Paul Wallbank – Brilliant Communications

Tag: investment

  • Uber’s grand experiment

    Uber’s grand experiment

    Yesterday reports emerged that the icon of the disruptive economy, ride sharing service Uber, lost 1.2 billion dollars in first six months of this year.

    Those losses show disruption doesn’t come cheap, although settling the damaging and costly battle with China’s Didi Chuxing will help the company’s cash burn.

    Despite on track to lose at least two billion dollars this year, the company still has a substantial war chest having raised $8.7 billion dollars in debt and equity raisings over the last eighteen months.

    While impressive, that war chest will only last four year at current rates and, given Uber’s already sky high 60 billion dollar valuation and the increasingly hostile Silicon Valley fund raising environment, it will be a relief to investors that the China battle appears settled.

    There remains though an ongoing weakness in Uber’s business however with the company reportedly spending hundreds of millions a year in subsidies to drivers in key markets. How sustainable their business is remains to be seen.

    In many respects Uber is following the Amazon example of beating down competitors by selling products at deep losses thanks to its access to capital and investors’ tolerance for building marketshare.

    As we’ve seen with Amazon, that tactic has been wonderfully effective both in retail and in providing cloud services. For customers and the economy though, the reduced choices in the marketplace may end up not being in their interests.

    Uber is an interesting experiment in how far the Amazon model can be pushed, for cities and states dealing with a deeply disrupted taxi and city transport network the results of that experiment may be telling.

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  • Spreading the tech industry’s footprint

    Spreading the tech industry’s footprint

    Just how broad is the US tech industry? It’s tempting to think that most of the American tech sector is concentrated in San Francisco Bay Area with some offshoots in Seattle and on the East Coast but as this New York Times piece describes, the country has a range of high-tech industry clusters.

    Like Silicon Valley itself many of those clusters exist because of other industries, research facilities or companies – Seattle being home to Boeing, Microsoft and Amazon being an example.

    Another example of how other industries have influenced the development of industry clusters is shown in the example of Philadelphia.

    I hadn’t thought have Philadelphia as having a tech sector until I spoke with Australian tech company Nuix about one of their key North American offices being in the Philadelphia suburb of Conshohocken.

    When I observed that Philadelphia wasn’t the obvious place to set up, Nuix’s managers pointed out how the city’s pharmaceutical, medical technology and telecommunications provide a deep talent pool for tech companies along with the city’s location between New York and Washington DC being an advantage as well.

    Philadelphia’s civic leaders have contributed to it with their Startup Philly program that offers services and incentives ranging from networking events through to a seed investment program.

    VeryApt CEO Ashrit Kamireddi, one of the recipients of a Startup PHL angel round, describes the pros and cons of the city investment program and points out it was the factor in setting up their business there.

    Prior to raising a $270,000 angel round led by StartUp PHL, my two cofounders and I had just graduated from our respective grad programs and had placed 3rd in Wharton’s Business Plan Competition. We could have settled our company anywhere, with New York and San Francisco being the obvious choices. For a startup, the initial round of funding is where geography is most critical. Most angels don’t want to invest outside of their backyard, which explains the natural tendency for startups to relocate where there is the most capital.

    Kamireddi’s point about capital is critical, for tech startups finding funding is probably the most important factor in where the company is based.

    Funding though isn’t the only aspect and for established companies, particularly those in the Bay Area struggling with high costs which is what the New York Times article focuses on in its example of Phoenix, Arizona.

    The spread of the US’s tech sector shows the country’s industrial depth and strength, it also shows how other factors affect the spread of technology businesses.

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  • The moment Australia’s innovation dreams died

    The moment Australia’s innovation dreams died

    It started so well but has ended in a whimper. I’ve just filed a story for Diginomica on how Australian’s Innovation Agenda died, strangled by the nation’s complacency.

    While writing it, I found the moment Prime Minister Malcolm Turnbull’s credibility evaporated. At a media stunt in suburban Sydney, Turnbull and his treasurer Scott Morrison visited the Mignacca family who own two speculative properties and had just bought another for their one year old daughter.

    That stunt illustrated everything that is wrong about modern Australia’s investment and taxation policies. The Mignacca’s could be improving their skills and education, they could be setting up a business to provide the jobs and growth that was the cornerstone of Turnbull’s re-election campaign or they could be developing innovative new products for their industries.

    Instead they are speculating on property – and borrowing heavily to do it.

    The Mignacca’s are doing nothing wrong and are responding rationally to the incentives in Australia’s tax system as well as doing exactly what their peer and parents did, speculating on property to secure their retirement.

    Not that this strategy is without risk, like 85% of the Australian workforce both of the Mignacca’s jobs are in domestically facing service industries and in the face of an economic downturn the young couple could find their properties falling in price at the very time they can’t afford to keep them.

    In ditching the Innovation Statement and adopting the comfortable rhetoric of his predecessors, Turnbull betrayed the Mignaccas, Australia’s economy and his own stated view about the nation’s property addiction.

    Moreover, he killed any credibility he had in being able to recast Australia’s economic future.

    One suspects history won’t be kind on Malcolm Turnbull and the day he travelled to the Mignacca’s home will go down as the moment he lost the future.

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  • Creating alternatives to the NASDAQ

    Creating alternatives to the NASDAQ

    Does it really matter what stock market a company lists on? In my interview with Nuix CEO, Eddie Sheehy for the Australian Financial Review, the question arose about where the company will list for its expected IPO next year.

    Sheehy’s response was clear, “I suspect we’d get just as good a float out of Australia now as we would anywhere else. In fact better, because I think our shareholders are better known, respected and trusted, there’s nothing that I’ve seen in London or Nasdaq that makes me believe we’d get a better outing.”

    Until recently most tech startups aspired to listing on the US NASDAQ exchange and the reasons were compelling as the bourse has a strong technology focus meaning deeper pools of funds, more liquidity along with a community of investors and analysts who had a strong understanding of technology stocks.

    The case for other exchanges

    Now other exchanges are making their case for tech companies listing with them. The London Stock Exchange making a strong argument for prospective IPOs. Singapore, Sydney and many others have similar pitches for the business.

    The problem in those exchanges is the lack of depth in the marketplace. Having a small selection of tech companies listed means limited focus from investors and analysts, it also risks having one or two successful companies dominating the index, as has happened with Xero’s listing on the New Zealand Exchange.

    Xero also illustrates another problem with a listing on an exchange not familiar with the peculiarities of tech stocks at the company’s Sydney AGM a few weeks ago where an investor asked ‘when are you guys going to make a profit?’

    Rod Drury, Xero’s CEO, was able to deflect the question but it showed how companies listed on exchanges where the the high growth, low yield model of tech startups are unusual. On the Australian exchange, this problem is exacerbated by the investor base being dominated by big, dumb institutions.

    Changing perspectives

    Nuix, among Xero and a host of other tech companies, are slowly changing the perspectives of those investors but the focus on yield and safety from both retail and institutional investors will remain an obstacle for ventures launching in more conservative jurisdictions.

    Other factors are the stability, legal and taxation consideration of those jurisdictions. If stockholders are facing barriers realising their investors or the the domicile puts companies at a disadvantage then that country’s stock market won’t be preferred.

    Ultimately though a company’s listing is about access to capital and liquidity. If companies like Xero and Nuix can get both at a reasonable cost by listing on the Australian, Singaporean or London markets, then that’s a choice for their boards.

    It’s hard though to see the NASDAQ being knocked off its perch for moment, although it the US tech bubble does pop things may change.

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  • The challenges of an open organisation

    The challenges of an open organisation

    “We moved into a house we couldn’t afford” writes Buffer founder and CEO Joel Gascoigne on his company’s decision to fire ten of their 94 staff as revenues miss targets and the venture’s cash burn accelerates.

    A few years ago we wrote about Gascoigne’s commitment to being an open company and his post today is a brutal, but honest, reflection of that.

    Buffer’s problem is one familiar to many business owners when revenue projections aren’t being met and the tough reality of making unexpected cuts becomes apparent.

    Making Buffer even more unusual among tech and social media startups is how the company doesn’t depend up venture capital funding – an advantage for its owners but also a downside in situations like this where being able to raise more money for equity would give the business room to move.

    At present however companies following the VC model are in trouble as they are finding investors aren’t so willing to write cheques to loss making ventures unless there’s a clear path to profits.

    That reluctance to fund businesses is going to see more layoffs for companies dependent upon VC funding, some startups will fail because of it. The really fascinating part is how many of the tech unicorns will be amongst the failed business.

    One hopes though Buffer won’t be among the casualties, Gascoigne and his team deserve to be rewarded for their candour.

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