Shedding Light On Kickstarter, Open IP and Moore’sCloud

I’m a big fan of Kickstarter as it’s empowering entrepreneurs to come up with a whole range of interesting products that may not have seen the light of day through traditional funding mechanisms.

I’ve personally backed a Kickstarter project called Light by Moore’sCloud. The product is billed as:

Beautiful, intelligent, connected light. Open hardware, open software, endless possibilities for play and delight.

Not only are they developing a fun product, but they are pioneering the way intellectual property is distributed as well. As the team says in their latest update; they are an organization dedicated to sharing all of our intellectual property as freely and as widely as possible.

I caught up with Mark Pesce, the Sydney-based serial entrepreneur behind this project and asked him a few questions:

>What prompted you to build this?

It’s something I’ve attempted several times over the last decades, but only now have we gotten to high-performance (what used to be called ‘workstation class’) computing at an incredibly affordable price point – around $12 in components. It opens the door to entirely new design methodology. And it’s why we’re named Moore’sCloud.

> What is the biggest challenge you face in getting the product to market (not including fundraising)?

There are a lot of subtle UX issues involved in creating a device that has a lot of interiority; how do you present that depth in a way that is not confronting to people without deep technical skills?

> When can I expect my own Light – in the Xmas hamper?

We hope to have them rolling off the assembly line in May.

> Is this the first of a range of products you plan on releasing – what else do you have in mind?

Christmas lights, for one thing. And room lighting. But we see ourselves as getting a toe into the pond of the Internet of Things. We’ll learn a lot that can be applied to other possible forms and appliances.

Thanks Mark! I am certainly looking forward to playing with the product.

They’ve currently got 1,721 backers with $202k pledged towards their $700k goal. 13 days to go – sign on and make a pledge!

 

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Australia’s Technology Prowess: The Internet and Beyond

 

Asher Moses has written a wonderfully inspirational piece in the Sydney Morning Herald regarding the rise and rise of Australian entrepreneurial talent. In it he explores how well some of the Internet-focused startups born in Australia are doing in sourcing Silicon Valley venture capital.

It is a great story and touches on much of my experience over the past 15 years. Australia and, closer to home – Sydney, has an incredible wealth of entrepreneurs. But in Asher’s story there is also a hint at the dark side. Let me paint the picture in three ways:

1. Financial arrogance

While I was living in Silicon Valley I assisted a startup to raise its first round of funding from a tier one VC firm, in two weeks and right in the middle of the GFC. Fast forward to today and as Asher has eruditely pointed out, tier one VC’s from Sandhill Road are currently falling over themselves to get the attention of Australia web startups.

Against this backdrop, picture me meeting with a senior executive at one of Australia’s most successful investment banks in the past fortnight. In that meeting I was told how incredibly hard it is to find funding for technology businesses, how no-one is investing in this space in Australia and blah blah. Can you see the disconnect here?

I personally believe Australian ‘investors’ have a heightened level of financial arrogance driven by an absolute ignorance of technology and also tainted in their financial risk profiling by resource-based investing (mining etc).

As long as this position remains I can fully understand why Australian entrepreneurs are US-centric. For Australia though this amounts to a major loss as we are not only losing talent in droves, but also access to ROI as our entrepreneurs grow great businesses with other people’s money!

2. Technological bias

For as long as I can remember Australian government granting schemes and venture firms have had a bias against Internet-related companies. They have preferred to back biotech businesses and other science-heavy companies that are notoriously hard to scale globally and which usually have a hard time getting international attention due to the tyranny of distance.

It is heartening to see this position starting to shift and that web-focused ventures are in fact now getting more access to schemes like Commercialisation Australia.

3. Web-centrism

While I am ecstatic about Australia’s well deserved recognition (finally) for great entrepreneurial talent, I am somewhat concerned that we get seen as only producing web-centric talent and intellectual property.

The Australian Federal government pours some $9.8 billion into public research and there is incredible technology floating around within the countries 43 universities and even more public research institutes (by contrast the US only has 41 universities). However, most of this never sees the light of day. It gets locked up in over-protective tech transfer quagmires and/or stuck in the valley of death between research proof of principle and commercial proof of concept due to a massive lack of funding for this gap.

In contrast, in the UK companies like Imperial Innovations and the IP Group, and Allied Minds in the US, are absolutely going gangbusters building businesses around research intensive technologies and assisting IP through the valley of death.

Australia desperately needs a similar business and it is on my to do list for 2012 to see that one forms. We need to not only continue to support our web-centric entrepreneurs, but also inspire generations of Australians to become tech entrepreneurs in areas that can have major global impact such as energy and health!

 

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Fewer, Deeper: Utah Points The Way To Successful Technology Commercialization

I’ve been tracking Utah’s meteoric rise up the technology commercialisation charts for some time now. In 2010 Utah State University reached the number 1 spot in terms of tech startups created. MIT came in at 2nd spot.

But it’s not all a numbers game. According to Robert Behunin, their VP of Commercialization & Regional Development, their focus is “fewer, deeper“.

Full-scale commercialisation efforts at USU may result in fewer companies spun-off from university- developed technologies, but those companies to come out of USU have industry support, by way of partnerships, and capital raised.

He says they seek good science and good solutions that have a relevant place in the market. It’s a program in which everybody wins…

They are currently pursuing close to 60 active commercialisation projects and have a pipeline of 40 earlier stage projects.

Very impressive!

The key take out for me is that they are focused. Rather than working on a myriad of low impact activities in a process heavy, reactively-driven way, they are focused on fewer, higher impact projects that can link them much closer together with the demands of industry in a symbiotic partnership from which all players can create and extract maximum value.

 

 

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Top Four Factors Driving Innovation: For Sydney From Jerusalem, via Auckland

Professor Sir Peter Gluckman, the Chief Science Advisor to the New Zealand Prime Minister, gave a talk on Monday, 5th December titled Innovation through science: the pathway to economic prosperity–a conversation with Auckland.

Much of what he has to say about Auckland could very easily be transposed and repeated largely and boldly in capital letters about Sydney.

His talk is about innovation, of the science and knowledge and based variety,  and how it can be used to boost the economy of a particular city or region through the creation of a well-developed ecosystem.

He defines innovation as being about using knowledge, research and experimental data to generate a product or service which has impact, generally by way of producing something to sell.

He points out that there are two myths that need to be overcome when discussing and developing a thorough understanding of innovation.

The first myth is that innovation is achieved by individuals working as backyard inventors. He rightly points out that the bulk of innovation emanates from multidisciplinary interactions. The reason for this is that innovation is first and foremost about doing things differently and as such requires a major shift from reductionist linear thinking. Such shifts mostly take place when disciplinary boundaries are crossed.

He points out that one of the attractions of big science projects is that they can become the nucleus and focal point for disparate disciplines to work together, leading to great new ideas. He uses the World Wide Web and wireless broadband as examples of incredible innovations that came out of such big science projects.

The second myth is that innovation takes place within a linear process moving in an orderly fashion from basic research to applied research to development to sales that is predictable in direction and time and readily divisible into these four categories. He very correctly points out that in science-based innovation, at least half the products that are developed and sold originate in research in an area of activity well away from that that started it.

He points out that science-based innovation requires at least two major components–firstly a sufficiency of ideas flow and secondly an ecosystem that’s allows the market and scientist to get close together. Statistically, he states that the Israelis believe that they need to evaluate at least 100 ideas that are thought to be of value in order to see one that actually justifies investment. As he says, this gives you an idea of the ecosystem we have to build.

And this is where we can start transposing because he points out that the Israelis don’t have any more researchers than New Zealand, just a better linked up system. The same can be said about Australia.

There are, of course, other components required to create a complete innovation ecosystem, as he points out these include access to capital, to professional expertise in capital raising, in IP management, experts in dealing with regulatory affairs and skills in managing an innovation company–as these are markedly different to the skills required to run a property investment company or, equally relevant to the Australian context, a mining, professional services or agricultural company.

He pauses for a moment to reflect on how New Zealand came to be in the position that it is in. He feels that their failure to move as far as other small countries in developing a knowledge economy is  partly a function of their cultural history. Australia has been called the lucky country and he could very well have been speaking directly about this country, as opposed to New Zealand, when he states: we have been a lucky country, able to live off of farming. Of course, in Australia we would add mining to this picture.

He feels that the lack of a sense of crisis and urgency led to an undervaluation of the role of intellectual activity and science, and contrasts this to countries like Israel and Singapore where a real sense of crisis led them to invest heavily in knowledge and science and science-based innovation. They had to use the only natural resource they really had–the combined intellectual horsepower of their well-educated populations.

We do not yet have a sense of acute crisis but things are starting to change. We cannot get rich by carrying on doing what we do now, and yet there are enormous demands for a better social system, for higher wages, for a cleaner environment. Clearly we have to be richer to achieve these things. And what is our unexploited asset–the very asset other small countries have recognised–we have a good education system and we have clever people, we have a stable society, we are corruption free–we are good place from which to make new knowledge, protect it, exploit it and export it. Even if we were in better shape than we are, there is another reason to invest more in the knowledge economy–we need to diversify, since diversified economies are more robust.

Ditto Australia.

He repeatedly used the term ecosystem in his talk. He did this intentionally. In Australia, as in his country, they have a habit of believing in single interventions rather than integrated systemwide approaches.  He notes that in every country that they looked at as a potential comparator and which has done well, that country has both recognised and acted on multiple points across the whole system simultaneously.

This is a point I have repeatedly made about Australia as well. We have had some great programs over the years but these have been provided from the stance of a single intervention strategy rather than viewing the ecosystem as the complex system that it is.

MULTI-LAYERED INNOVATION ECOSYSTEMS

This part of his talk is music to my ears:

Key to all of what I have been saying is a need to have a multi-layered innovation ecosystem. It has many components. It has to have local government committed to promoting, encouraging and if necessary, part-financing an “innovation city”. It needs the development of technology parks clustering academia and entrepreneurs along with support services. It needs institutions–hospitals, universities, technical institutes–to cooperate rather than compete. It needs venture capital. It needs a commitment to work together and to attract the best and brightest to want to live in Auckland (transpose SYDNEY). We cannot leave it all to central government even though their role is critical–the evidence is clear, local government must play a role.

 We have several academic precincts and we need to work out how to integrate and use each to maximal advantage without destroying their individuality.

WHAT WILL DRIVE MORE INNOVATION?

Four things matter, according to the Israeli experts he has spoken to, in driving more innovation. These are education, basic research, a holistic approach and a risk-taking attitude.

He goes on to talk about the Israeli model for incubators that are owned jointly between investors and the local authority or between the local authority and the local university. He points out that this model is based on a high ideas flow, and aggressive culling, high levels of investment and international management and technology input from the start. New ventures are supported with loans, not grants, to encourage entrepreneurial activity – written off if the product does not make it. Auckland has to work as “Auckland Inc.” to attract more risk capital to Auckland. It is uniquely placed to create an environment for this type of innovation.

Again, ditto Sydney.

KEEPING IT LOCAL

Much like Sydney, and the rest of Australia for that matter,  Auckland suffers from a major brain drain. All too often  we/they lose great entrepreneurs and scientists to other parts of the world. Recognizing this he highlights that while it’s one thing to build knowledge-based businesses, it’s quite another to keep them locally. Essential to doing that is to create an environment that keeps the R&D function in our city.

We have to build a city and a country that really values knowledge and science and entrepreneurship. We need technology parks, we need an intertwining of researchers, in the public and private sector, we need a world-class university and a vibrant knowledge-based ecosystem.

Spot on, and ditto Sydney.

The investment needed is partly fiscal, but so much more of it is psychological and motivational. Let us do the things that enable Auckland to brand itself as a city of innovation; a smart city in a smart nation.

Well said, Sir Peter!

At one point Sydney seemed to be heading in the right direction. We had a focus on brand Sydney, but I think we’ve lost the way – let’s focus laser-like on Sydney Inc or we will soon be shown up by our southerly neighbours!

 

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Singapore: Paving A National Framework for Research, Innovation and Enterprise

In July 2009 I was compelled to write a paper on how I saw the Australian Federal government could assist in creating a ecosystem for research, innovation and entrepreneurship. At the time they had announced that they were going to set up a Commonwealth Commercialisation Institute. I wanted to give them some of my insights after more than a decade in the space in Australia and the US.

Fast forward more than two years. My paper was largely ignored. Instead the Federal government set up Commercialisation Australia, which is essentially yet another granting body. It does little more than hand out staged grants, there is no hint at the matrixed ecosystem this country so desperately needs to move itself forward.

In contrast let’s take a look at one country that is powering ahead: Singapore. Note that there are others doing great things too, but let’s just focus on one, that’s close enough geographically to really show off how far behind Australia is lagging.

Set up as a department within the Prime Ministers Office in 2006, Singapore’s National Research Foundation sets the national direction for research and development by putting in place policies, plans and strategies for research, innovation and enterprise, funds strategic initiatives, builds up R&D capabilities and capacities through nurturing Singapore’s talent and attracting foreign talent, and co-ordinates the research agenda of different agencies focused on transforming Singapore into a knowledge-intensive, innovative and entrepreneurial economy. One of the NRF’s aims is to make Singapore a talent magnet for scientific and innovation excellence.

In March 2008 Singapore’s Research, Innovation and Enterprise Council, which is chaired by the Prime Minister, approved the establishment of a National Framework for Innovation and Enterprise (NFIE). This framework was set up to encourage universities and polytechnics to pursue academic entrepreneurship and turn their R&D results into commercial products for the marketplace, while also assisting entrepreneurs to start-up technology based companies.

Currently the NFIE has a budget of $360 million, which is used to support a range of ecosystem creating initiatives, namely:

  • Early Stage Venture Funds – the NRF invests $10m, on a 1:1 matching basis, to seed VC funds for investing into Singapore-based early stage high-tech companies. The VCs can buy out the NRF’s share within 5 years by returning NRF’s capital with a nominal interest;
  • Proof of Concept Grants – grants of up to $250,000 are provided for technology proof of concept development projects, both for researchers and companies;
  • Disruptive Innovation Incubator – this scheme supports a business incubator which invests in Singapore-based start-ups with disruptive innovation;
  • Technology Incubation Scheme – the NRF invests up to $500,000 in Singapore-based start-up companies that are incubated by selected technology incubators;
  • Translational R&D Grants for Polytechnics – the provision of development grants of up to $500,000 to researchers to carry out translational research;
  • University Innovation Fund – the provision of funding to the Singapore universities for approved innovation-related activities;
  • National Framework of IP Principles – a framework designed to speed up the licensing of IP from universities and research institutes to industry;
  • Innovation and Enterprise Institute – the Institutes objective is to help develop the innovation and enterprise ecosystem by providing the necessary information, research methodology and relevant networks to galvanise innovation and enterprise activities in Singapore;
  • Global Entrepreneur Executives – this scheme is aimed at attracting high-growth and high-tech venture-backed companies with global entrepreneurial executives in ICT, medtech and clean tech to relocate to Singapore. The NRF invests up to $3 million in matching funding to eligible companies via convertible notes; and
  • Innovation Vouchers Scheme – local enterprises are give vouchers under this scheme that are redeemable for R&D and technical services from universities and public research institutes.
I’ll be visiting Singapore in a few weeks time and look forward to learning more about their vision to become a leading entrepreneurial ecosystem.

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.”