I’ve written before about the state of venture capital in Australia, but an article in the Bulletin has gone one giant leap further. According to a cover story by Joshua Gliddon, Aussie Web 2.0 types are packing for Palo Alto to seek venture funding in frustration that the local VCs either don’t get it, or are pushing for unpalatable valuations.
I’m not one to slam journos, but the article smacks of tabloid journalism…Australian entrepreneurs are being forced to leave home in search of …funding.
The poster boy for the piece is Cameron Reilly who set up ThePodcastNetwork 18 months ago – while I’m on record that I firmly believe blog networks are good investment opportunities I do have caveats. According to the article, Cameron’s business has 250,000 listeners, yet after 18 months he is leaving for the US with as little as $5k in his bank account. The sequitur (or non ) is that he has failed to monetise his audience.
I’m amazed that the article does not pick up on excellent Aussie businesses that have bootstrapped themselves to success (Atlassian), or have secured sound angel investment before heading over to the US for further funding (Bluepulse). Nor has Joshua canvassed views from the likes of Netus – a bunch of serial Internet entrepreneurs who are funding Web 2.0 ventures or many others who are funding sound Web 2.0 entities and building their value before they head over to Silicon Valley – voluntarily (as Cameron is quoted as saying, “It makes sense to go to the US. That’s where 65% of our audience is, and that’s where the action is“).
My beef is not that there are some very valid points to the article, it’s that I feel a more balanced view could have been put forward.
For one, I am very focused on this issue and working behind the scenes currently in forming a platform that will put Australia onto the map as a country that punches well above its weight in building global ventures in this space.
For two, I totally agree with Brett Morris from Neo that “…there’s a lack of early-stage invesment capital for risky consumer internet businesses” in Australia. Will this change – you bet, I am already seeing so-called conservative VCs investing their private money in just such businesses. Once we have a few more success stories to point at, there will be more money available for the space. I’m certainly up for the challenge in catalysing this!
I seriously wish Cameron luck on his quest, I understand his frustration and I also extend an offer to guide him through the tricky terrain he is likely to face on Sandhill Road.
Yoick - Hightechwire 
Randal, I was equally frustrated with the article, and in fact was misquoted for it. I spent about 30 minutes on the phone with Joshua talking to him about what work Australian VCs are doing to help Aus companies go global, but my comments were filtered (and in fact MISquoted) to support his story. I still contend that while there is not tons of Australian VC money around (though several $100m funds have just been raised), there are virtually NO examples of Australian companies raising VC money in the US WITHOUT first raising Aus VC money. Bluepulse has not raised VC money. Omnidrive has raised what I’d call institutional Angel money. But there are heaps of Aus -VC backed companies that have raised offshore venture funding — Viator, Sensory Networks, Xelor, Vast Systems, Fultec, Dilythium Networks, etc . etc. It’s just inaccurate to portray the situation in that light.
While I didn’t speak directly with Joshua, my partner, Brett did as you can see from the quote above. What Joshua chose to ignore was Neo Technology Ventures recent investment in Genbook in July 2006–despite us emailing him the press release and Brett discussing the investment with him. Genbook is a startup Web2.0 company with developed technology and only early customer traction. Genbook is certainly an example of an Aus VC supporting a young internet entrepreneur who is passionate about an emerging market opportunity. Joshua’s overall thesis would carry more weight if the companies he cites had actually raised US VC rounds. However, I do agree somewhat that there is a lack of “risky” capital, but I think this is changing right now. The recently raised (and soon to be raised) $100M+ early stage funds in combination with IIF3 will provide a tremendous amount of new capital for innovative new Aus startups.
Randal, just because one or two Aussie Web2.0 companies have raised some money locally, it doesn’t mean that a) they got a comparable valuation to what they would have achieved in the US or that b) the majority of Australian web start-ups aren’t getting ignored by the Australian investors. I have had plenty of Australian funding offers as well but haven’t accepted them as I didn’t like the terms and I could afford to say “no thanks”.
Regarding Mike and Marc’s points above, I suspect not many Aussie companies have jumped straight to the US for funding in the first place. The conventional wisdom is that you raise a small round here and then go to the US. That’s what I’ve tried to do but, as I said, I didn’t like the terms we’ve been offered. If I could have my last 18 months over again, I would have made the move to the US at the outset of TPN and it’s certainly what I’d recommend to any people starting up today. You will do the same amount of work here to raise money that you do in the US. And while Josh doesn’t need me to defend him, the article was about Web2.0 companies, not technology start-ups in general. Mike, how many of the companies you list above are Web2.0?
Cameron, I agree with many of the points Josh pointed out in the article, however I believe a more balanced view is called for – some folk, present company included are pushing hard to grow Aussie global Web 2.0 companies.
Regarding valuatiion – sure if playing the hype can get you a better valaution, go for it, but remember that in the hype zone there is more noise and competition — so you’ve got to get the right people’s attention. In Shanghai at present valautions are through the roof – does this mean you should move there instead of Silicon Valley.
Pingback: Clique Communications: New Media Marketing » Blog Archive » Geeks Inheriting
Randal, I’ll defer to your experience in these matters, but I’m not convinced that VC such as Kleiner Perkins and Sequoia Capital invest in companies like Podshow because of “hype”. Maybe I’m wrong, but don’t these guys have a few big wins under their belt?
My central point to Josh was that the VC pool in Australia is small, and therefore the number and level of startup opportunities that are fundable is small. The on-the-edge wilder ideas that require exposure into the US market to succeed are unlikely to be funded from here because the number of VCs capable of understanding (let alone making) an investment in that type of venture is also small. The fact remains that the best advice for a web 2.0 startup in Australia is to put presence in Silicon Valley very high on the agenda.
Marty – your last sentence sums it up beautifully and Cameron was similarly quoted as saying it makes sense for such ventures to get over to the US, particularly the Valley.
Cameron – my reference to the hype zone was not meant to infer Web 2.0 or pod is hype per se, I define the Valley as a hype zone. As to exactly why Kleiner or Sequoia invest in any given deal has many variables, not the least of which is their view of a sector as being ripe for their particular type of deal (10x to 100x return).
My 2 cents worth, and this also comes from having spent time talking to some VC’s locally, and others who work as advisers to startups: there’s a pile of VC money out there, there really is, but it isn’t the least bit interested 99.99% of the time in investing in what local VC’s would deem “risky” Web 2.0 startups. So there’s one or two companies that took money locally, good on em, but working in this field I can tell you right away that there’s a brain drain going on and nearly all of our potential Web 2.0 related startups are heading straight offshore, and why wouldn’t they, we’ve got VC’s here who are far too risk adverse, even when your talking relatively small investments, and a taxation and regulatory regime that tempts them to place their money elsewhere. As for hype Randal, as a founder in a company that recently to funding, I can assure you that whilst there may be some hype out there, look past the marketing BS and you’ll find a lot of substance and a lot of potential to make a whole pile of money. The reality is, that if YouTube had been founded in Australia it would NEVER have got of the ground. Fact, and I don’t believe the story was overly biased either, indeed I thought it was fairly light on in terms of how screwed up an environment we have here for most Web 2.0 startups (and as Cam noted, we’re not talking tech, we’re talking Web 2.0, which is what the article in question was about ppl!)
Thanks for piping in Duncan. I agree with your synopsis of Aussie VCs – in general, like many of our entrepreneurs, they are still in enterprise land. This is not a bad thing ultimately, as Web 2.E is on its way. However, right now and wrt Web 2.C there is an absolute paucity of opportunities for local entrepreneurs to source funding on terms that match the Valley (local VCs will apply a discount distance factor to their valuations).
The funny thing is folks are bitching about the lack of funding, but come on guys, how much does it cost to start up a Web 2.0 company — Josh Kopelman was opining recently that what people used to spend on market research ($200-250k) they can get to product and next round funding at Tier One level.
My suggestion: I’ll blog more on this in a separate post…let’s find a true Aussie solution to what is obviously a big issue for Web 2.0 pundits downunder.
Pingback: Top Web 2.0 Apps in Australia « Startup Downunder
Pingback: Australian Entrepreneurs Descend on Silicon Valley: Part II « Yoick - Hightechwire
Hey there! I know this is sort of off-topic but I
had to ask. Does operating a well-established website
like yours require a large amount of work? I am completely new
to running a blog however I do write in my diary daily.
I’d like to start a blog so I can easily share my own experience and views online. Please let me know if you have any kind of ideas or tips for new aspiring blog owners. Appreciate it!