We need to educate the investors

Startup-image

In the recent Business News corporate finance report for calendar year 2018, I added up over $9.1B worth of equity capital raisings for WA companies, across 504 deals ($18M+ per deal).

How much went to early stage private (Pty Ltd) tech companies?

$28M.

That’s less than 0.3% of total raisings.

So, this proves there IS money in Perth ($9B of it!), but NOT yet for early stage private tech companies. Well, there’s $28M a year, which is not nothing (and MORE than there was a few years ago), but it’s still a drop in the relative ocean.

A company I came across recently – one of the best startups I have seen – told me they went to 130 meetings, and pitched their business 130 times before raising a cent. They had 129 ‘no’s; before a single yes. There was no one I could introduce them too, they’d seen them all.

Where did they raise money from? Singapore. (Everyone in WA and Australia passed.)

Over the past 6 years we’ve seen the development of a pretty strong local ecosystem for startups – startup weekends, meetups, co working spaces, accelerators, incubators, pitch nights, media interest.. etc.

The education of startups & founders is happening and well entrenched. There’s no excuse now for your lonely tech entrepreneur not to know what they are doing – they could wander down to Perth Morning Startup, join the upcoming Startup Weekend or pitch at Perth Angels, Innovation Bay or plus-Eight tech accelerator. They should find their way, knowledge and people if they put their mind to it.

What we need now is the EDUCATION OF INVESTORS.

People with money to invest in businesses need to be taught HOW to do this in the early stage tech sector.

People who’ve made money will fall back on what has worked for them in the past. That’s perfectly natural. And if you are a Perth investor, then that probably means via ASX companies, mining investment & commercial property, whipped up by the brokers of West Perth.

We do not need much to swing the startups’ way to make a material difference.

If we could raise it from 0.3% to just 1% then we would be tripling the amount of investment. To $90M or so a year.

Imagine what that could do.

Not for ASX companies or rushing companies (too early) to a listing. For private, early stage, little or no revenue tech companies that could scale and become the next Canva.

99% can still go to ASX, mines and property. Just carve off 1% of early stage, scaleable businesses, that could “do a Canva” and grow to $1B valuation in 6 years.

By the way, Canva failed to raise money in WA too. They tried, for many years. In the end, a chance meeting with a visiting American VC in Perth set them off on their road, assisted by Lars Rasmussen (ex of Google Maps and then on Facebook). Canva moved to Sydney.

Yes, we need more startup success stories. You can point to a mining billionaire, and several property or ASX multi-millionaires. Business News is full of them. You bump into them walking down the Terrace.

But to get more success stories, we need more early stage investment. We need to ‘throw more darts at the dartboard‘ to see if we can hit some bulls eyes.

I don’t know which ones will succeed, but I know within the 300+ startups in Perth, there could be the next Canva, HealthEngine, Moodle, or whatever.

So, we need to EDUCATE the investors on HOW to invest in startups; how to value them; how to spot the potential wheat from the chaff; how to be patient; how to give advice; how to mentor.

The monied classes have a lot to give in this respect. They also offer more than money; they have hard won experience, contacts and savvy.

Perth Angels do their master classes – which is great! – but in a way they are preaching to the converted. Members of Angel groups.

We need to reach more of those that have money, know they probably need to invest in tech, but have no idea how to start; but are willing.

How do we reach them I wonder?

~~

[Sources: Business News, Techboard]

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Being your own (digital) worst enemy

A few days ago I was trying to get me some car insurance, having bought a little run around Toyota for the eldest child, who is now learning to drive…

So, there I was looking up the usual car insurance companies, and comparison sites, and seeing what kind of a deal I could get for my precious first born. I began with a Google search – of course – and scoured some of the websites thereto thrown up in my direction.

A few minutes later I was trying to complete an online quotation form and seeing what the thing would cost me. The number seemed a bit high, so I tweaked a few variables, and was still getting an answer I didn’t much like.

So I rang the company – their call centre number was clearly displayed on the same page – and a very nice lady answered and helped with my query. It seems you don’t need to insure the driver, as they are an L-plater, and cannot get insured anyway. YOU, as chief driver, sitting in the passenger seat, would be the insured driver.

Ah-huh. Makes sense.

So I tweaked the online quotation form and – bingo – out popped a number that was far more to my liking. Simultaneously, the nice insurance lady told me her number, and it was $100 more than the same number I was staring at on the screen.

So, we had the same, exact insurance, from the same company, at the same time, and the online quote was significantly less than the one I was being quoted on over the phone.

How could that be? Had I done anything wrong online? Nope, it was all correctly done.

So I asked the lady if she could get me the same quotation, and I could buy from her. To which she prompted said (and this blew me away)…

“Sorry sir, I cannot help you with the online quotation. Is there anything else I can help you with?”

This response flummoxed me for a few seconds. What the..?

‘Hold the phone,’ I thought, ‘Is she saying that she cannot help me complete an order online for her own insurance, on her company’s own website, the same one with the phone number showing that I rang her on?’

Her silence was golden. My jaw dropped.

After a few seconds, I think I said “Oh… thank you very much, goodbye”, got off the line and duly completed my insurance online saving myself $100 or so.

This whole nonsensical episode got me thinking as to the logic of the rules that she was (presumably) being told to follow.

Did the company only provide phone assistance to those not able to do all the quotations online? As the online quotation involved less cost (no human being being paid to be on the end of a phone) is that why they offered it cheaper online? For the exact same product?!

But as I was already online and used their published phone number – ON THE SAME WEBPAGE! – to contact them in person, why were they not then allowed to even help me submit online?

They could have lost me as a customer at that very point.

I could have printed off the quotation, gone to a rival car insurance place and told them to match or even beat it.

Or I could have shoved their business through a fit of pique. (Happily, dear reader, I am not that small. Well I think not anyway.)

Surely, the call centre staff in the insurance company should be empowered to use their common sense, help close the deal, provide a service and take the customer’s money? No matter what mechanism that is done by? Online, phone, letter, walk in, carrier pigeon, steam engine, wax tablet..!

Why compete against yourself? Isn’t the market competitive enough?!

Here we are, 25 years or more into the internet age, and people are perfectly happy to buy online, and in many cases, happier. They are doing so in droves. Have you been to a shopping strip lately? Yeah, nor have I.

Online, customers don’t get hassled by pushy sales people, can shop when they like, compare what they are buying easily, get independent reviews, have their order placed immediately and get back to what they were doing 3 minutes earlier. No commuting, no parking, no rain, no 40 degree days, no fines.

If businesses are going to fight against online, and put up unnatural barriers for their customers, then they will struggle to maximise the benefits of their digital transformation. Indeed, they could be sowing the seeds of their own digital disruption. Butting heads against themselves.

Think like the customer. Think user interface, and customer experience. It’s not you you are trying to better, it’s the customer you should be focused on serving.

Always. And in every way.

The Coffee Meeting Pitch Mistake

I was speaking with an American CEO a few years ago, just after he had been in Perth a few months.

“What’s the biggest difference between doing business in the States and here?” I asked him.

“You guys sure love your coffee meetings,” he remarked, “Everyone just rings me up or emails and says ‘Let’s catch up for coffee!’ ‘Can we do coffee?’ ‘We should do a coffee!’

“If I said ‘yes’ to all those requests, I’d be able to sky uphill!”

Yep, that’s how we roll in the great state of WA. The coffee is great, the weather is lovely, and there are plenty of good coffee shops around. A $4.50 mug of skinny flat white can last an hour, and in that time you can get a lot of business done.

The Coffee Pitch

When I assess a likely startup or innovative project that comes to me for some grant funding, I like to start with a coffee meeting.

For starters, it’s a neutral venue, so is less stressful for either party. Stress is not conducive to learning the best about a particular idea or person. You want both sides to relax, and be themselves.

I also have a very fine coffee shop just a 3 minute walk from my house, which overlooks a lake. Very nice, very convenient.

If things go well, and there is something worth considering, then the next meeting may very well be at the company’s own office. But for now, we’re in a coffee shop near where they work, or by the lake.

So we sit down, order our drinks, and start a conversation.

This is where I get to observe the entrepreneur(s) in question. How well can they articulate their idea? How well can they explain their solution, and give me a potted history of their own experience to date. I want to hear about their team, and what they have built, and the market they are attacking.

But most of all, I want to hear one thing coming through – I want to hear them tell me all about the big, global problem their potential customers have, and why those customers will pay them to solve it.

Often, this is not what I hear about.

Too often, I am feature bashed with whatever gizmo they have built. They have fallen into the simplest and most obvious trap there is – falling in love with their product.

Of course you have to build a product or service for your customers. This is the thing they are going to buy right? It has to be wonderful, disruptive, novel with superb UI.

Sure, but building the product is the easy bit.

Selling it is going to be the hardest thing. And you will only make a sale if you are solving a big, hairy problem for your potential customers.

So, the first thing I want to hear from the coffee meeting, after the initial small talk is, what huge problem have they uncovered, that no one else has, and explain why customers will pay to have it solved, and solved by them.

Forget the product for now. As you take it to market, new information will arise and they will have to make product changes anyway. If they are wedded to the product, they will be less likely to change it. So don’t tell me how great it is, and all its features. It will change. It will have to.

Tell me about the customer problem. Tell me about the customers. Who are they? Why do they have this problem? Why will they want you to solve it for them? Why will they choose your solution? How are you going to reach your customers? Why will it be YOU that solves this, and not someone else? How many of them are there?

If you are pitching, over coffee or on stage or in a boardroom, START with the problem.  First slide. First sentence.

Spend most time on this, and the rest of your pitch will flow naturally.

Because only if the potential investor or government grantor believes there is a real deep customer problem will they believe there is someone who might pay to have it solved. And only if customers pay will you have revenue, and only if you have revenue will you have a business.

Change is slow, and that’s good thing

Methuselah is a 4,849-year-old Great Basin bristlecone pine tree growing high in the White Mountains of Inyo County in eastern California.

An oft-heard refrain these days is a lament “Everything’s changing so fast!” and it would be easy to sign up to this notion.

Look how we totally rely on our smartphones these days, turning to them an average of 150 times a day. It makes one wonder what we did for entertainment, news and chat pre-2007. And yet, we’ve only had them for 10 years. It’s gone in a blink of an eye.

See how Uber and Airbnb have blasted into our market, totally disrupting and changing the way we move around the city, or stay in other cities (or have total strangers to stay with us). Uber only got going in Perth in 2014, and has over 20% of the market. Airbnb launched into Australia a couple of years earlier and has upwards of 30% across Australia these days.

And yet, even these stories prove that the best changes – the ones that stick – take time.

There had been smartphones well before 2017, and phones with access to the internet had been around for a while. The best marketing the iPhone did was to announce itself as the game changer, yet even the iPhone took a while to take off. Early versions’ battery life was poor, and not everyone liked using a finger to tap on a virtual keyboard through glass. The Blackberry ruled supreme, and had a built in keyboard. This was much closer to peoples’ existing experience, which was why it was named “the crackberry”. Its devotees were obsessed by it.

The iPhone 3 was the version that took off, launched as it was with the app store in 2009. It was this moment that saw the inexorable shift to the smartphone (which  really should have been termed the ‘app phone’, as phones had been smart before – it was the apps that made them different now). The creation of the cottage industry of app makers was the true revolution, and this underpinned the smart (sorry, app) phone’s rise. Soon Samsung and Google jumped on board.

Looking deeper into the Uber and Airbnb cases you can see that they did not exactly take off as over night successes either. Launched in 2007, it took til 2011 before Airbnb would launch in multiple cities and gain traction, on the back of some serious capital raises in 2010. Likewise, Uber, founded in 2009, took a couple of years and then a major seed round in 2011 before it could launch in various jurisdictions with UberX in 2012. Indeed, Uber was not the first ride-sharing service, and they held back looking at the rulings coming out regarding the legality or otherwise of this new form of transportation. (Others could argue that ride sharing had actually been created in the early 1900s, or even the 16th century, but that’s another story.)

The history of even these wildly successful game-changing disruptors started with relatively quiet 2 or 3 years where things were far from certain. They were learning, pivoting and inching their way to the best formula. When I meet tech founders who think they’ll take off immediately with hockey stick growth I tell them the real stories of hardship, years and years of struggle, before even the best break out. Are you up for that? Founding a startup may seem glamorous when you see the gazillionares adorn magazine covers, blaze around at Burning Man or stomp across tech conference floors delivering well honed keynotes in their black t-shirts, dark blue jeans and high end trainers. But they all had hard starts, and there were many failures, mistakes, missteps and sleepless nights. It’s not all glamour, believe me.

So I would argue that change is slow. Indeed, the best ideas always grow slowly, and that’s a good thing, because things that grow slowly tend to last a long time.

Just talk to a turtle (average age 100 years) or Methuselah, a Californian bristlecone pine tree that was seeded in 2,833 BC. She ain’t pretty, but she’s still here.

Slow is good. Slow and steady wins the race. It’s hard work. It’s not very glamorous. It’s a million small things you do, day after day after day, that get you there. There is no silver bullet. And that’s a good thing.

Where WA’s future will stem from

The rise and fall of once dominant people, companies and economies is common place. These days, if you think of the most amazingly successful, be wondering how well placed they will be a decade from now.

10 years ago, the top website in the world was MySpace. It was the first social media darling, quickly to be overtaken by Facebook. Who uses it now?

For the first time ever last year, the top 5 companies in the world, by market value, were all tech companies: Apple, Google, Amazon, Facebook and Microsoft. 2 of them were formed in the 1970s, 2 in the 1990s and one in the 2000s. They all stem from the US.

Four of these five companies dominate our landscape here in Western Australia – even though we are about as far away from their headquarters as you can be…

  • Apple devices are everywhere. We have 2 iPhones and 2 iPads in our household alone. (10 years ago, these devices did not exist.) We purchase nearly all of our music through iTunes.
  • Google is ever present. It’s how we search for anything, and 2 of the other smart devices in our household have Google-operated platforms.
  • Facebook is all pervasive for the parents in the household, while the children are on Snapchat, Instagram and Youtube. The last 2 of these are owned by Facebook and Google respectively.
  • We have 3 Microsoft  PCs in the house running Microsoft software and operating systems.
  • Only Amazon is not (yet) a dominant player. Amazon online retailing is coming to Australia this year, and it could also become a force to be reckoned with in our house. In the US, 50% of all online commerce goes through Amazon. I have a feeling they will make a huge impact here, maybe not immediately, but do check back in 3 to 5 years.

Which gets me to thinking about my teenage children, the environment they are growing up in and the world of work they will shortly enter. If the rise and fall of organisations teaches us anything, it’s that the businesses that cannot sustain relevance fade away, and the wildly successful dominant players better be re-imagining their future before the rug is taken out from under them. Reinvention is the key, keeping on top of the trend and perhaps getting in front (if possible) is crucial to survival.

Western Australia has an economy almost like no other. It has a massively successful resources industry, which grew to three times its size over the 2002-2012 period. It’s still growing, but is in another phase now (production, rather than building). So much income is earned from it, and from our State, almost half of the country’s entire export income comes from WA (even though we represent just over 10% of the population). The resources industry is not going away!

If I liken the WA economy to a major organisation, then during the very strong years (the decade from 2002), it was time to make hay while the sun shone (yes, we did that) while also looking out for the next success story before the end of the current one (err….).

It’s easy to look back in hindsight to the one trick pony mentality of the 2000s. Here in 2017, we are where we are. So what now?

One thing is clear: we need a diverse economy, in every sense of the word. Not only do we need to draw on the rich and full resource of all working people, at the managerial, C-suite and board level, we need to develop our other industries to take up the slack. Tourism, health, technology, agriculture, aquaculture, education … these are areas of great potential. The trouble with many of them is that every city or region in the world could claim to have some prowess here, or aim to be a world leader. In only agri/aqua-culture could we claim to have some innate natural advantage.

If we’re to lead in tourism, then we need to have a reason for the Asian and global tourist to visit our State, and to return. In health and technology and education, we need investment and smarts and hyper-intelligent people to be drawn to live, work and stay here (including our brightest).

There’s one thing we could do that would be a true investment for the local economy; one thing that could make a significant difference long term, and might save us as a State. It’s not a hopeful, wishful thing, it’s an absolute necessity if we are to continue to enjoy our great lifestyle.

The answer is a meaningful and rigorous devotion to world class STEM (science, technology, engineering and maths) education for our children – from primary school all the way through to university (and then beyond, through continuous education). We have to commit ourselves to extracting maximum value from the best resource of all – our brains, well, the brains of our children. As you and I are not the future of the economy, yet our school children are, then it’s to them (and their education) we must turn.

It’s a sad fact that the numbers of children taking STEM subjects in our schools has been dropping, and the quality of STEM teachers is also moving in the wrong direction.

The average number of science subjects taken by Year 12 WA students declined from 1.41 to 0.66 between 1986 and 2012. (Report: Optimising STEM Education in WA Schools, TEAC/ECU, 2012). The average number of maths subjects taken declined from 0.92 to 0.69 between 1992 and 2012. There is also a lack of STEM qualified teachers (too often teachers are teaching out of their training area just to get someone in front of a class), and we don’t even have a database of what qualifications STEM teachers currently have. If you don’t measure the problem, you can’t manage it.

Just think about this. The average year 12 student does not even take a maths or a science subject. In other countries, such as one of our closest neighbours Singapore, where I taught for 7 years back in the 1990s, students record among the best results in maths and science globally. There is serious investment in education by the government, and a drive (by students and parents) to get the best results. It’s embedded in the culture, and in many ways Singapore, with few natural resources to speak of,  has had to invest in its people to survive, and thrive.

It’s always been the case that economic growth derives from investments in education, science and technology. Which brings us back to where we came in. If the 5 richest firms are all US-based, and are deriving more and more income here, paying little tax, and employing few people relative to that income, where are the Aussie and West Aussie firms coming from, who will employ our children in 5, 10 or 15 years time? What jobs will be there waiting for the 20-somethings of the 2020s and 2030s? If the STEM skills are the ones future employers will require, are we going to get serious about STEM education?

We all have a role here, not just government. More of our bright young things should teach, at least during their 20s. More of them should take STEM subjects, not because they’re easy and may improve an ATAR score (they’ll likely not), but because they’re important. Especially girls. We need diversity all the way through our businesses, right to the top and across all industries.

Parents, colleagues, managers, employers – I’m talking to you.

~~

More reading on STEM:

Transforming STEM teaching in primary schools, Prinsley & Johnson, Dec 2015

Optimising STEM education in WA, TIAC, ECU, 2013

Image Credit: Lorenzo G Alarcon Elementary

Post Truth or Expensive Truth?

Do facts matter anymore?

The person who would go on to win the 2016 US Presidential election made statements that were true (or mostly true) only 15% of the time over the election cycle. His opponent’s statements were true or mostly true 55% of the time. Fake news was shared more than correct news. Last year, the Oxford Dictionary made “post truth” its word of the year.

Yet this phenomenon is not new. At a recent UWA lecture by Stephan Lewandowsky provided analysis that showed how Fox News (in 2010) misinformed twice as much as other news outlets (running stories on Obama not being born in the US). Even earlier, in 2006, Republican supporters in the US believed there were weapons of mass destruction found in Iraq, even after a report conclusively found (in 2004) that no such things were ever there, or found.

Post truth politics work, it would seem.

Two thirds of white males voted for the current US President, and he actually did better than his opponent in the mid-income range. The poorest actually voted for Clinton.

Despite all the lies and half truths, on both sides, supporters of each candidate believed their person was telling the truth 94% of the time. Research has shown that preconceived support is the largest determinant of whether you believe a proposition or not.

In other words, it’s become tribal. Even if supporters are shown that their candidate has told a lie, they accept this, and it does not change their support.

We like to hear good news – it’s only natural. We prefer to hear information that marries with our view of the world. Facts that differ with our own values and inner held beliefs are uncomfortable, and on the whole, we prefer not to be uncomfortable. We’re wired that way. When your team is being belted in the game, you might switch off in disgust, or start walking down the aisles to beat the traffic home. Why prolong the agony?

And then along comes social media, and we can gather whatever information we want. We can live in a cocoon of information that pleases us, whether it is true, biassed or just plain made up. In fact, Google and Facebook’s algorithm’s serve it up to us, because they know what we prefer. They know what we will pause and comment on, click and share.

Now, I’m not blaming the media, or social media, or tribalism, or how we are wired … it is what it is. However, we need to recognise this, if we are to deal with it. Because if not, then we are moving into a world where facts don’t matter, and that’s dangerous.

The trouble is that opinions are cheap and facts are expensive. Worldwide, media is trying to find a business model that will pay for facts, now that the former business model (classified and display advertising) has moved online. Some media don’t care as much as they used to about facts, and peddle opinions, or just promotions.

Yes, media should have seen it coming, but that’s easy to say in hindsight, and what move should they have made anyway? Were they always going to be bowled over?

True, truth is in the eye of the beholder, but we have seen instances (at the highest level) of just plain faced lies (proven lies) being waved off and ignored, as if at least trying to say things as they are is in itself unimportant.  It’s not how things are anymore (people don’t want that), it’s how they make you feel.

I don’t know what the answer is, but I’m out there looking… answers on a postcard please.

A watershed moment for Perth tech startups

Dr Marcus Tan addressing the ‘Digital Disruption in Health’ YOLK event, last week

This week it was revealed that local tech business, HealthEngine, had raised $26 million from global venture capitalist Sequoia Capital.

This is notable for a few reasons:

  • it’s the largest private sector investment in a local tech startup
  • the first such investment from this Silicon Valley VC in Western Australia, and their second in Australia (after investing in Melbourne-originated LIFX)
  • the same VC that has invested in such global successes as Google, Apple, Whatsapp, Stripe and AirBnB
  • the business is headquartered and will remain (as far as we know) in Perth
  • the investment reduces the need for the company to do an IPO & keeps the business private

On so many levels, this is a knock-it-out-of-the-park deal, made all the the more notable in that the co-founder and CEO, Marcus Tan, has been a fixture on the local startup scene for 7 years or so.

I remember first meeting Marcus when he was a fellow mentor on Perth’s first Startup Weekend in September 2012. The 10th such event will be held next month. The more I got to know Marcus, the more impressed I was.

Not only a cofounder and CEO (he’d put together the HealthEngine startup in 2006, developing it from his lounge room), he was also an angel investor himself, and a philanthropist (being behind the Global Meridian fund raiser for local worthy causes). He was one of those who set up Perth’s second co-working space for techies, Sync Labs (now run by Spacecubed). He has been basically everywhere in and around the sector in the past decade, as well as a practising GP. Is there nothing he can’t do?

A week last Friday I moderated a session down at the Old Swan Brewery (see photo above), on the topic of digital disruption in health, and he was quite brilliant on the panel. His deep intelligence and soft spoken authority came across (as always), and anyone that met him and heard him cannot but be impressed.

A few years ago I invited him to be a guest speaker in my eBusiness MBA class. Along with many gems of advice, I remember him saying that that Australia is of a certain size that one online business can totally dominate a sector. Realestate.com.au (REA Group) has done this in real estate, and is one of the most profitable online real estate businesses globally. A larger country, such as the States, he argued, is almost too large to have one business dominate. It was clear he was out to dominate Australia, and this week’s funding probably allows him to complete that mission, while looking out for regional and global market expansions.

It could not happen to a better person, and I wish him and HealthEngine all the best.

What this also does is demonstrate to other local tech startup aspirants that a good tech idea, well executed, can be built from Perth. Apart from traditional ICT businesses like Amcom and iiNet, we’ve not seen evidence of this being done. You can also bet Sequoia and others will be looking at Australia, and maybe even Perth. To Atlassian and Canva (Perth originated, but now Sydney based), HealthEngine is now added as the next possible Aussie ‘unicorn’.

Be inspired Perth tech startups up, for you could join the list sometime soon…

It’s blockchain, stupid

dilbert-chain

7 years ago I visited a New York real estate technology conference, and one of the main themes was the emergence of the mobile economy, and how important smartphones were becoming. On returning, I wrote one of my first blog posts (‘It’s mobile, stoopid‘) on the Business2 website, the first comment of which still reads: “I don’t think so…”

3 years earlier, Apple’s iPhone had heralded the onset of the smartphone era, and business was never going to be the same again.

Wind on to today, the smartphone is everywhere. This device has changed how we communicate, receive information and news, take photos, and how elections, products and almost everything is determined. Half the world wide web traffic is now over a mobile device. We’ve got access to all the world’s information, anywhere, anytime.

Back in January 2010, we did not even have the iPad, Samsung or Android phones. Many of us were not yet on Twitter. Instagram (established in October that year) and Snapchat (2011) did not exist.

Snapchat went public last week, and by the end of its first day of trading, was valued at US$33 billion.

Just take a moment to think about that.

An app, mainly used by kids to send quick greetings and filtered photos of themselves to each other, with hundreds of millions of dollars of losses, is worth more than all but 8 of the 2,000 publicly listed companies on the Australian stock exchange.

Snapchat, who famously refused a US$3 billion offer from Facebook in late 2013, is worth more than Woodside, Woolworths, Macquarie Group, QBE, Coca Cola Amatil, the REA Group… way more.

Snapchat, something dreamed up around 5 years ago. And it only ‘exists’ on a smartphone. Such is the power of the mobile/smartphone platform.

And so we turn to 2017, and as we move inexorably to the end of the current decade (less than 3 years now til 2020!), what will be the next big thing?

Some are tipping the Blockchain.

A whole world of mystery surrounds the blockchain. It is not easy to describe, or explain, and even its inventor is a mysterious Japanese person (persons?), who was (were?) rumoured to be living near Esperance.

You may have heard of Bitcoin, the online currency built off the blockchain platform, itself something invented only recently, after the GFC in 2008. But the blockchain (like the world wide web itself) can spawn many applications beyond bitcoin.

Simply put, the blockchain is a secure online ledger, providing permanent asset transaction summaries. Each asset, and each transaction (buying or selling) has its own ‘block’ linked together in ‘chains’, hence the blockchain – a line or even matrix of blocks chained together.

The key point to remember is that each unique block (a time stamped record) cannot be altered, ever. This is because this record is sent out to all the millions of computers around the world that are linked to the blockchain. Once sent out, it cannot be altered. It’s a permanent record.

The implications of this are that any asset transaction (such as transferring money or property or a contract or a share) can be uniquely recorded, and be immutable, irrefutable, unchangeable. This process can also happen quicker, and cheaper, than using a traditional intermediary.

So, potentially whole rafts of intermediaries (such as banks, real estate agents, any middle person really) can be disrupted away by the blockchain. The blockchain gives confidence to those involved in transactions (buyers and sellers) in the same way any broker or middle person might have done so up to now.

The reason the blockchain is so strong, and unhackable, is that as it is made up of individual blocks, that exist on millions of computers, simultaneously. In many ways, it has characteristics of the world wide web itself. Interspersed, with no single person in control. Anyone trying to change anything would have to have control of all those computers with access to a blockchain, and all blocks, at any one time. This is deemed impossible, and gives the blockchain its inherent power.

Once people start to recognise the simplicity and strength of the blockchain concept, they will start to trust it, and use it, to transact. Once this happens, banking, real estate, contracts, voting, stock trading, car exchanging and almost every market which involves ‘assets changing hands’ (which is what markets essentially do) could be disrupted and changed forever.

So, the blockchain could be the next biggest invention since the world wide web itself.

For hundreds of years we’ve had intermediaries help us with most of our transactions, as it’s too hard to run around and meet everyone in the market, and do it all ourselves. If the blockchain can do this for you, who now needs these intermediaries?

Yes, this may seem far fetched, but then again an app that makes funny filters for kids is now worth US$33 billion, and counting. 10 years ago, the devices on which it sits did not exist.

Remember also that Apple, almost bankrupt 20 years ago when Steve Jobs returned to the helm in 1997, is today the most valuable company in the world, at US$617 billion. Google, which did not even exist in 1997, is worth US$532 billion, and is the second. Rounding off the top 3 is another tech giant, Microsoft, at US$483 billion.

All these companies, and millions more, rely on the world wide web for their existence, something that did not exist until 1990. With the blockchain now out in the cybersphere, what else will be changed in the next 10 and 20 years? Perhaps pretty much everything.

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If you want to know more about the Blockchain (I’d strongly advise it), watch this 18 minute TED Talk by Don Tapscott.

Angels, 5 reasons you should invest in tech startups

Send me an angel right now
When we set up our tech startup back in 1999, we looked to angel investment to get our business off the ground.
Some new business ideas just need to be tried in the marketplace in order to see if they will work, and they cannot be launched without some financial support. Often the idea is so new and disruptive that it will take time to educate a new market in new ways, and allow the fledgling business to take hold.
It is about the riskiest investment you can make as an investor. It is not for your nest egg, and the most likely outcome is you will never see that money again. In fact, the odds are (even if you carefully sift through your potential investments, saying no to far more than you say yes to) that 7 or 8 out of every 10 will fail, 1 or 2 you may see your money back, and 1 in 10 may return a lot.
That’s the deal.
I remember telling our angel investors (high net worth individuals and others who had a punt on us) that they would most likely not see a return at all. We wrote a chapter in our business plan outlining all the things that could go wrong, and how they would not see their money again. We wanted them to be awake to this reality, and not treat us like a bank. They could not ring us up in a few months and ask for the money back. The money, by then, was gone. It was used to set up the website, database, consultants, software, computers, the office, pay rent and the first few months of staff costs.
By the time we’d launched 65% of our money raised was already spent. We had barely 5 months of money left to last. We had to immediately raise still more, which is what we did. It took 7 years before those initial investors received an option to sell.
This is the reality of the tech startup. If you are interested in being an angel investor, then you need to understand that this is possibly the riskiest investment you can make. It is only a part of your portfolio of investments, a small part, perhaps 2-5%.
Say you are quite well off and have $1 million to invest. You might put some in blue chip shares, more in a property syndicate, high return deposit or a managed fund. Perhaps $20,000 to $50,000 in a tech startup. If you have a few million, then you could afford to do a $20,000 to $50,000 investment every year for a few years. You might look at several opportunities before deciding to have a punt.
If this is you, then I have 5 reasons why you might be persuaded to have a go. I have no idea which startups will make money – if I did, I would be out farming cupcakes from unicorns.
However, as someone who’s been there and done it in startupland, may I be so bold as to venture the following:
  1. Low rate of funding, startups need you

Tech startups in Australia are woefully underfunded. Far more is bet on the Melbourne Cup every year, per capita, than is bet on tech startups. Report after report bemoans the low level of funding, and the exodus of great Aussie ideas to Singapore and Silicon Valley demonstrate the lost opportunities. These types of business have scaleable business models, and could be $10m or $100m businesses in a few years. This kind of rapid wealth creation was simply not possible in earlier generations. Now is the time.

   2. The Economy needs you, because of digital disruption

25% of the GDP of Australia, and 40% of jobs, are under threat from digital disruption over the next 10 years. What kind of an economy will be left for our children and grandchildren? Where are the Aussie tech disruptors? Most of them hail from one country, pay little tax here, employ few people, yet are eating away at our economy.

   3. You have a lot to share and give 

You’ve made your money, are relatively well off, some might say wealthy. You have $1 million or more in various investments. How about carving out 2-5% of this for the tech startup scene? Take a a direct investment, and help seed a new business or three. Create jobs immediately, get involved and share some of your hard won advice gained over your own career in business. Pay it forward. Pass it on. Add value to this businesses, open doors. Have skin in the game.

   4. You get a tax rebate, and are capital gains tax exempt

Even better, from this financial year onward, investments in eligible tech startups attract a 20% tax rebate (yes, money back) from the ATO. Plus, you get a 10 year capital gains exemption, with no ceiling. Meaning – if you make a million or even a billion on the shares, it is tax free. The government is actively encouraging you, and rewarding you, for having a go. What’s stopping you?

  5. You’ll enjoy it 

Why not have some fun? You never know, you might learn something, have some awesome dinner party conversation, and can enjoy the ride. Why can’t business be fun? In fact, it should be.

So, if these 5 reasons have inspired you to find yourself a tech startup to invest in, then get yourself down to Spacecubed, listen to this podcast, or peruse these 140 WA startups.

Imagine if 1,000 angels decided to invest between $20,000 and $50,000 in some tech startups every year for a few years. That would pump in $20 million to $50 million a year to get 1,000 startups going. Among them could be a hundred $10m businesses employing tens of thousands, and maybe the odd billion dollar unicorn. Then we’d see some action, and maybe we’d even save our economy in the process.

Facebook and Google are eating the internet

Facebook and Google

Here’s an amazing statistic – last year (2015) Facebook and Google, combined, took an extra $1 billion in advertising revenue from the Australian market.

An extra billion. Not a billion in total, an extra billion, than the year before.

The thing is, the total ad market in Australia only grew by $300 million in 2015, which means every other advertising medium – print, TV, radio cinema, outdoor, online… – collectively took $700 million LESS combined.

This meant that every TV station, radio, cinema, newspaper, magazine and website was competing for a shrinking market, $700 million less than it was the year previously.

Ouch. No wonder we see redundancies in newspaper organisations, TV and radio stations the country over. And of course, this is not a phenomenon unique to Australia. If anything, we’ve been protected from it for a few years, but the impact is now in full force.

If you thought the ad model was a tough one, no stat makes starker reading than this one for Australian media organisations. Imagine a startup trying to make a go of it with an ad revenue model.

This trend of ad dollars to the 2 Silicon Valley organisations is only speeding up.

Recent predictions have Facebook and Google eating up 90% of all digital advertising by the year 2020. This means that as non digital ads continue to decline in size, there is no respite in digital ads, because the 2 internet mega-goths are gobbling that up too.

Now I have nothing against Facebook or Google. Like you, I use them all the time. I rely on Google to get me all the answers to the questions I pose during my day, as well as entertain and inform me on what’s going on. I flick through my FB feed once or twice a day, and it’s entertaining stuff. I deploy FB page at work. In business, most of my promotional budget goes on the 2 of them through Adwords or customised FB posts, and I’m not alone (as the stats above prove).

The question I have is: what kind of world are we hurtling towards, if these trends continue?

I am also a big fan of Uber, Airbnb, Netflix, Twitter, Apple, LinkedIN and the like. All of these are collectively eating away at our industrial and digital base, and employ very few Aussies by comparison to organisations of similar revenue. Very little of the income they earn in our country attracts any tax that remains in our country. They are all US-headquartered yet through various organisational structures manage to conduct their affairs via satellite organisations based in Ireland or Singapore. Although they take huge amounts of Aussie dollars from selling services to Aussies in Australia, they are not contributing as much as similar sized organisations that hold sway over large markets. They are not paying for the roads, schools, hospitals and defence that the government needs to provide. Meanwhile they are attacking up to 25% of our GDP, over the next decade.

I wonder if and when Australia (and other countries) will wake up to this? The answer is not to put bans on them (as the taxis tried to do over Uber), or ignore them (as the newspaper industry did for years until it was too late). The answer is surely to develop our own home-grown digital companies that will compete with them here and perhaps abroad. Companies like Atlassian, Canva and Freelancer. (How many successful Aussie tech companies can you name? Here’s a link to the top 50.)

I am amazed at the local tech talent here, and if we could release more funding, I reckon we’d throw enough darts at the dartboard to see if we can create some bulls eyes. It’s fast becoming a necessity now, not a ‘nice thing to have’. What economy are we going to leave behind for our kids if we don’t?

More reading:

How Facebook is slowly eating the world‘, Washington Post, April 2016

20 Ways Facebook is eating the internet‘, Techcrunch

Mobile ate the world, and Facebook and Google are eating mobile‘, Salesforce, June 2016