How do I value my startup?

Valuing a tech startup is one of those ‘how long is a piece of string’ questions (which is no help at all), but it’s still an important factor in trying to raise money for your early stage venture…

Naturally, both sides will look at valuation in opposite ways.

The plucky founder will want to give away as little of the company as equity for as much cash as possible (the highest valuation), thus retaining more for themselves, their co-founders and any future funding rounds.

Meanwhile, the investors will want some meaningful slice of the company, so if things really do take off and the company is worth something in the future, they will get some kind of nice return on their money. As they may invest in several startups knowing most will fail, for each one they do invest in, they will want to see 10 times return on their money (to cover those that fail to give any return at all.)

Maybe, somewhere in there is a deal. Maybe not. You may have to speak to dozens of people before you raise a cent. It can take months. It might not happen at all.

But if you are venturing out to get some equity funding, my best advice is ‘be realistic‘. That means, don’t go crazy over your valuation, don’t do it slap dash (invest the time to do it properly), prepare yourself and practice.

I am assuming we are talking about a brand new, pre-revenue startup with no trading history. You have an idea, a business plan, maybe a prototype, have set up a company, put in some of your own money, and have something (an app, website, some users) to show for it. But you are otherwise brand spanking new.

Are you really going out with him/her?

Before worrying about valuation, please think carefully about WHO you get on board as an equity stakeholder in your business, and think WHETHER you actually need new shareholders at all.

Investors tend to hang around (as there are only limited opportunities to get them out). It can be very awkward if – later on – you think you’ve made a mistake. Also, some future investors won’t touch you if you have the wrong people on your share register. The same goes for co-founders and sometimes employees too. Be careful what you wish for.

You will be assessed by who you associate with, and having investors in your business is about ‘as associated’ as you are going to get in your life. Like a marriage, it can take a lot of nasty unravelling to undo.

Also, have a real think about how far you can go on your own.  With your own money, or some cash you can cobble together from some kind of early or trial revenues, partnering, R&D tax incentives, rich Uncle Tom Cobley and all.

Do you really need to raise money? Can you not get your customers to fund your business, at least a little bit further… to profitability? In many ways, that’s the best way.

But let’s say you’ve done all that and exhausted all other avenues. Equity fund raising it is. It will just take more money to give this thing the push it needs.

How to value it?

Simply put, the price of an early stage tech company is whatever the founder is willing to sell a piece for, and whatever someone is willing to pay for that piece. This is also not very helpful, but it’s true.

It’s a bit like selling your car, or your house. There is only one unique version, and a limited amount of buyers. But you only need one (or a few) brave buyers, and then the deal could be done.

If you need, say $50K, and are willing to sell 10% of your startup for this investment, and someone is willing to pay you $50K cash that for the stake, then, by definition, your company is valued at $500,000 pre-money.

Pre and Post Money Discussions

The ‘pre-money’ bit means that BEFORE they put the $50K in, your company was worth $500K (as $500K is 10% of $50K).

Note that AFTER they have put it in, it now ALSO has $50K in it, so technically your business is now worth $550,000 (‘post money’). Talking ‘pre-money’ is cleaner and easier to calculate in any valuation discussion. ‘Post money’ gets a bit fiddly.

With your startup now valued at $550K, the new investor does not actually have 10%, they have 9.09%. What was 10% pre-money is now 9.09% post money.

If they wanted 10% post money, then they’d have to put in $55K (which is 11% pre).

If you, as founder, owned 100% of the business beforehand, you now own 90.91% after the transaction. The issue of the new $50K of shares has diluted you a little. But you will have over 90%, which is almost as good as 100%. You have complete control, except you now have an investor, who one day hopes will get more than $50K back for their investment, hopefully half a mill or more. That is the point of investing, after all.

Now, with the $50K in the bank, you can get on with business and ring every last ounce of value out of that fresh investment. The hope is that if used wisely, future valuation will be way more than $500K by that stage. Which is the whole point. You and your investor wins.

Stuck in the Middle with You

Except, the investment is not liquid (they can’t get it out of a bank as cash) and you won’t be able to borrow against it. Effectively, it’s stuck in there until there is some ‘liquidity event’ (someway down the track) like the future sale of the whole company, an IPO or new investors come in allowing some original ones to exit some or all of their shares.

This latter eventuality is a rarity. What new investor wants to see their money used by original investors exiting stage right?

Another way of earning on shares is dividends, but I am assuming you are a long way out from profits.

Valuation Ranges

So, back to valuation. How do you come up with $500K, or $1M or many millions as the fair market valuation for your early stage tech business?

There’s a basic rule of thumb, which seems to be ‘accepted wisdom’ in these parts.

Assuming the business is a truly scaleable tech startup with a clear defensible position, a significant market to go after and with good founders…

1. If it’s just an idea and a slide deck, you can’t value yourself more than A$500K. That is, if you wanted $100K to build a prototype, then you’d have to sell off 20% for that (pre-money). Better to try to cobble together $100K, or whatever you need, or code it yourself, and get to MVP that way? Many startups can get to MVP on less than $20K if they are frugal and clever. Startups usually turn to “family, friends and fools” (the 3Fs) in this round. (Hint: don’t get fools.) If you expect your business to be worth a few million over time, why even start at a valuation so low, give away so much for so little and raise money on an idea? Go further.

2. If you have a MVP/prototype, but are still pre-revenue/launch, or perhaps have a trickle of early sales, then you may be valued in $1M-$2M range. So if you wanted, say $500K for growth/sales and gain market traction, then you’d be selling off 25%+ for that. Or ~10% for $200K, etc. This would be ‘Seed Angel’ round (pre-VC) from high net worth investors most likely. This is perhaps the hardest money to get, as you are still very early, and too small for VCs. Raising $20K is much easier, finding people who can part with a lazy $50K or $100K each takes more effort.

3. If you have launched your product, have paying clients, revenues, growth and traction, you could value yourself more than $2M, and really the sky’s the limit the more of that (and the more time/evidence & unmet potential you have). Once you’ve been around for a while, have good market share, growth… you get more into normal business valuation metrics like annual total and growth of sales, net profit, clients, market share, etc… You’d need to know your ‘Cost of Client Acquisition’ numbers really well, as well as ‘Lifetime Value of Client’ etc.. Investors will be all over this. You may then be in VC and Series A territory, so would looking at investment here of at least $500K, probably $1M or several millions.

If you are a WA-based early stage tech startup and have an idea/deck and perhaps an MVP, and think you’re worth $4M or $5M+ then I would have to say ‘you’re dreaming’.

That’s not to say you won’t be able to raise money at all on that valuation. There’s always someone out there with more money than sense, and might be persuaded by a slick slide deck and some fine words. But even if you did get early stage money at that price, how can you sustain it? How will you be able to build an upside for your investor(s)?

Knowing how risky it is, most investors into early stage ventures are looking for a 10x return over time. If the valuation starts too high, that makes the 10x even less likely and they will shy away. Remember, it’s easy to buy things, but when you buy you are setting the base price from which you want to see a multiple. The buyer can make a profit when they buy, depending on the purchase price.

Finally, it’s more than money

Of course, this all depends what you want to do; how much money you need, what you want to sell it for, and (more importantly) the VALUE the investors bring besides money.

It’s YOUR company remember.

How much do these investors ADD in more ways than money? Can they open doors to your next round? to new clients or partners? Do they have experience commercialising what you are doing? Have they been there and done it before? How have their other investments gone? What are their real motivations for investing? Are they going to be active or passive investors? Involved, but not too much, or just plain annoying?

If you’re not happy, 100% rock solid happy with an investor, don’t take their money. Listen to your gut. It’s usually right. Making the wrong choice is simply not worth it, no matter how much money they throw at you.

~~

Photo by rawpixel.com from Pexels

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We need to educate the investors

Startup-image

In the recent Business News corporate finance report for calendar year 2018, I added up over $9.58B worth of equity capital raisings for WA companies, across 548 deals. That’s $17M+ per deal. And this does not count another $41B+ in M&A (merger and acquisition) activity.

How much of the capital raising money went to early stage private (Pty Ltd) tech companies?

Go on, have a guess… no?

$28M.

That’s less than 0.3% of total raisings.

So, this proves there IS money in Perth ($9.5B of it in our calendar year!), 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 else 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 Facebook). Canva moved to Sydney.

Yes, we need more startup success stories. You can point to a mining billionaire or two in Perth, 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 500 or so startups in Perth, there will 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 offer much 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]

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…

No recession for Australia, say the experts

Alan Oster

On Friday I attended an Economic Outlook breakfast, hosted by RSM, with NAB chief economist, Alan Oster. Here are my notes… it’s more positive than you might have guessed (which was the main take away.)

The headline is that there will be no recession in Australia in 2016, continuing an amazing 24 year run for our economy. Basically, mining (9% of the economy) is worse than people think, and everything else (especially services, 50% of the economy) is better than people think.

Globally, world GDP growth should be around 3%, which is short of the long term average of 4% that “the world needs”, but it’s not terrible. Things “are OK” in China and US, and this is important as these two nations drive the world economy.

In the US, interest rates will (finally) rise, slowly, and “it’s about time”. They can’t be zero forever. US inflation is at 1% unemployment is down to 5% (both inside target range).

China industrial output and steel are both down, but services are up. Iron ore and commodity prices are falling as demand is dropping and supply is rising. Iron ore prices are set to go to $33/t (but they were $23/t 10 years ago). China is not about to blow up; the tertiary sector (50% of economy) is growing at 8% a year and rising.

Meanwhile, India is growing at 7%, Japan has slipped back into recession, Latin America is in recession, the Asian tiger economies exhibit weak growth, and Europe is OK but not great.

Here in Australia, “there will be no GDP problem”, as LNG exports are set to add 2% to GDP growth on their own. Growth is switching to services away from mining services. Housing is OK but apartments market is over supplied. The RBA will not cut rates, and are unlikely to be able to raise them in 2016 as they don’t want to worsen the Sydney and Melbourne and property booms.

Mining investment is falling as we move to the export phase. The Aussie $ is moving to 63 – 73c range. The labour market is doing better than predicted, and most of the currency adjustment has already happened. The lower A$ is helping mining exporters (receive a better price).

When we ask businesses about their confidence (“how do you feel?”) we see that it is OK, not terrible but not great either. When we then ask “how are you going?” businesses are actually doing much better than major media reports. ‘How are you going’ is what businesses have done and are doing, not just ‘how they feel’.

The strong sectors are personal and recreational services (30% of economy) and are doing very well. The consumer has money. The Aussie consumer has ability to buy a house, get a lawyer, take a holiday in Australia … and is doing so.

Retail is actually quite good, and we’re in for a good Christmas. WA has good conditions but low confidence. Health and social assistance has added 370,000 jobs in Australia. Manufacturing has lost most ~ 100,000 jobs.

Australia did not save up to GFC but since has been saving and will continue to do so. Their spending “should be” at 4% growth but is at 2%. Property is strong in Syd/Melb and weak everywhere else; which means controlling it with interest rates is impossible. The Chinese are buying apartments that we might think are small but they think are fine, and it’s a safe place to put their money so the Chinese government can’t see it. Expect a marked slowdown but no crash in property in 2016. Perth has already lost the most in the property market in 2015, compared to any other Aussie capital city.

So, there will be no recession in Australia as exports are going to be strong; domestic demand is growing; non miners are doing better than everybody thinks. Unemployment will fall below 6% – the services sector is employing everybody.

Inflation is low – as forecast; which gives room for RBA to cut rates if they need to. But RBA does not want to fire up Syd/Melb property markets. Interest rates rise may rise, but not til 2017 and then only slowly to 3.5% from their current 2%.

Agriculture is a growth industry but is only 1.5% of economy. The “dining boom will not replace mining boom”. It cannot, it’s not big enough.

What would derail this positive view? If unemployment somehow gets to 8.5% we are in trouble. Our debt is serviceable as long as we have jobs; we have 3rd largest super in world; if you counted super (“which I know I can’t!”) then we have no debt. Debt will be an issue if we get into recession, but I don’t think we’ll get there, so we’re fine.

China is the least likely country to run out of cash; so whatever happens they have ability to keep going. It’s hard to think of a scenario that could make China fall over.

For all the slides to accompany his talk, click here

How I judge a pitch

Pitching aint easy

I’ve had to pitch in my time, and I’ve seen a few pitches (real and for competitions), and occasionally someone comes to pitch their startup business idea to me.

When judging the value of a pitch, here’s what I look for…

1. Solves an existing/large customer problem

The first thing I look for – is there a clear, sizeable customer ‘problem‘ this new idea is solving? So many pitches look like they are describing really cool ideas, but dig down a little deeper and there is no obvious problem being solved. I’ve fallen foul of this myself. Launching aussiehome.com, we had an idea we were solving the problem of property searching, but our paying customers were real estate agents. There was no problem of property searching for them, buyers came to them anyway (and had done so for years) through newspaper advertising. We may have been solving the problem of property seekers, but they weren’t our customer, they weren’t paying us any money. It was real estate agents who paid (through monthly subscriptions) for our service. Once we got to know the real estate agents’ problems, we launched services for them. That kept us a alive (just)… but it was a close run thing, and an important lesson learned.

* Please note – if you can’t answer #1, do not bother going any further! *

2. Scalable, protectable idea

OK, so you have identified a clear, sizeable problem you can solve for customers who are going to pay you to solve that problem for them. How easy it is going to be to protect that position? How scalable is it? Are you capable of taking the idea to scale and extracting the value? Will you be swamped with competitors and imitators who will take the market from you? When we did our startup we thought we had 3-6 months before someone would copy our map-based property search idea. It was actually much longer than that (18 months or so), but in fact the maps had nothing to do with our competitive advantage. It was the speed of client acquisition, keeping the clients on and keeping them happy that made our business protectable. By the time realestate.com.au and others came to town, we were 3 years old, had great client relationships and could protect ourselves. Before then, we were vulnerable. It took 5 years to really make any money from the business, such we could actually pay dividends to shareholders from the profit earned.

3. Rivals’ reactions factored in

Speaking of competitors, you must recognise that all markets are dynamic. As you enter the market with your services, your rivals (and potential ones, yet to launch or move into your market) have a vote too. They can react in various ways, moving on product, price and promotions. Have you thought through how their moves could affect your strategy? Have you innoculated your clients against the changes your competitors can make? What would you do if you were them? Think a few moves ahead. I meet people who seem to forget that markets can change. The current status quo is just a series of conversations making up a perpetual ebb and flow.

4. IP or secret somehow protectable

Allied to this last point, is there some legally protectable ‘secret sauce’ at the core that makes your idea a knock out? I presume you have the right trademark protection around your brand name, logo design (this easy to acquire, but also very important). Have you some patent on some important process or innovation that you are using? Is the patent secured, or on its way to being secured (“pending”)? Is it reasonable to suggest that what you have (as an edge) is giving you an unfair advantage over incumbents and any potential entrants?

5. A clear market opportunity

Without a clear market opportunity, with potential customers wanting to buy your products at a price you can make a living on, then you don’t have a business. What makes the opportunity an opportunity as of now? How long will that opportunity stay open for (what’s your ‘window of opportunity‘)? Remember, markets are dynamic. Do you have weeks, months or even years? How is it that you (and your team) are going to be the people to exploit this opportunity? You need clear answers here, and do not fall into the ‘China numbers’ trap. I hear so many people say “Oh, the market is huge, $5.6 billion in Asia-Pacific alone, and if we only got 1% of this market then our revenue would be $Xxx million”. Better tell me how you are going to get your first 10 paying customers on board, how you are going to service them, and then tell me how you are going to scale from this 10 to multiples of 10, and 100, and 1000.

6. A great team

Often the investors do not necessarily understand what you are doing, the opportunity you have and how you’re going to do it, but they do know people. They will want to know who your team members are, what they bring to the table, and why you and your team are going to be the winners in this particular case. In the end, this is what they are investing in. People. The sort of people who will do what it takes to bring in the plan, make the sale, stay up late, work long hours, tweak the pricing model, adjust the product from feedback, be patient and persistent.

7. Cost of production & client acquisition as compared to price

Once we are sure you have a market, then some pretty straightforward economics come into play. How much is it going to cost to make the widget, or provide the service, compared to what you are going to charge (and customers are willing to pay)? Average costs may come down with increased output, so how many paying clients do you need to ‘break even’ and make the profits you are hoping to reap? I’ve had potential investors triple my costs and half my projected revenues, and only then decide whether to invest, so make sure things are robust. There should be clear daylight between your running costs and the projected revenue, but also guard against the unrealistic “hockey stick” revenue projections so often seen in pitch decks. Reality is rarely a hockey stick, it’s usually a slow, hard climb up a very long shallow mountain.

How much does it cost to acquire a new paying client? Hopefully, this cost will fall over time as you gain scale and your reputation grows. Ultimately you will want your clients to do the selling for you (by referring your service to their contacts), but well before they do this, investors will want to know what assumptions you are making around promotional activities which lead to sales, and the cost per new client as distinct to what it costs to then provide the service. All this needs to be covered by revenue. I’ve seen SaaS (software as a service, or subscriptions) products launched where the cost to acquire a new client is well in excess of what that customer is paying per year. That’s a journey you don’t want to undertake.

8. Strong clear business model

Investors will want to look at your overall business model. My favourite for online business is subscriptions (SaaS) which includes a monthly or quarterly or annual payment, which renews automatically, and where the new client coming on just starts paying upfront and uses the service without much human interaction. No expensive sales force or marketing plans required, it’s a slow organic build, but once past the point of break even, every new client is almost pure profit. Believe me, it took us 5 years at aussiehome, but on the other side of that hill are beautiful green pastures, bubbling brooks and gamboling lambs. You can sit under the tree strumming your mandolin, the sun is shining and it’s heavenly. Well, maybe not quite, but you get the picture. I’m not saying advertising or etailing cannot work, they can, but subscriptions models are wonderful, and the ones I favour.

9. Disruptive to existing market

This is not a prerequisite, but often in the area of tech startups you are disturbing an existing market, and forcing it off in another direction. Uber, Netflix and AirBnB are classic examples, and have each become billion dollar businesses in a relatively short period of time. It’s the tech subscriptions model at scale which is wonderful, and in each of their cases, they did not have to invest in heavy capital things like cars, TV stations or hotels. They thought about an existing market in a different way and used the power of online connectiveness to create value. Each one started out in a niche market before scaling to national, regional and global size. How I would have loved to have heard their initial pitches. I wonder if they truly understood the massive new business they were creating. I’d like to think not. They have a problem they wanted to solve it, and went out there and explored.

10. Exit opportunity

Remember, investors are also thinking “how realistic is it that I am going to get my money back, how many times over, and when?” Investing in tech startups is about as risky as betting on a horse, but even with a horse race you have a realistic understanding how you might get some money back, and when. You presume it’s gone, but if it returns, it returns many times over, and it’ll be a few minutes time (or not at all). Angel investing in startups is often a patient activity. Besides a dividend at year 5, it was 6 years before our investors even got a sniff of an exit opportunity, and 10 years before the final trade sale. If you are taking money from investors (and there could be very good reasons NOT to do this at the very stage you’re at) then it’s a responsibility you should not undertake lightly. For them, it’s an investment opportunity, that’s all. They need to know what realistic avenues they have for crystallising the/any value in their ownership, and when – a trade sale, dividends, an IPO, a merger, management buy out… all of the above?

I hope this is a useful list. It adds up to 10, as it happens, which is a fluke. I have probably missed some important factors, or over played others. But to me, with 15 years experience on all sides of tech startup land, it’s what I deem to be the major factors I look for these days …

Goodbye Commercialisation Australia. Though I never knew you at all…

CA is no more
Last week’s federal budget axed the Commercialisation Australia (CA) program (and a few others), saving $847 million from the public purse. It is to be replaced with a new $484 million scheme, the Entrepreneur’s Infrastructure Program (EIP), of which there is scant detail.

Hundreds of Aussie companies will be affected by the closure of Commercialisation Australia. (Over 500 have received funding over the past few years.) Not only will this stall their innovation & businesses, it will mean that less private funding will result. Over the last few years, most CA funding has attracted at least a dollar for dollar matching investment from angel or VC funds (often two dollars). While not for everyone, CA provided a platform for businesses to get going, and much needed advice (each business received an appointed AusIndustry officer).

When I ran my own startup I did not go for CA funding – there were too many hoops to jump through, and it took too much time to do all the admin. I had to get going quickly to take advantage of the emerging opportunities. But I know of many companies that have used the CA grant money as a lifeline for their fledgling business, and it’s sad to see it go. I spoke to one such business today and they were well into the process, and thought the whole thing had been a “complete disgrace”. It’s basically wasted almost a year of their time.

All this is strangely familiar. When Rudd’s Labor party came to power in 2007, they axed the previous system (Commercial Ready) and introduced Commercialisation Australia. Now the new mob have axed that and are bringing in their new thing, EIP.

I thus got to penning a short ditty in honour of CA’s passing… to be hummed along, and with humble apology to,  Elton John’s Candle in the Wind…

Goodbye CA
Though I never knew you at all
You were important to many businesses
Who were just learning to crawl

They crawled out of the woodwork
And they whispered into your brain
You set them on the treadmill
And many changed their name

And it seems to me you lived your life
Like a candle in the wind
Never knowing who to cling to
Til  the next party blew in

And many got to know you
Though their businesses were kids
Your candle burned out long before
Your legend ever did

A new Paradigm? Probably not

Paradigm Shift

[tweetmeme source=”ChazGunningham” only_single=false] Beware those telling you “it’s a new paradigm” or talking “paradigm shift” – it rarely is. In fact, such talk is so fanciful that you should pretty much discount everything the ‘paradigm shifter’ is telling you and assume the opposite. Paradigms don’t shift that much. They are invariably here to stay.

Aristotle (300 years BC) proposed new laws that governed how bodies moved. It was a radical departure from the received wisdom of the time. 16th century astromist Copernicus postulated how the planets rotated around the sun. Before then, the Earth was the centre of the universe – duh! Charles Darwin blew everyone’s 19th century mind with the Theory of Evolution and natural selection, providing an elegant explanation for the diversity we see around us that does not rely on a Creator. Einstein’s Relativity replaced swathes of Newtonian Physics. Keynesian macroeconomics told us governments could ‘prime the pump’ and spend their way out of a depression (rather than letting the market cure it with price decreases and deflation).

These were paradigm shifts. These people threw their theoretical hand granades into established wisdom, and the world was never the same again. We all moved off in a new direction, with a new understanding and our eyes a little more open.

Sadly, like the sports commentators who seemingly have to use the word “unbelievable” to describe just about anything they see (“an unbelievable passing shot from Serena Williams!!!“… errr no, we all just saw it, we believe she does this sort of thing all the time), so the concept of “paradigm shift” is over used so as to make it meaningless. A long run up of share or house prices has to be a paradigm shift. This is a new way of things we are told. It’ll never crash like it always has before. When grannys who should know better are investing their last nest egg into some speculative venture that is being spruiked as a new paradigm, head for the hills. We were told everything was fine in the late 1990s and that the new economy was a new paradigm. (It was actually, but that did not mean all business would instantly translate online.) We were told the run up in the financial sector in the 2000’s was a new paradigm with new financial instruments leading to a new heaven. Talk to Iceland, US, UK, Spain, Portugal and Greece about how that turned out. In 2006 a WA politician (who should have known better) described the mining boom as a new structural reality (three words where ‘new paradigm’ would have done).

No, paradigms do not shift very much. Completely new ways of looking at an established ‘truths’ are rare. It can happen, but it usually needs some genius to lay out the new way of things, and is preceded by years of work by said genius. These people are rarely spruiking stocks, financial instruments or whole sectors of the economy. You have been warned.

Always look on the bright side of life

A poll last year asked people for their favourite comedy song of all time – way ahead atop the pack was Monty Python’s Always Look on the Bright Side of Life from the Life of Brian movie.

Legend has it that the Python crew were holed up in Tripoli shooting the movie and had no ending. Endings had always been their weak point, with the rather silly ending to their first movie The Holy Grail descending into a modern day police chase (I felt almost cheated about that). Eric Idle came up with the song (which the movie company hated) but it has proved to be as popular today as it was when penned in 1979. I saw him perform it with full orchestra in Perth a few years ago and it brought the house down. It added a brilliant ironic twist to the end of the movie, which had been controversially sending up religion, or rather the absurdity of the over the top crowd adulation that can go along with it. I remember a teacher at school disdainfully asking us “you’re not going to see that movie are you?” Like punk rock and long hair, anything that was subversive and annoyed our teachers was going to have an attraction. I remember laughing til I cried, and still do – the comic timing (welease Woderwick!) and memorable lines (I think he said blessed are the cheesemakers… presumably all makers of dairy produce) were comedy perfection. Ex Beatle George Harrison, bless him, pretty much bankrolled the whole movie with a million quid cash injection mortgaging his house in the process. A wise investment for George as it would turn out, and his Handmade Films went onto to make classic likes Withnail and I,  Mona Lisa and Lock Stock and Two Smoking Barrels and be a major supporter of the British TV industry. George simply said that after reading the script, he had to see the film made. Python Terry Jones famously described this as the “most expensive cinema ticket in history”.

And finally, just on its own – it’s a bloody good sentiment. Be positive, always look on the bright side of life. Just purse your lips and whistle, that’s the thing 🙂