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Saturday, 05 December 2015 13:18

Successful start-ups start with a great idea Featured


Start-ups are born from an exceptional niche concept mixed with a lot of determination to succeed, and an entrepreneurial flair in order to attract funding to grow.

The occasion was a media briefing hosted by Amazon Web Services (AWS) and facilitated by Ian Gardiner, Start-up Business Development Manager for Australia and New Zealand. His role is to help grow the technology start-up ecosystem in Australia and New Zealand.

But it was Craig Blair, Managing Partner in AirTree Ventures and a self-confessed serial entrepreneur and investor that set the tone. “We see 1,000s of start-ups every year – we do maybe 10.” AirTree is focused on helping outstanding entrepreneurs grow amazing businesses.

Present were six start-ups that have made it past the seed funding (sweat and tears stage), Angel round (outside investors buy ‘stock’), to what is known in Venture Capital world as Series A funding and then perhaps Series B or even Series C. The further up the scale, the more the business is succeeding and the more preferred stock is sold to investors in return for their investment.

“There is more capital than ever going into the start-up ecosystem – as much as $1.5 billion in the last 18 months,” said Blair.

So began a really interesting discussion by some very young, driven, passionate, enthusiastic people who all had a business based on technology delivered from the cloud. Present were:

  • Brett Porter – SafetyCulture which is a cloud based safety auditing system
  • Bridget Louden – Expert360 that married top consulting talent ‘on-demand’ with small and large business
  • Dean Jones – GlamCorner that hires out designer dressed for any occasion – and keeps his fashionista wife very happy
  • Kris Howard – Canva that set out to create the easiest design program in the world and has 7 million users, over 50 million images in its library, nearly 50 million designs created and has been going just over two years.

Gardiner pulled all this into perspective – and why AWS was keen to both celebrate their success and to let them tell their stories. From AWS’s perspective its Cloud had helped all of these start-ups become global companies from the beginning (and we good naturedly laughed that SafetyCulture was Townsville based).

They also benefited from the cloud by not having the usual capital costs (CAPEX) of buying computing infrastructure. Cloud also meant instant saleability – up or down; flexibility – if it doesn’t work start again and do something else that will; and to produce systems aimed at mobility.

Many had also used ‘desk-spaces’ - the facilities of innovation incubators - to help them get the idea right and to access initial finding – although Jones had self-funded to start with.

Porter started first. “SafetyCulture’s goal is to get safety into the front line using mobile devices and synching data to the cloud. Our funding was $6 million and we now process 30,000 forms a day (the software is based around user-definable templates and checklists) and have more than 80,000 users.

Howard spoke about Canva, “We have had a 390% growth [which make it very attractive to investors] and our total funding so far has been $21 million [not bad for a 2-year-old company].” Her role was as Engineering Co-ordinator and she looked after business practices and quality control.

Jones stated that GlamCorner was started as a solution to the age old dilemma “I have got nothing to wear.” The solution came online in late 2012 and apart from some seed-funding its growth has been self-financed to date.

Louden said that Expert360 was the ultimate in the sharing economy – sharing some 6,000, enrolled and vetted consultants (60% Australians) with small to large companies that want advice or have projects to complete. It has $1 million in seed funding and then raised $5.1 million and later $4 million to grow. She said that the company had proven that business needs on-demand experts reflected in the high growth in freelancers.

The conversation returned to specific start-up issues. Much of what follows is paraphrased.

Funding is all about growth and gaining ‘scale’. You need capital to start but use funding to grow – not spend on fixed infrastructure. Cloud offers scale and there is no need to worry about IT managers, backup and more.

Funding is about finding investors that have the passion to back your idea. They initially may be friends and family but to really grown you need to seek out seed funding and venture capitalists. AirTree’s smallest investment to date is $500,000 and its largest is $5 million. Some 35% goes into seed funding (highest risk), 45% into Series A, and 20% into Series B funding. There are not many options for raising over $5 million in Series A funding in Australia. Investors expect rapid growth and return on investment.

Niche ideas must be acted on quickly “If a competitor raises money before you then you are out.” Ideas need to be defendable too as others will be quick to try and emulate or steal them.

We spoke of the cost of venture capital. “You have to balance out how much control of the business you want with how much investment you need. Most investors want owners to have ‘skin in the game’ and look for the founders to retain between 60-70% with investors taking the rest. “Do you want to be the king or do you want to be rich?”

We spoke on the yet to be announced Government Innovation Statement – comments were guarded. However, all agreed that the Federal Government and the Prime Minister were serious about innovation and fostering start-ups. “There is a growing sentiment that helping nascent companies to get started and grow is a good thing for Australia.” There was some comment on the importance of research and development funding (it was good) but there was a comment that while start-ups needed the 40% tax concessions it was inequitable that larger companies [Google was mentioned purely as a representative one] also receive the same concessions.

The Government could do more in reducing red tape – especially where it was hard to get qualified staff and importing talent on 457 Visa’s was the only answer. Current issues such as the lack of Australians that have studied science, technology, engineering and mathematics (STEM) meant that local talent was scarce – especially in Townsville. There is enormous red tape in getting qualified people into the country then there are the resources to keep them here.

We spoke of the future – the next five years.

  • Current valuations of some companies are perhaps ‘overstated’ and a readjustment will happen. This is in reference to plentiful investment funds being available – supply driven demand
  • Capital may flow back to traditional investment unless start-ups have a great idea and matching business plan. Those who don’t will struggle to find funding
  • Successful start-ups use cloud, software as a service, infrastructure as a service and more to concentrate on what they do best.
  • Funding may start to flow from institutional investors

So ends a great discussion that previously I had little knowledge about. Sure, the companies present had ‘made it’ and sure, AWS had helped but I was astounded at the level of funding available and the help available to start-ups to become viable businesses.

Yet I think back nearly 40 years when I had to hock my car to start a business. How I had to reinvest every cent in the business (small business owners were the new ‘poor’), and how inch by inch you crawled over every obstacle to build a successful small business.

The opportunities these start-ups have – admittedly some of the cream of the crop – are amazing.

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Ray Shaw

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Ray Shaw ray@im.com.au  has a passion for IT ever since building his first computer in 1980. He is a qualified journalist, hosted a consumer IT based radio program on ABC radio for 10 years, has developed world leading software for the events industry and is smart enough to no longer own a retail computer store!

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