metarand

Innovation Bay Pitches In, Entrepreneurs Plate Up

Last night I hosted a fun Angel Dinner together with my Innovation Bay co-conspirators. Ross Dawson has covered the event most admirably - check out his blog post of the event. I’d like to thank those who attended: the entrepreneurs who stepped up to the plate and gave excellent pitches, NICTA for sponsoring, Table for Twenty for their excellent service, but most of all, Phaedon Stough and Ian Gardiner for pulling it all together on top of their busy day jobs.

As Ross mentioned we had someone from the Federal Department of Innovation introduce the group to the Commonwealth Commercialisation Institute. That someone was Donna Valenti and I am most grateful to her for making the trek down from Canberra.

I’d asked Donna to come along as a way to kickstart a dialogue around what the formula for success should be for the CCI. They are in a process of consulting the start up community and it was good to have her share their current thinking.

The key questions for me, with respect to the CCI are: How best can the Australian tech community (in its broadest sense - ICT, bio, nano - researchers, entrepreneurs, investors etc) leverage this incredible opportunity to ensure Australia punches well above its current commercialisation weight? What precedents exist that we can point to, what are the measures of success and how can the Government adequately gauge sufficient economic, social and other ROI for its decision to deploy $196m initially and then around $80m annually? And finally, how can we create an environment in which entrepreneurial magic happens, continuously?

As you can imagine, I have some strong thoughts about these questions, but I’d very much like to hear your thoughts and aspirations - in an ideal world without constraints, how would you envisage the CCI unfolding?

I’d also like to hear from folks, especially in Silicon Valley, who have thoughts around how best to leverage up the current funding for the Institute so that it extends the ramp further for Australian start ups.

Startup Lesson No.1: Make Your Own Path

Last evening I had the absolute privilege of being a judge in the Creative Sydney Back My Project initiative. Chosen from a deep pool of applicants eight finalists duked it out on stage in front of a packed room at Sydney’s Museum of Contemporary Art. In the background the Opera House flickered through a panoply of colours, exuding the freshness and vibrancy of Sydney and the mood of the crowd. On stage the pressure was on.

With just four minutes to present, the teams acquitted themselves extremely well and after taking questions from us judges the audience got to applaud for their favorite while we adjourned to deliberate. It didn’t take us long to realise a clear favorite had emerged from the crowd as the applause was deafening for one of the finalists.

Us judges didn’t know who this was, and independently we concurred with them - there was a clear winner. The team, Soapbox Project, had both wowed the room and for us judges we felt they would be able to achieve the most impact from the prize we could award them.

It was a great evening and especially gratifying for me to see the raw entrepreneurial and creative energy unleashing itself in this most wonderful of cities.

Now on to the topic of my heading. Every one of those finalists had one thing in common. A strong desire to carve their own way, a desire to be different, a desire not to follow the herd. This is the key trait required to be a true entrepreneur - and it is demonstrated most beautifully in the following video.

Keep watching. Keep doing:

[Via andrewg]

Australian Venture Capital: Super Shake Up

BusinessWeek has a great profile piece on prolific early stage venture capitalist, Josh Kopelman of US firm First Round Capital:  Super Angels Shake Up Venture Capital. The article’s take is to delve into the world of investors who are running counter to the cycle. While everyone else is running away from risk, these guys are running into the fire and making investments.

A core premise behind the piece is that in an IPO and acquisition-starved market, the math of billion dollar VC funds doesn’t add up. Enter the traditional, venture capital as cottage industry style fund - smaller, leaner, more agile and definitely more entrepreneurial, similar in nature to the people it invests in and both able to identify with and nuture successful entrpreneurs.

It’s a good article and well worth the read.

I am witnessing somewhat of a shake up in the VC industry in Australia at the moment as well. Together with two partners, I’ve been running Innovation Bay since November 2003. At the time I was an early stage VC and there were a number of other players in the market. Over the next 5 and a half years though, the VC industry has gone through some major contractions. The number of active VCs has totally shrunk, yet the demand for capital and savvy advice has continued to rocket.

Fast forward to mid 2009. Innovation Bay is hosting a new format event on the 9th June. We are putting on an Angel Dinner for a select subset of our members, many of whom easily fall within the BusinessWeek rubric of ’super angels’.

We are inviting along two technology entrepreneurs to pitch their ventures. I’ve been truly amazed at the number and talent of the entrepreneurs who have approached us with a view to being chosen. The hardest part for me is that I’d love to have them all along, but alas we have to limit the numbers for this event.

The demand, though, does point to a real need in Australia and I am hopeful that the newly announced Commonwealth Commercialisation Institute will play a major role in satisfying this demand.

I am also going to be a judge in a pitching competition for creative projects called Back My Project. It is part of the Creative Sydney festival of ideas and has a pool of cash behind it. Come along to the MCA on the 4th June if you are in Sydney - it will be loads of fun. It is all part of Vivid Sydney, the “biggest international music and light festival in the Southern Hemisphere”!

Restoring Liquidity in the Australian Venture Capital Industry: NVCA 4 Pillars Approach

I endorse the recommendations made by the US National Venture Capital Association to address the capital markets crisis for venture-backed companies in the United States and wish to further extend those recommendations to apply specifically to Australia.

Over the course of the past ten years the number of initial public offerings (IPOs) by venture-backed companies has seriously declined. A key form of exit for venture investors, IPOs have all but dried up with very few serious listings. In fact, in the US only six such companies entered the public markets in 2008, with none in Australia.

The contribution of venture-backed companies to economic growth is proven, and a concerted effort is needed by a range of participants in the capital markets ecosystem in order to restore a viable IPO environment. A change in approach by both the private sector and government is essential.

It is critical to both Australia’s competitiveness and the country’s economic recovery to boost the venture-backed IPO market. One can extrapolate that the same would apply to Australia when considering the figures in a report to be released in early May by Global Insight that estimates that in 2008 public companies that were once venture-backed accounted for more than 12 million U.S. jobs and $2.9 trillion in revenues, which equates to 21 percent of U.S. GDP. Further, it is estimated that 92 percent of job growth at these companies occurs once the company enters the public markets.

As Mark Heesen, the president of the NVCA says, “This capital markets issue is not just a venture capital industry problem; it is a U.S. economic concern. If America wants to maintain its economic leadership and continue to grow and innovate, we must re-invigorate the public markets and strive towards healthier IPO levels similar to that which our country enjoyed in the 1980s and 1990s. Without this activity, we can expect job growth to disappear over time.”

In Australia this is a more pointed issue. Much of the country’s core intellectual property finds itself being commercialised offshore with minimal economic, environmental or social benefit back to Australia. Without a viable Australian IPO market, there is little chance that there will be a comparable venture capital ecosystem in place and much of the country’s incredible research will either be stillborn or shift offshore.

I agree wholeheartedly with the NVCA’s Four Pillar Plan as set out below and call on my Australian colleagues to rally around formulating a uniquely Australian solution to the crisis faced here.

The NVCA Four Pillar Plan to Restore the Venture-Backed IPO Market
At the core of the issue is a recognition that today’s market environment is challenging with respect to the issuance of small cap IPOs. There are multiple reasons as to why this is the case including the high costs of going public, the constituents involved in the process, and the restrictions placed on potential public companies. The NVCA recommendations, which seek to address these issues, comprise four categories or pillars, two which focus on changing behavior in the venture capital market and two which involve the government exploring policies conducive to venture-backed IPOs.

Pillar I: Ecosystem Partners
Within the last decade, venture-backed companies have been faced with fewer choices as it relates to investment banks and accounting firms that will assist in the IPO process. While the major investment banks continue to operate, the “four horsemen” boutique investment banks of the 1990s (Alex Brown, Hambrecht & Quist, Montgomery Securities, and Robertson Stephens), which specialized in IPOs of venture-backed companies, no longer exist. Further, the fall of Arthur Andersen and the resulting pressure placed on the Big Four accounting firms has, in many markets, left a void in terms of quality auditing services available for these smaller companies.

Against this backdrop, the NVCA believes that the venture capital industry must do more to promote alternative ecosystem partners while engaging with existing members to identify ways to better serve the needs of emerging growth companies. The Association has begun to engage in talks with boutique and major investment banks as well as the Big Four and other public accounting firms about how they can also better serve the needs of small cap companies. The NVCA also intends to encourage the use of a broader array of service providers such as the “Global Six” including Deloitte LLP, Ernst & Young LLP, Grant Thornton LLP, KPMG LLP, PricewaterhouseCoopers LLP and BDO Seidman LLP.

Pillar II: Enhanced Liquidity Paths
There is consensus among many within the capital markets ecosystem that the distribution system that connects sellers and buyers of venture-backed company new issues is broken. There are many drivers behind this disconnect including mismatched expectations in terms of issue size, the lack of sell side analysts, and the propensity of hedge funds to buy and sell stock quickly. All of these factors contribute to a lack of an adequate distribution channel and considerable post-IPO market volatility.

To offer small venture-backed companies an enhanced distribution system for the sale of initial stock, the NVCA endorses concepts such as Inside Venture which is a private market platform that connects qualified companies that intend to IPO within 18 months with pre-screened cross-over investors. These buyers commit to buy and hold these stocks for the long term. Other providers with similar models include Portal Alliance (NASDAQ), SecondMarket and Xchange. Additionally, the NVCA will help raise awareness about pro-active M&A roll up strategies of smaller portfolio companies to achieve IPO critical mass and global alternatives to the U.S. public markets.

Pillar III: Tax Incentives
The NVCA has long asserted that the government must support a tax structure that fosters capital formation and rewards long term measured risk taking. To support a more vibrant IPO market, the U.S. must maintain tax policies that have been proven to encourage venture capital investment so that the pipeline of promising IPOs is as robust as possible. Further, Congress should consider adopting new tax incentives which would stimulate IPOs, at least in the short term.

The NVCA will continue to advocate strongly for a capital gains tax rate that is globally competitive and preserves a meaningful differential from the ordinary income rate. The Association asserts that venture capitalists who are successful in building new companies should continue to be taxed at a capital gains rate for any carried interest that is earned over the long term. The Association also intends to explore the possibility of a one time tax incentive for buyers and holders of IPOs as well as increasing the holding rate for capital gains status to two or more years.

Pillar IV: Regulatory Review
From a regulatory perspective, the last decade has been characterized by a series of broad sweeping regulations aimed at curbing serious abuses within the financial system but fraught with unintended consequences for small pre-public and public companies. From Sarbanes Oxley (SOX) to the Global Settlement to Reg FD, small venture-backed companies have been faced with costly compliance and increasing obstacles to enter the public markets as a result of regulations intended for larger multi-national corporations. The NVCA strongly supports regulation and protecting investors where necessary but does not support a “one-size-fits-all” regulatory approach.

To wit, the NVCA will advocate for a full systematic review by the Securities and Exchange Commission of recent regulations which impact small cap companies. This review would include interpretations of SOX, pre-IPO financial reporting requirements, the separation of analyst and investment banking functions, and private placement requirements. There are opportunities within existing regulations to tier compliance so as not to overburden emerging growth pre-public and public companies at a time when they need support from the government, their auditors, and the markets.

“We are optimistic that the recommendations included in the Four Pillar Plan will contribute to a more vibrant IPO market for venture-backed companies over the long term,” concluded Doll. “The NVCA remains committed to fostering an environment that fuels significant economic growth and job creation. The adoption of our recommendations is a critical element of our country’s continued global leadership and ability to bring high growth, innovative public companies to market.”

We Asked And iPhone 3.0 Will Deliver: Micro-Payments

As Last 100 points out the recent announcement by Apple that the next version of the iPhone software, 3.0, will enable In App purchasing will be a huge boon for micropayments.

This is a huge step in the evolution of the iPhone platform towards a fully-fledged ecosystem. I also anticipate that it will bring about a boost in virtual goods.

Gizmodo thinks this is bad news, but meh, what do they know!

The New Deconomy: Advertising Under Siege?

Yesterday I mosied around the Sydney ad:tech conference. Being in that wonderfully liberating point of time of seeking my next windmill to tilt at I figured it to be a worthy destination.

My first impression, after factoring in the change of venue from last year, was that it was much subdued. Bearing in mind how photographers see things in capture frames, I spoke with one of the photogs doing the rounds and she had the most wonderful comment which totally summed up the atmosphere.

Her takeout was that she was reticent to take pictures of speakers whilst their slides painted doom and gloom backdrops. She kept finding herself hesitating and waiting for more upbeat slides - which didn’t often materialise.

Last year there was almost a feeling of whimsical discovery - ad execs and marketers in a discovery comfort zone: “tell me again how social media works?”. This year - a totally different picture: “we’ve gotta figure a way to make money from this social media stuff”.

I was also somewhat bemused by the rise of Twitter across the conference consciousness. It was definitely the tech word of the day - much like Google was on everyone’s lips a few years back. Expect a Twitter consultant or two to pop up near you soon. It’s the new SEO in the new Deconomy.

Seriously though, the new epiphany for an industry that is increasingly under pressure, will soon be around engagement and I suspect there to be a panel or more at next year’s event on this topic.

Next Line On The iPhone Horizon: Micropayments

Apple has a tried and tested approach of creating complete, yet simple ecosystems and the one it has developed for the iPhone is testament to this genius.

However, ecosystems need to evolve or they devolve to the lowest common denominator. Much has already been said about the “commoditisation” of apps to very basic one offs with gimmick appeal.

Allowing for a deeper level of engagement within an app is key to this “appolution”. And one of the most important steps forward in achieving this in my view is to open the spigot for micropayments.

Om Malik has also called for this:

I would be spending a lot more if Apple extended the API to allow for the ability to transact within apps.” Nothing like buying a song, an application or a ringtone with a simple click, only to be billed in a batch, later. Such buying habits are the reason why we believe Apple’s iPhone could prove to be an ideal micropayments platform.

Inverting The Enterprise 2.0 Risk/Revenue Paradigm

I’ve been involved for over a decade in various shapes and guises selling software as a service to enterprise. But had yet to find an innovation in pricing models that truly reflected the value/volume conundrum that so often stifled adoption of solutions that only truly demonstrated their value at mass enterprise usage. 

And then along came this post from Julien Le Nestour - pure brilliance. As he points out:

Every product bearing what is usually dubbed a “social component” has significant network effect and peer production dynamics. The more employees actively use the application, the more they — and so their organization — extract value out of its use. Marginal benefit per user, and hence total value, thus increases with the number of active users. Yet, most pricing structure are degressive, Volume-Discount schemes: price per user decreases with the number of users. Price and value varies in opposite ways.

Take more upfront risk for deeper customer deployment

Using Yammer as a case study he argues:

The more users will use Yammer, the more value the client organization will get out of it. In most organizations however, the value of a Twitter-like for corporate use will not be obvious, and will slowly build up with time, as it spreads internally.

Yet, pricing is desperately of a Volume-Discount type, making an after-pilot deployment with a small group of early-adopters look very expensive per user (large companies will compare it to the price per user for fully deployed applications like email or IM). Smart vendors will reverse the price structure, offer organizations the opportunity to try out the new technology, experience its value over time after a pilot, and scale up accordingly. They have to forgo immediate but short-term benefits, in order to get a chance to demonstrate their value added and reap the benefits as the client scales up its use.

I suspect there is a good deal of tweaking that will need to be done to make this model work in practice so as not to totally shift the burden of risk to the technology supplier, but inverting the model is a good start. 

Mapping Minds: Google Trends Meet Twitter Thoughtstream

Two of the most powerful tools for currently mapping how humanity thinks are Google Trends and Twitter Search.

I whipped up an analysis of Google versus Twitter on Google Trends and the result put Twitter far ahead in our collective consciousness. This is a really useful tool for tracking across a timeline, with clear pointers to inflection points, but it does nothing for point of origin or realtime tracking.

This is where Twitter’s Search function shines. I did an exercise last week in which I tracked a number of key words on Twitter. “jobs” not surprisingly brought up a bunch of results, mainly from job board feeds, “Sydney” alerted me to a number of interesting events taking place in the city, but the clear topic du jour was the “iPhone” - the amount of traffic on Twitter related to this device was enormous.

Imagine if we could mash up these two tools, and extend their reach beyond Twitter’s audience - this would be an extremely powerful way for marketers, politicians and many others to map our minds.

Hattip to Erick Schonfeld for getting me thinking about this.

Feed Your Social Media: Facebook Grows On Attention

I have been a huge advocate of feeds - they are an incredible attention grabber, able to keep users engaged and as a result drive up traffic on social media sites.

Take the Twitter phenomenon - and apply it to the real world analogy of being in a coffee shop having a conversation or penning an email when you overhear something - just the sound of a keyword or two can grab your attention away from your current activity.

Facebook cottoned onto this recently and as Eric Eldon over at VentureBeat points out, this has been hugely to their advantage.