If you want to dectuple an industry, you’re probably going to need public capital to help, argues BlueChilli’s chief growth hacker, Alan Jones.
I know so many 40-something serial founders and seed investors who tell me there’s no shortage of capital in the Australian tech start-up scene, they just don’t see enough great ideas. It’s understandable from their perspective, but I don’t think it’s the right perspective.
Ask the demographic who we actually need to be the founders of the next generation of start-ups and there absolutely is a shortage of capital amongst 20- to 40-year-old professionals. They can’t afford to back their own ideas because of the high cost of living and they can’t attract seed capital because seed investors only want to back the sure bets.
Any time investors have so much deal flow they only have to back the sure bets, there isn’t enough capital.
Why? Because it’s the terrible ideas which are truly disruptive, which have massive entrenched competition, making products nobody wants to buy or even has a use for yet, which don’t have a clear revenue model or a go to market strategy.
For me the greatest strength of Silicon Valley is that crazy ideas get funded fast; amazing amounts and at absurd valuations that give the crazy ideas the possibility of lasting long enough to pivot into something truly world-changing.
That happens in Silicon Valley because there’s so much capital that you have to invest in crazy ideas just to stay in the game.
Australia’s start-up ecosystem will be roughly the same size it is now in a decade unless something dramatic changes to promote growth.
Private capital can’t be forced into investing in a sector but public capital is exactly what you need to stimulate dramatic growth.
It’s all about the return, not nation-building
Ask the private sector to invest in, for instance, a new highway system and it will build one two-lane tollroad that maybe satisfies demand for five years and then is overwhelmed, but investors all see a reasonable return.
Ask public capital to improve the highway system and you get the autobahn network of Europe, the great FDR-commissioned highway networks that dectupled the US economy in the 50s. You also get some inefficient, poorly planned and needless highways too.
But public capital doesn’t think “what’s the least I have to spend to make a 5 per cent return on this in the shortest time?” Public capital says, “We’ve got one, maybe two terms in office to really make a difference to the future of an entire nation. Let’s really dectuple some things!”
We can’t 10x our industry without government support and if we don’t 10x it, nothing will change.
That’s not bad news for angel investors like me; we can still invest in a few lazy sure bets and we can even take our time – tell them we want to see more traction, tell them we want a lower valuation and more favourable terms.
But a handful of other old guys keeping a lock on all the good ideas is not game-changing or nation-building, and that’s what I hoped to see from the Coalition’s budget this week – not big government but big, bold economic stimulus in the best sector for future growth: technology.
Instead the Coalition is defunding railways to fund more highways, encouraging professional women to drop out of the workforce for a year, and funding chaplains for schools. Don’t get me wrong; that would be a great recipe for an economic boom if this were the 1950s.
Alan Jones is a serial tech start-up entrepreneur, angel investor and the chief growth hacker at BlueChilli.