Paul Wallbank – Brilliant Communications

Tag: investment

  • Crowdfunding the energy revolution

    Crowdfunding the energy revolution

    “We have no shortage of investors,” says Tom Nockolds of Sydney community solar farm group Pingala in an Australian Broadcasting Corporation’s report on small business power projects.

    The ABC’s report focuses on Bakers Maison, a suburban Sydney bakery that raised 400,000 dollars to extend its solar solar electricity system to slash its power bills and promises investors a seven percent return on investment.

    Seven percent is very good in these days of low yields so it’s not surprising investors are lining up for projects.

    It’s also an indictment on the modern banking system that smaller businesses like Bakers Maison have to issue debt directly to the market rather than getting a loan, which would have been normal a generation ago but today Australian banks would rather lend to property speculators than productive businesses.

    This isn’t to say such fund raising is without problems as there is a real risk of fraud which Australia’s prescriptive fund raising laws are designed to avoid, even at the cost of stopping genuine investments.

    “We’ve had to duck and weave our way through the regulations to set up this kind of operation,” says Warren Yates of Clear Sky Solar Investments – another volunteer group – about the laws which were developed after the financial scandals of the 1960s mining boom and the 1980s entrepreneur period.

    As a consequence, the ABC story points Australia is lagging jurisdictions like Germany, Denmark and Scotland in developing these schemes.

    With the banking system having left the field of funding growing businesses and responsibility largely falling on volunteers to provide services, reforms encouraging community crowdfunding need to be developed to provide capital to industry and local initiatives.

    That many of the current reforms in this area such as America’s Jobs Act or Australia’s Innovation Agenda focus on a narrow set of industries – specifically the tech startup sector – which means we’re missing most the value in an evolving economy. A bakery, factory or hotel deserves the same investment advantages as the next potential tech unicorn and they could employ just as many people and deliver even more benefits to the broader economy.

    New technologies have always demanded new investment and business rules and we’re seeing those pressures developing today, all of us have to demand regulators and politicians pay attention to the changing needs of our economy.

    With investors clamouring for new opportunities and businesses wanting capital, it would be a tragedy to miss the possibilities of today’s technological, financial and energy revolutions.

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  • Juicing innovation

    Juicing innovation

    Every tech boom has its excesses and it’s hard to go past the Juicero as the most egregious of today’s mania.

    A number of high profile investors, including Google’s venture capital arm, have poured $120 million dollars into the internet connected device that squeezes juice from pre-prepared pouches of pulped fruit and vegetables.

    Bloomberg found the devices don’t a great deal as the juice can be squeezed out of the packs by hand, which is just as well given the microchipped pulp containers can be disabled by the manufacturer.

    While the Juicero aims to be the juicer equivalent of the Keurig coffee capsule, the device’s expense, built in obsolescence and unnecessary waste is emblematic of everything  that’s wrong with the current Silicon Valley culture.

    The fundamental question of any business idea is ‘what problem does this solve?’ It’s hard to think of anything the Juicero fixes.

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  • Bootstrapping to success

    Bootstrapping to success

    One of the downsides of the current tech startup boom is the obsession with investor funding, the race to be a billion dollar ‘unicorn’ like Uber or AirBnB obsesses most of us reporting on this space.

    The paradox is while we gleefully report businesses raising hundreds of millions of dollars at ever increasing valuations, we’re also discussing how the cost of entering industries or launching new companies is collapsing, making it easier to launch a venture than every before.

    Which leads us to good old fashioned ‘bootstrapping’ – funding a business’ growth out of sales.

    A recent story I wrote on Sydney based HR tech company Expr3ss! reminded me of that where owner Carolyne Burns described how she financed her business initially through the sale of her house and has never taken a cent from investors over a decade of profitable operations.

    Bootstrapping is the traditional way generations of business owners and entrepreneurs have funded their ventures and it’s only in recent years with the rise of the tech startup that venture capital or private equity has been seen as investment sources for most small businesses.

    That rise of VC and PE investors though could be partly due to the banks stepping out of their role of financing small businesses as they’ve focused on financial engineering and funding speculators.

    Also driving things in the last decade has been the flood of cheap money that’s washed across the world as governments and central bankers try to stave off deflation.

    Many businesses needing money to fund capital investment or expansion have found it’s become harder to go to banks or traditional investors and that partly explains the rise of VC’s, Private Equity and the range of new online lender and crowdfunding platforms.

    Venture Capital and investor money though never really comes cheap and having raised funds from investors, a founder or business owner’s job becomes as much about managing investor expectations as running the company.

     

    For many business founders, the whole reason for starting their own company was to run their own show. So answering to a bunch of investors defeats the purpose of going on one’s own.

    Carolyne Burns’ story is a reminder that the best, and cheapest, form of business financing is profitable sales. It’s something we should remember in an age that celebrates loss making companies dependent upon indulgent investors.

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  • Government cargo cults and community building

    Government cargo cults and community building

    Following the post on Building Digital Communities a few weeks ago, some friends forwarded me an excellent article from New Zealand tech evangelist Dan Khan on what he learned from from observing the development of Boulder’s tech community.

    Khan’s view is values are at the root of building a startup community, an open and distributed network of people bringing their disparate but relevant skills to a region is what builds an industry cluster.

    Equally it’s about values being aligned so the community reinforces its own strengths and advantages.

    To many, the startup community is not a tangible thing. Instead, it’s an amorphous, ever-changing network of support, knowledge, resources, and relationships which gives those creating ventures, a boost up to the next level when they need it.

    It’s simultaneously a safety net that eases founders down when their ideas fail; and a resounding cheerleader and network of scale for those flying high.

    The New Zealand experience is informative as Wellington’s tech sector explodes on the back of special effects studio, WETA along with Xero and the vibrant startup community based around initiatives like Enspiral. So much so the city is offering free trips to prospective workers.

    Enspiral itself is a good example of grass roots community initiative where a contractor’s collective has grown to 300 strong organisation building connections between Wellington’s creative, tech and businesses groups.

    History is on the side of those building grass roots communities as almost every industrial hub has grown out of motivated individuals harnessing a local region’s advantages to dominate a sector.

    As Steve Blank’s Secret History of Silicon Valley describes, the rise of today’s venture capital tech sector business model came out of a group of driven individuals leveraging the United States’ massive electronics research spending through the mid Twentieth Century along with a boost from tax changes in the late 1970s.

    Silicon Valley’s startup culture owes a lot to government spending and policies but the development of today’s ecosystem took fifty years and many motivated individuals working together.

    Which brings us to to the Victorian state government’s funding the establishment of a 500 Startups outpost in Melbourne. This is part of a sustained campaign to subsidise global tech companies’ setting up their regional offices in the city.

    As part of that campaign the Victorian state government has promised to spend sixty million Australian dollars on building a startup ecosystem in Melbourne, it’s a classic example of top down planning.

    History hasn’t been kind to Victoria in its tech industry subsidies, with the state government spending ten of millions at the beginning of the century to develop region’s gaming industry only to see the sector collapse as a high Australian dollar and soaring costs saw international studios leave and local producers close.

    In 1998, then Victorian Premier Jeff Kennett, triumphantly proclaimed subsidising Netscape’s Australian office would lead to Melbourne becoming a global tech centre. Twenty years later, that game continues.

    500 Startups founder Dave McClure hints at how the outpost will be limited, “Partnering with Melbourne and LaunchVic helps us bring a slice of Silicon Valley to Australia through our startup, investor, and corporate programs.”

    So there’s a strong sense of deja-vu, dare one say even cargo cult thinking, in the weekend’s announcement.

    While bringing a slice of Silicon Valley to Melbourne is nice, it doesn’t build an ecosystem which will take years of patient encouragement of local, motivated individuals. What’s worse, the government intervention threatens to distort the market and stifle the culture of grass roots development Khan identifies as being critical.

    The question for Melbourne’s startup community is how much patience does the government have? The nation’s political culture of announceables, which the current state minister is an enthusiastic participant, doesn’t bode well.

    For the moment, the priority for the Melbourne startup community is to decide if public sector funding should be a critical part of their ecosystem. If government subsidies for foreign businesses are the answer then ensuring bipartisan and long term political support for strategic initiatives should also be close to the top of the list.

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  • Rethinking startup rules

    Rethinking startup rules

    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.

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