Pollenizer’s Phil Morle (left) and Mick Liubinskas. “We’re in the beginning of seeing a bit of a consolidation. Certainly we’ve decided to do fewer projects that we can invest in more deeply,” says Morle.
Photo: Tamara Voninski
With the government set to announce $100 million in new venture capital funding, a maturing angel investment scene and a couple of new funds, 2013 could be a big year for the local technology start-up scene.
But amongst the optimism is an undercurrent of caution as the boom in start-up ideas is outstripping support for new businesses.
“We’re starting to see the effects of the sheer number of accelerators and incubators making great companies and the ecosystem not being able to support them,” the co-founder of digital company incubator Pollenizer, Phil Morle says.
There’s also a feeling that although local start-up incubators have had a few early wins – Startmate’s Grabble and Pollenizer’s involvement in Spreets and Dealised among them – there needs to be a higher conversion rate of ideas being turned into significant companies, and crucially, exits to keep the investors happy.
“From an incubator standpoint, there’s a couple of us that have been going for a while,” Pollenizer co-founder Mick Liubinskas says. “We really need the proof in our pudding, of a couple of businesses getting through to serious revenue ... an exit or a major milestone like a big Series A [funding round].”
Silicon Valley doomsayers are predicting a Series A crunch due to the explosion in earlier seed funding, but the reality in Australia is that money has always been hard to find. Even when the latest round of government’s Innovation Investment Fund is announced, cash will not be easy to come by.
As more incubators are churning out more start-ups, for the Venture Capital [VC] funds this should mean “high quality deal flow of rich pickings and good prices and a tough time for the start-ups,” Morle says. “We’re in the beginning of seeing a bit of a consolidation. Certainly we’ve decided to do fewer projects that we can invest in more deeply.”
But there’s promise to be taken from the wheeling and dealing of 2012. The Australian Financial Review has put together a short list of start-ups to watch in 2013. They grabbed some headlines in 2012, but can they push on in 2013?
Three former IT consultants lured PayPal co-founder and early Facebook investor Peter Thiel to Silicon Beach. Thiel’s Southern Hemisphere-focused fund Valar Ventures was part of a $1.2 million funding round that also included Seek co-founder Paul Bassat’s new vehicle Square Peg Ventures and Melbourne venture capital fund Starfish Ventures. The deal was further proof of the interest of American funds in early stage companies, and not just at the growth VC stage which had been seen in Accel’s prior investments in Atlassian, 99Designs and OzForex.
The start-up, a portfolio company of Sydney accelerator Startmate, now has an impressive list of backers, but the praise lavished on founders Mike Baukes, Alan Sharp-Paul and Leo Venegas is focused on Scriptrock’s defensible technology. The trio has created technology for technologists. The software is for technology professionals to test and track their server configurations. The business is approaching 2000 customers, less than a year after it was established.
“The Scriptrock guys have done phenomenally well,” Liubinskas says. “They have a very technical focus, but have done a great job at turning a technical product into a great business. Some people get lost in the tech. They just build the product, and they have a solution that doesn’t have a problem. These guys have [identified] the problem.”
PALOMA MOBILE & BINU
It’s hard to separate these two companies. Both show the value of looking beyond your own backyard. Both are mobile plays, focusing on emerging markets. Although smartphones have been snapped up in Western markets, in Asia, Latin America and Africa, users have old Nokias running on slow networks. Both Paloma Mobile and biNu are developing cloud-based technology to deliver data-efficient apps.
In 2012, Paloma Mobile picked up $1.5 million from local VC One Ventures, with seasoned technology backer Roger Allen as a co-investor. Not to be outdone, biNu raised $4.3 million from a clutch of investors including Google executive chairman Eric Schmidt’s fund Tomorrow Ventures, Bassat again, and Australian economist Nicholas Gruen (who was an early backer of big data crowdsourcing play Kaggle).
Paloma Mobile is run by seasoned Silicon Valley campaigners Jennifer Zanich and Steve Langkamp. The co-founder of biNu, Gour Lentell was an early employee of Ozemail and went on to establish a digital advertising technology company. The two are battling it out in the same space, but there’s plenty of customers to go around. The World Bank reports that there are now 650 million mobile phone subscribers in Africa – more than the US or the European Union.
Within three months of getting started, the Startmate had orders from 578 people for its gadget – the Ninja Block – which gives objects internet connectivity to perform simple tasks. The venture raised just over $100,000 on crowdfunding website Kickstarter to supply a prototype batch of their tool. The rectangular boxes can sense physical world changes like motion or a rise in temperature and then send a message to the cloud and trigger actions like turning on a light, sending a text message or posting an update on social media.
Although the “internet of things” has been a prominent buzz phase, the founder of technology incubator and investor Blue Chilli, Sebastien Eckersley-Maslin says Ninja Blocks is the first venture to turn that vision into a reality.
“They’ve made the online and offline world integration so seamless,” he says. Founders Marcus and Madeline Schappi and Peter Moore raised $1 million in July from a syndicate of investors that included Atlassian founders Mike Cannon-Brookes and Scott Farquhar, as well as Guitar Hero founder Kai Hung. Eckersley-Maslin emphasises the strength of Ninja Blocks is the team has built a tool, rather than a “single product”.
“I think it’s a potential great disruptor of home automation bringing the agility of software to hardware,” Morle says. “The challenge is going to be to move from geeks with great tech to consumer facing problem solvers for the home. It’s a game changer business if they nail it.”
If the measure is buzz generated, it’s difficult to leave this Melbourne start-up off the list. Phil Bosua and Andrew Birt raised $1.3 million in a week on Kickstarter for their wifi-connected light globe. Bosua has run Kickstarter campaigns previously, with varying levels of success. And Birt was a founder of Melbourne technology accelerator AngelCube. The pair has shown maturity in putting a cap on their Kickstarter campaign, before it got out of control, as well as getting backing from Retailmenot founder Guy King so they had credit to get started on the project before their Kickstarter cash came through.
The team is on track to ship their first batch of globes in early 2013, but while a wi-fi -enabled globe obviously caught the imagination of a willing public, it remains to be seen if interest will hold. Big companies like Philips have also already arrived with competing products.
While not really a technology start-up, the announcement of Blackbird Ventures in August, generated a moment of euphoria for the local eco-system. Run by former MLC private equity gun Rick Baker and with an impressive roster of investors including the Atlassian duo, Startmate’s Niki Scevak and partners of VC fund Southern Cross Venture Partners, William Bartee and Larry Marshall. Pollenizer’s Morle calls the fund a “vital” addition to the scene. Blackbird’s arrival means capital is “tied” to the community, Eckersley-Maslin says. “You’ve got a combination of US and Australian capital and successful Australian entrepreneurs reinvesting back into the start-up community.”
MOST INFLUENTIAL IN 2012
In a year that they topped the BRW Young Rich list, a first for technology entrepreneurs, jumped in on a couple of angel and Seris A deals, put their weight behind local founders fund Blackbird Ventures and continued to keep everyone guessing when they will list Atlassian, it would be hard to go past founders Mike Cannon-Brookes and Scott Farquhar, but ...
The founder of Sydney-based technology start-up accelerator Startmate (and also an investor in Blackbird) Niki Scevak is a quiet, but industrious operator. As well as keeping an eye on his own company, the New York based real estate play Homethinking, Scevak has played a father figure to some of the most exciting local ventures over the past two years, including two on this list.
His record moulding start-ups and pushing them to the next stage is unmatched in the local accelerator and incubator scene. This year, four of Startmate’s eight companies raised an angel round. But Scevak doesn’t get ahead of himself. The money is nice, he says, but what really counts is happy, paying customers. It’s a sentiment that start-up founders should have front of mind.
This story first appeared on afr.com