devaluing their jobs.

    For governments and communities, the question is how to restore these folks’ fortunes or at least maintain their living standards. With protectionism almost certainly guaranteed to fail, the obvious answer is to give these workers the skills to compete and contribute in the 21st century economy.

    Sadly, most Western governments still locked in a 1980s Reagan/Thatcherite mindset see education as a cost to be reduced rather than an investment in both their communities’ collective wealth and society’s cohesion.

    Education, like the rest of society, is changing. A rethinking of both how it is delivered and its role is essential for nations to be successful in today’s economy.

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  • The victims of unicorns

    The victims of unicorns

    It’s not all good news when a tech company becomes a unicorn reports the New York Times as it often means employees and other ordinary stockholders may be diluted out by later investors holding preferential shares to secure their big bets.

    The danger with these high private valuations is the later investors whose big cheques created the unicorn mythology insist upon preferential shares to protect their stake. Should the company go public or be sold for less than the valuation then it’s the common stock holders who take the greatest hit.

    Good Technology’s sale to BlackBerry is the example cited in the New York Times’ story. The company’s last round of funding valued the business at $1.1 billion but it’s eventual exit was less than half of that.

    As a consequence, the common stockholders lost 90% of their wealth in the company while executives and late stage investors came out with only a slight dip in the preferred shares valuation. The CEO walked away with nearly six million dollars.

    With the last two years investment mania and the clear topping of the market, situations like Good’s are now becoming common. The New York Times points this out in the story.

    The odds that the unicorns will all reap riches if they are sold or go public are slim. Over the past five years, at least 22 companies backed by venture capital sold for the same amount as or less than what they had raised from investors

    For employees in these highly valued startups, those valuations and the risk of losing most of your own equity is a serious concern. Analyst firm CB Insights flagged earlier this week an exodus of talent from overvalued firms with dubious prospects is a great opportunity for the top tier companies.

    While the headline numbers for unicorns are impressive, the reality for employees, founders and early stage investors is an overvaluation is a dangerous place to be.

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  • Building a European Silicon Valley

    Building a European Silicon Valley

    The World Economic Forum asks can Europe build its own Silicon Valley?

    It seems the answer lies in money, investors’ money to be precise, with a lack of VC funds to finance emerging businesses and a lack of acquisition hungry corporates providing high profile experts argues the WEF piece’s author, Keith Breene.

    That appears to be a strong argument although there’s still some strong contenders for European tech hubs with the WEF identifying Munich, Paris and London as being major centres.

    London’s claims are reinforced by the city’s strength in financial technology with KPMG nominating 18 of the world’s top 50 fintech startups being based in the British capital.

    Interestingly, the Belgium town of Leuven which has styled itself as a centre for 3D printing and beer features on the WEF list of European startup hubs as well.

    While it’s unlikely Europe can create a ‘Silicon Valley’ – even the post Cold War US would struggle to do so today – the presence of major centres like London and specialist hubs like Leuven indicates another important aspect of creating a global centre, that of having an existing base of businesses and skills.

    That skillbase isn’t built up overnight, it’s a decades long process of commitment from industry, investors and governments and often as much the result of a series of happy accidents rather than deliberate planning.

    It may well be the question of Europe creating a Silicon Valley isn’t really relevant with the bigger issue being how the continent’s cities and nations put in the conditions to develop long term industrial hubs. Trying to ape today’s successes for a project that will take decades to come to fruition could be a big mistake.

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  • Opening the chequebook. Can you buy a Silicon Valley?

    Opening the chequebook. Can you buy a Silicon Valley?

    How do you build an industrial hub like Silicon Valley? Many cities and regions have tried various tactics, from demolishing entire suburbs to attract corporate headquarters through to spending millions on enticing film productions and countless examples of setting up Digital Hubs.

    An interesting experiment is happening at the moment in the Australian city of Melbourne where the Victorian state government is spending millions on subsidies to businesses, government enterprises and academic research centres to set up in the town.

    One of the Victorian government’s most surprising moves was to poach Sydney’s Sydstart startup conference for a million dollars. Naturally the event will have to be renamed and there’s no word on who will pay for the branding consultant’s time.

    Opening the chequebook

    Having an open chequebook is fine, but in the absence of a broader strategy that ties in educational, financial and other vital factors for building an industrial hub it’s hard to see how spending taxpayers’ funds on adhoc projects is going to create a sustainable local tech sector.

    The National Broadband Network security office subsidy is particularly galling given it’s a payment to a Federal government owned corporation and it’s highly likely the facility would have been based in Melbourne anyway given the organisation’s Network Operating Centre is already in the city.

    Added to the embarrassment of the NBN announcement are the overwrought claims of job creation. While it’s possible a total of 300 building staff might be involved in the construction, the idea the centre will employ 400 IT and telco security staff is surely stretching credibility.

    The failed games industry

    Sadly for Victorian taxpayers this isn’t the first time their government has tried to use their chequebook to attract high tech business. In the late 1990s a similar effort was launched to attract video game developers.

    For a while this worked but ultimately the Victorian games sector declined in the face of a high Australian dollar, a shift in the economics of studio produced games and successful competition from Queensland who built their own subsidised centre on the Gold Coast by offering better incentives that those on offer in Melbourne.

    Both the Queensland and Victorian efforts ultimately failed and today both states have little to show for those subsidies.

    At least though the Victorian government is trying, unlike its property development and coal mining obsessed neighbours in Sydney who are in the process of selling off their Australian Technology Park hub and replacing it with a poorly articulated thought bubble of a technology precinct based out of a disused power station in a transport blackspot.

    Sydney’s failure

    In the process of coming up with these ideas, the New South Wales government managed to alienate the most successful of Sydney’s tech startups, Atlassian who last week floated on the NASDAQ stock market for over four billion US dollars.

    One of the notable things of Atlassian’s story, and that of most other successful Australian tech startups, is how little direct government support features in their development.

    That direct government support like subsidies feature so little in these company’s successes really tells us what really works for governments wanting to develop an ecosystem – providing the environment for skills, capital and distribution networks to develop.

    Without a long term plan it’s hard to see how Victoria’s ‘splashing the cash’ will end up any better than previous efforts with other industries. As Silicon Valley, Israel and the UK have shown, it’s consistent long term investment in the industries and the infrastructure that allows businesses to developed that creates successful industry hubs.

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  • Atlassian and the changing tech investment mindset

    Atlassian and the changing tech investment mindset

    Last week’s successful float of software collaboration tool service Atlassian may mark a number of turning points for the tech industry, both globally and in the company’s home country of Australia.

    Unlike many of the high profile unicorns which have dominated the tech industry headlines in recent times Atlassian is a real, and profitable, business with revenues of 320 million dollars that has grown at over 40% in each of the last three years.

    An even greater difference to the unicorns is Atlassian has raised little in external funding, instead the company was bootstrapped from a $10,000 credit card debt as this BRW profile of the business describes.

    Having a profitable, debt free business not beholden to a small army of investors is distinctly different to the Silicon Valley greater fool model hoping for cashed up sucker to buy their unprofitable, but well publicised, operation out. In fact it appears the greater fools themselves are dropping out of the market.

    Atlassian’s float may well be the marker that investors are looking for more substance in tech companies than just the promise of millions of eyeballs.

    For Aussies the lessons are sharp, Atlassian shifting its corporate functions to the UK last year and now listing on the US stock is a sharp reminder of just how out of touch with the technology sector Australian industry has become.

    Had Atlassian listed on the Australian Securities Exchange at the same capitalisation, it would have been the market’s 38th biggest company sitting between two property companies and one of the few technology listings on the board.

    On the ASX Atlassian would be one of a handful of technology businesses on the banking, mining and property dominated Australian exchange. It was that dominance of old world businesses and local investors’ lack of understanding of technology stocks that saw the company’s co-founder Mike Cannon-Brookes long maintain that Atlassian would never be listed in Australia.

    Another weakness for the Australian markets are local investors’ obsession over yield with businesses large and small paying out dividends at a far greater rate than global equivalents. This makes it hard to retain earnings and invest in new markets and R&D. Basically an Amazon could never exist in Australia.

    For companies looking at following Atlassian’s footsteps the lesson is clear – the Bay Area startup model of chasing investor funding with the hope of finding a greater fool isn’t necessarily the best way to build a business and that bootstrapping a cash flow positive business gives founders greater control and flexibility.

    To Australian entrepreneurs Atlassian’s lesson is to find a worldwide problem to solve and go global immediately. A domestic market focused primarily on property, banking and mining while being obsessed with short term yield isn’t going to be hospitable for local startups.

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