Paul Wallbank – Brilliant Communications

Tag: investment

  • Silicon Valley’s unicorn monoculture

    Silicon Valley’s unicorn monoculture

    What happens in Silicon Valley when your startup doesn’t fit into the current hot ‘unicorn’ categories?

    I recently spoke to one female founder about her business and why she chose to setup on the US East Coast rather than follow the popular path of establishing a San Francisco base. Her answer shows the obsessions Silicon Valley investors have and why the Bay Area model may not be right for all companies.

    Originally we planned to set up in the Bay area. That’s what you do right? So our company’s registered office was in Palo Alto and then I started plans to have three of my staff and myself relocate to San Francisco. I took onboard some Silicon Valley Advisors and this was a pretty horrific experience that taught me a lot. Here is my experience of trying to set up in the Bay Area then not. This is my cautionary tale to other Aussie Start Ups.

    The Valley comes with a certain formula that gets beaten into you. Here’s how it goes:

    A Start Up must:

    • Be in the Bay Area
    • Have had an MVP in market
    • Be an incorporated US company, preferably a Delaware company if you want US VC investment
    • Have a Run Rate (annual revenue) of $3-5million dollars in order to attract investment
    • Not be enterprise software
    • Be a SaaS company like Atlassian with a similar business model
    • Have a product that is inexpensive where clients can self-install and there is no professional services or servicing required

    I found the Silicon Valley Advisors I dealt with to be arrogant, formulaic and could not see potential outside of the standard Unicorn-creating formula. So I realized the Bay Area was not going to be a good fit for My business. Additionally I figured that none of our clients were actually based in the Bay Area and I needed to be near them. As a FinTech company the logical thing was for us to go to where our clients were so that we could constantly listen to them. Listen to their problems, understand their business, build relationships, have them help us figure out what our product should be and pay us

    So we moved to NYC and set up on office in Chelsea. From NYC it takes only a couple of hours to get to Boston, Baltimore, Philadelphia, Columbus, Chicago, even Texas to be with clients.

    Also the investment discussions are much more ‘normal’ and investors are respectful of me as the CEO and Founder and my background and potential to build a significant, revenue led and profitable large software company. They are backing me and value that I am experienced. Not once has age or gender come up. In fact to be fair, probably the opposite. Being a woman over 40 seems to be appealing to East Coast clients and investors.

    The founder’s experience also betrays a herd mentality among the Silicon Valley investors, something that may be a weakness for the industry and the region. It certainly indicates the dominant business model may be very fragile as markets turn against tech unicorns.

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  • Google focuses on the short term

    Google focuses on the short term

    Just over two years ago Google acquired high profile robot developer Boston Robotics, at the time it appeared a major step both the search engine giant  and the industry.

    Today, Bloomberg reports Google are looking at divesting Boston Robotics as the company is not proving to be fit into the company’s other divisions while management sees better revenue prospects in other ventures.

    If the latter is true then the sale marks a shift in Google’s attitude towards long term investments. That may mark a turning point in the company’s development.

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  • Cutting through Australia’s innovation rhetoric

    Cutting through Australia’s innovation rhetoric

    Four months ago, the Australian government launched its innovation agenda with the noble ambition to put the nation “on the right track to becoming a leading innovator.”

    The keenly awaited innovation statement was seen as a defining the new Prime Minister’s agenda after two decades of complacent political leadership. At the launch of the paper Malcolm Turnbull said “our vision is for Australians to be confident, embrace risk, pursue ideas and learn from mistakes, and for investors to back these ideas at an early-stage.”

    One of the early stage investors currently investing in Australia’s startup sector is Brisbane based entrepreneur, and Australian Shark Tank judge, Steve Baxter who spoke to Decoding the New Economy last week about where he sees the strengths and weaknesses in the proposals.

    Beating the rhetoric

    “Competitive threats are far more effective than rhetoric from a Prime Minister,” says Baxter in observing what really drives adoption and change while emphasizing that the announcement is a welcome shift,  “the change in messaging from the government has been very important. It’s having an impact and a future looking message has been fantastic.”

    While Baxter is positive about much of the incentives on offer and the importance of changes to regulations around bankruptcy and treatment of business losses, he flags the the delay in implementing the tax incentives as being a problem.

    Too focused on commercialisation

    Baxter though has been a long standing critic of Australia’s research sector and the emphasis on commercialisation of academic work is in his view one of the Innovation Statement’s major weaknesses, “commercialisation is a concept that we’ve failed at. It’s dead. We’ve put so much money into it, it’s actually embarrassing. We need a new mindset towards it.”

    “there are seven hundred million dollars of a billion going to the research sector. That’s not entrepreneurship. In fact universities and research institutes are the least entrepreneurial organisations you’ll ever come across.”

    “We need more business model innovation, we’re seeing too many people in lab coats with synchrotrons, square kilometre arrays which we have to do,” Baxter states. “What we’re not seeing the Dropboxes and the Instagrams and the Facebooks and the Wayze’s, the cool stuff that doesn’t need a two hundred million dollar building.”

    Thin pipelines

    As an early stage invest Baxter sees the real challenge for Australia lies in encouraging individuals to launch their own ventures, “I don’t think we’ve done enough yet to prove we have an investment problem when it comes to early stage companies,” he says. “I don’t believe we have a lack of capital”.

    For those starting their own ventures, Baxter sees the word ‘innovation’ as being a barrier in itself.
    “The entrepreneurs I back aren’t those who say ‘I’m going to innovate’ but those who say ‘I can see a problem’.”

    While Baxter doesn’t say this, the real challenge lies weaning Australians off property speculation and encouraging investment and risk taking, something that requires major tax and social security reform.

    Sadly, the Turnbull government has abandoned the prospect of any immediate taxation reform and even the Innovation Statement’s more modest agenda is now in doubt as the nation’s febrile Parliament prepares itself for an early election.

    Baxter’s views, and his optimistic but guarded outlook towards the Innovation Statement reflect the opinion of many of those in the Australian investment community, it would be a shame for the country if the current opportunities are lost for short term political maneuvering.

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  • Collapsing unicorns and business basics

    Collapsing unicorns and business basics

    UK e-commerce service Powa Technologies, once valued at £1.8 billion went into receivership after the lead US investor called in the £200 million loans it had made to the business.

    It turns out most of 1200 corporate clients the company had claimed as clients were actually expressions of interest in the service rather than firm orders.

    Powa now has the distinction of being the first of the tech unicorns to go broke – although it’s almost certain 2016 will see many of the companies with private billion dollar valuations join them.

    While the focus on Powa’s demise will be the deceased unicorn aspect, the company’s story illustrates some business basics.

    The key one is that sales only count when the money is banked, all too often cashflows, profits and valuations are inflated by booking income long before it’s received – if ever.

    Another aspect is valuations are not cash in the bank, Powa may have been valued at £1.8 billion but it only had raised £250 million in capital along with a similar amount in loans. This was not enough to keep the business going at what must have been a spectacular burn rate.

    While tech startups have unique aspects, the basics of business remain constant; Cashflow is king and adequate capital is essential. These are aspects managers, investors and employees need to watch closely.

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  • Tough times for startup staffers

    Tough times for startup staffers

    One of the frequently reported things about tech startups is how well they treat their staff. The truth is not always so rosy.

    At Yelp staff get free meals, drinks and snacks but many of them barely earn enough to pay the rent. A now fired staffer wrote an open letter to the company’s CEO describing how tough she found working their call centre on a wage that left her destitute.

    Similarly Buzzfeed reports working conditions at Zenefits, last year’s hottest startup, are more akin to a boiler room than the nice, relaxed offices of places like Google.

     

    While we often portray tech companies as being enlightened workplaces, the truth is they can be as harsh as any other employer. The big question for those working for tech startups though is how long their benefits and jobs will survive as the current funding crunch bites.

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