Paul Wallbank – Brilliant Communications

Tag: venture capital

  • 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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  • 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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  • Should Australia pass a jobs act?

    Should Australia pass a jobs act?

    Last week the US President signed the Jumpstart Our Business Startups (JOBS) Act into law.

    The US law seeks to make funding easier for new businesses by lifting the burden of regulations like the Sarbannes Oxley Act (SOX) and various other financial rules.

    One of the main planks of the reforms is it changes shareholder thresholds, for instance allowing 2,000 investors rather than 500 maximum before it has to go public, and allows companies to advertise their shares subject to certain restrictions.

    Whether it achieves the stated aim of allowing new innovative businesses to raise funds or triggers a new generation of “boiler rooms” and investor fraud remains to be seen but it begs the question of should Australia pass a jobs act.

    The funding crisis

    There is no doubt Australia has a business funding crisis. Before the global financial crisis of 2008, it was difficult for smaller business to access finance.

    In the aftermath of the GFC, it became even harder for businesses to raise funds as banks withdrew from the small business sector, increased their lending rates and tightened criteria.

    While this situation has eased somewhat, partly due to the entrance of new angel and VC investment funds, financing of startup and small business is patchy and still tough.

    An Australian Jobs Act would make it easier for business to raise funds and well crafted one might encourage both self managed and public superannuation funds to allocate some of their investments into the startup and innovation sectors.

    A Scammer’s dream?

    One of the big criticisms is that it reduces investor protections; while it restricts investors with less than $100,000 in annual income from punting more than 5% of their income, it’s quite clear in a full blown mania the Jobs Act will enable plenty of shoeshine boys and self funded retirees will do their life savings.

    The question of course is how well the existing regulations protect investors or the community given the financial disastersof 2008.

    Despite tough rules like SOX and the Basel Agreements, massive institutionalised fraud occurred and it’s surprising there have been no reforms in these rules given the huge and unprecedented costs of rectifying the problems.

    In an Australian context, it’s clear local regulations aren’t working when thousands of investors are defrauded by their financial advisors in financial planner led scams like Westpoint. So reform is due.

    While it’s clear the legislation isn’t working, it’s also clear the Australian financial planning industry doesn’t have the skills or ethics to advise clients should a local Jobs Act be passed.

    Perhaps we should be accepting there is risk in investing and an Australian Jobs Act could help by simplifying business rules and improving transparency in accounts rather than bogging business and investors down in masses of unread paperwork.

    Is the US experience valid?

    Looking at the US Jobs Act it appears the Silicon Valley insiders are finding ways to extend their business models, whether this is successful creating new American jobs or just enriching the good folk of Sand Hill Road will pan out in the next few years.

    For Australia it’s important we reform our laws to make business and innovation easier though we need to be careful we don’t ape the worst aspects of the Silicon Valley business model.

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  • Greater fools and lesser fools

    Greater fools and lesser fools

    As Groupon struggles to get its public offering to the market and the startup mania continues in the tech sector, it’s worthwhile having a look at what underpins the modern Silicon Valley business model along with it’s limitations and risks for those who want to imitate it or invest in it.

    Distilled to the basics, the aim of the venture capital funded startup is to earn a profitable exit for the founders and investors. While there’s some exceptions – Apple and Google being two of the most notable – most of these businesses are not intended to be profitable or even sustainable, they are intended to be dressed up and sold onto someone else.

    This can be seen in what many of these companies spend investors’ money on; in an example where a startup receives 10 million dollars VC investment, we may see a million spent on developing the product, five million allocated customer acquisition and four million on PR. The numbers may vary, but the proportions indicate the investors’ and management priorities.

    Focussing on PR and customer acquisition is essential to attract buyers, the public relations spend is to place stories in the business media and trade press about the hot new business and spending millions buying in customers backs the narrative of how great this business is. By creating enough hype about a fast growing enterprise, the plan is prospective buyers will come knocking.

    But who buys many of these business? In some cases a company like Microsoft or Google may buy the startup just to get the talents of some smart developers or entrepreneurs, but in many cases it’s fools being parted from their money.

    Greater Fools

    The greater fool model the core tech start up model; two guys set up a business with some basic funding from their immediate circle; the friends, family and other fools. A VC gets involved, makes an investment and markets the company as described above.

    With enough hype, the business comes to the attention of a big corporation whose managers are hypnotised by the growth story and possibly feel threatened by the new industry or have a Fear Of Missing Out on the new hot, sector.

    Eventually the big business buys the little guys for a large sum, meeting the aim of the founders and venture capital investors. The buyer then steadily runs down the acquired business as management finds they don’t understand it and find it a small, irritating distraction from their main business activity.

    While there are hundreds of examples of this in the tech sector, the funny thing is the biggest examples are in the media industry with Time Warner’s purchase of AOL and News Corporation of MySpace.

    Lesser Fools

    As a bubble develops we start seeing the Initial Public Offering arrive and this is where the lesser fools step in.

    The mums and dad, the retiree, German dentists, the investment funds and all the other players of the stock market are offered a slice of the hot new business.

    Usually the results are interesting; the IPO is often underpriced which sees a massive profit for the initial shareholders and underwriters in the first few days then a steady decline in the stock price as the pie in the sky valuations and the realities of the underlying business’ profitability become apparent.

    Steve Blank, a Silicon Valley investor and entrepreneur, put the greater or lesser fool scenario well in a recent article asking Are You The Fool At The Table? Sadly too many small and big investors, along with big corporations, are the fools at the table ignoring Warren Buffet’s advice on avoiding businesses you don’t understand and finding themselves the patsies that the Silicon Valley startup model relies upon.

    The fundamental misunderstanding of the venture capital driven Silicon Valley model of building businesses is dangerous as our governments and investment mangers are seduced by the glamorous, big money deals. It’s also understandable funding from banks and other traditional sources is difficult to find.

    An obsession with this method of growing businesses means that long term ventures with profitable underlying products and services are overlooked as investors flock to the latest shiny startup. That’s a shame and something our economy, and investment portfolios, can’t really afford in volatile times.

    For business owners, the venture capital model might be a good option if your aim is a quick, profitable sale to a fool. If your driving reasons for running a business are something different, then maybe the Silicon Valley way of doing business isn’t for you.

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