Australian technology entrepreneurs are partying like it’s 1999. The boom times are back except this time, industry players say, tech start-ups have real business models behind them and are earning real money to justify their ballooning valuations.
In the past 18 months alone hundreds of millions of dollars have flowed to Australian technology entrepreneurs. Big US venture capital firms are stalking Australian start-ups with wads of cash.
”The combination of a lower cost of entry, the emergence of a real, connected Australian start-up community and an increase in investment capital has enabled Australian companies to build great products and take them to the international stage,” says David McKinney, founder of Perth-based smartphone app maker Filter Squad, which received $1.1 million in local venture capital funding last month.
The collapse of the dot-com bubble in 2000 made the term ”start-up company” shorthand for joke. Thousands of technology-oriented firms suddenly appeared around the world, they were high-risk investments but a few dot-coms hit it big time and gave huge returns on investment.
Fast forward a decade and the technology kings dominated the recent BRW Young Rich List, while a quarter of the BRW Fast 100 list of fastest-growing Australian companies are technology-related.
Already, several Australian firms – like enterprise software provider Atlassian, e-commerce platform BigCommerce, graphics design hub 99designs and outsourcing site Freelancer.com – are global leaders in their niches.
A huge Australian start-up community has formed. Local incubators like Startmate, Pollenizer, PushStart, Blue Chilli, York Butter Factory and Angel Cube are flourishing, as are regular networking events such as SydStart, Tech23 and Silicon Beach.
But the boom is also causing a brain drain of Australian high-tech talent to the US. Freelancer.com chief executive, Matt Barrie, who mentors many up-and-comers, says there are now 65 Australian start-ups in Silicon Valley – such a potent force they have been dubbed the ”Aussie mafia”.
And our governments seem eager to encourage entrepreneurs to head offshore, with Austrade providing assistance and the NSW government announcing it’s setting up an international office in San Francisco.
”They all want to get to Silicon Valley,” says Richard Horton, an Australian who is a partner with the global law firm DLA Piper and has helped several Australian start-ups make it big in the US.
”We’ve kind of got the second coming of the internet there’s a huge number of IT graduates coming out of Australia and they’re seeing they can work for themselves and do well.”
Jonathan Barouch, 29, founder and chief executive of personal tour guide app Roamz, which is now cashed up after a $3.5 million investment and is spreading its wings offshore, said the tech scene in Australia seemed to die after the dot-com crash but there had been a resurgence over the past 12 to 24 months.
But moving offshore seems to be a pre-requisite for raising US-based funds. It is clear that existing federal government grants through initiatives like Commercialisation Australia, which provides grants for innovative companies, isn’t enough.
”If the government doesn’t get their act together to create the right economic settings to support innovation we will have start-ups vanishing overseas,” Barouch says.
Last month Anthony Goldbloom, who created ”crowd-sourcing for geniuses” website Kaggle.com in a small Bondi apartment, received an $11 million injection from some of the biggest investors in Silicon Valley – including the founders of PayPal and Sun Microsystems.
The site, which connects 17,000 of the world’s best thinkers with the most intractable data-related problems, has come up with models for NASA to map the universe’s dark matter and developed algorithms to help health care providers predict which customers will get sick.
But Goldbloom has now moved offshore, as have Anthony Marcar and Stuart Argue who, just days after the Kaggle deal was announced, sold their mobile shopping technology start-up, Grabble, to US retail giant Walmart for an undisclosed amount. Grabble, created in a Wollongong garage, allows retailers to send receipts to customers’ smartphones so that instead of having to retain and manually capture receipts (for tax, expense reports, etc), the customer can track them through the app.
”In the US, working for or starting a start-up is a valid career choice fewer than 10 of Australia’s 50 largest companies are less than 50 years old compared with more than 40 in the US,” Goldbloom says.
Marcar, 27, says Australians have a secret weapon in the Valley: their accents. ”It’s a huge asset over there. It will help you stand out from the crowd and get meetings that wouldn’t normally be possible,” he says.
Ryan Junee, 32, has been living in Silicon Valley for almost a decade and now mentors the new generation of entrepreneurs. Junee sold his first start-up, Omnisio, to Google for an estimated $US15 million less than a year after it was created. Omnisio’s features are now part of YouTube, while Junee is on to his next start-up, fashion recommendation site Inporia, which attracted $1.25 million in funding earlier this year.
”There is a tremendous ecosystem of support in Silicon Valley – ranging from successful entrepreneurs who have done it before, to investors that are more willing to take big risks at early stages, to lawyers who are intimately familiar with everything a start-up will go through and all sorts of other professionals who are experts in working with start-ups,” Junee says.
”Perhaps one of the biggest advantages of being in the Valley is serendipity – the chance encounters that happen simply by being here, due to the fact that so many other great people are here.”
So why are venture capital firms so eager to throw money at the next big tech thing? BigCommerce co-founder Mitch Harper, 29, believes it is because investors only need one in 20 investments to take off to cover their fund.
Bardia Housman is one of the Silicon Valley Aussie mafia’s founding members. He created Australia’s first free email service, Start.com.au, in 1997 and it quickly became Australia’s most trafficked website before it was sold to Looksmart in 1999, when Housman was 25. He sold his next company, Business Catalyst, to Adobe in 2009.
Housman’s mission now is to help other entrepreneurs from Australia and New Zealand hit the big time. He has bought a building in the heart of San Francisco that he wants to transform into an incubator for Australian start-ups.
Virtually every start-up accepted into the local Startmate program has gone on to receive funding but Startmate founder Niki Scevak says ”way more needs to happen to qualify Australia as a great place for start-ups”.
”There isn’t so much a brain drain as a brain boomerang,” Scevak says, predicting many Australians who move to Silicon Valley will eventually return to Australia. Marcar agreed.
E-commerce platform, BigCommerce, raised $15 million in August and has since taken the world by storm after opening an office in Texas. But like Atlassian and 99Designs, it is keeping its Australian office open.
The creator of Silicon Beach, Australian Elias Bizannes, also founded the quirky StartupBus project, which involves buses full of geeks driving from six US cities to Austin, Texas, for the annual SXSW (South by Southwest) festival. By the end of the 48-hour journey the six teams on each bus – all strangers – are each expected to have created a functional prototype of their start-up. There have been 158 ”buspreneurs” and 38 products created to date.
But industry insiders are quick with the reality check. Marcar said that chances are most first-time start-ups will fail while Goldbloom said it’s virtually impossible to get a foot in the door in the US without strong networks.
Scevak concurred: ”Like a gambler’s losses, you will rarely hear about the failures but for sure there are many more than winners.”
In a blog post titled You Guys Are Millionaires Right?, Australian smartphone app developer Shifty Jelly said it and many other Australian developers were struggling to keep their heads above water and facing tough user reviews.
Rebekah Campbell, former band manager for acts like Evermore and Operator Please, created Posse.com as a way for fans to sell tickets on behalf of artists in return for commissions.
Just for the Posse.com domain name, Campbell said she had to spend the deposit she saved for her first house. Closing a $1.5 million investment round took ”almost 1000 presentations and four trips around the world”, and even though the site launched in 2009, it has only just hit $165,000 in gross monthly revenue in February.
Campbell said the dearth of female software developers meant female tech start-up founders were few and far between.
But this is changing – Shoes of Prey founder Jodie Fox recently launched a new site, Sneaking Duck, selling glasses instead of shoes, while 99dresses.com founder Nikki Durkin recently beat thousands of entrants to be accepted into the US YCombinator program, which has launched giants like the $1 billion accommodation finder AirBnB.
Are we headed for another dot-com bust? ”There’s a risk it could happen again. The tech scene, like the stock market or real estate, works in cycles,” Mitch Harper says.
The world’s their oyster
Atlassian From a Sydney garage, Atlassian has gone global and beaten some of the biggest names with lower-priced, web-based enterprise software. The site raised $US60 million last year; founders Scott Farquhar and Mike Cannon-Brookes, both 31, are worth $360 million.
99Designs Matches designers around the world with businesses seeking graphic design work; raised $35 million earlier this year.
Freelancer.com Based in Sydney, Freelancer lets you outsource virtually any task to individuals around the world. It has 3 million users and is expecting about $35 million in turnover this calendar year.
Halfbrick Studios Based in Queensland, Halfbrick makes mobile games including Fruit Ninja, which has sold 20 million copies.
Firemint Melbourne game maker Firemint, which created titles such as Flight Control, sold to US giant Electronic Arts in May. Founder Rob Murray is now worth $24 million.
BigCommerce Started in a spare room above a mate’s shop with $25,000 in loans, BigCommerce is a global e-commerce leader and raised $US15 million in August.
Kaggle Connecting the world’s smartest minds with its toughest problems has been a windfall for Anthony Goldbloom, who moved to the US after raising $US11 million.
Grabble Built to help bricks and mortar retailers take advantage of mobile apps at the checkout. Was acquired by Walmart in November.
Catch of the Day Gabby and Hezi Leibovich sold part of their daily deals company in July for $80 million.