US investors overcome Byron Bay factor to back Australian ideas
The US excels at producing serial entrepreneurs, but now they are looking at ours. Nick Abrahams explains why.
America has plenty of entrepreneurs who sell their first company, make $10 Million, come back with another company, make $100 million and then do it again searching for the billion.
I asked a US venture capitalist one day why Australia did not seem to have a lot of serial entrepreneurs. He looked sagely into the mid-distance and said "Nick, there are three reasons: Byron Bay .. Byron Bay and ... Byron Bay." A reference to Australia's laid-back reputation.
Overseas investors do look a bit suspiciously at our entrepreneurs. Another US VC told me about his concerns with Australian companies, in his words we have "lifestyle entrepreneurs". "They don't want to leave Australia and when I invest I want a business that can go global. I need a CEO who can go global too", he told me.
While there may have been some truth to these viewpoints in the past, they are starting to fall away. US VCs have found Australia and are coming here on regular trips to check out our early stage tech scene. Why?
1. We are cheap:
Silicon Valley has not suffered the malaise that afflicted the general US economy. It is boomtime in the San Francisco Bay Area still - they are literally still partying like it’s dot-com 1999. For example, Instagram only had 13 employees when it was sold to Facebook for $US1 billion. In the US, early stage tech businesses are expensive to invest into - by comparison our tech businesses are cheap.
2. Born global:
Australian entrepreneurs have heard the call that they can't just create a business for the Australian market. They have to think global from day one. Look at some of our recent tech successes - Atlassian, Bigcommerce, Freelancer and the recent sale of Connect2Field to US giant, Fleetmatics*. The borderless nature of the internet and the ubiquity of low-cost cloud infrastructure means that it is easier than ever for our entrepreneurs to solve global, rather than Australia-only, problems.
The Silicon Valley VC community is extremely close-knit. VCs follow each other into transactions. There is a strong sense of camaraderie and information sharing. The more deals that US VCs do in Australia, the more word gets back that Australia is a good place to do business.
4. Regulatory certainty:
A few years ago it was almost impossible to get US VCs to invest into Australian "Pty Limited" companies. The VCs wanted to see the IP and other key business assets flipped up into a US company before they would invest. Nowadays US VCs are more comfortable with the Australian legal regime, and wishing to avoid the sometimes eye-watering cost of a flip-up, will invest in Australian entities.
Having said they are positive on Australia, there are some things US VCs are wary of here: our absurd tax regime which taxes option recipients in advance of earning money; our workplace relations laws and a perceived shallow pool of hard technology skills. But these are all addressable and should not present a major barrier to the flow of capital into Australia.
Some recent US VC deals involving Australian start-ups
- Kickfolio (soon to be App.io), backed by Quest Venture Partners, US$1 million. Melbourne-based start-up that helps brands promote their apps, find new users and engage their audience.
- BuyReply, backed by Valar Ventures, A$1 million. Sydney-based start-up, founded by entrepreneur Brad Lindenberg, is a new kind of eCommerce platform that allows offline businesses to transact online
- Happy Inspector, backed by US entrepreneur Dave McClure’s 500 Startups & others, A$1 million. It's an iPad app for property inspections.
- Bigcommerce, General Catalyst Partners A$20 million and Revolution Growth, A$40 million. Sydney-based Bigcommerce is an e-commerce platform provider.
*The author advised Connect2Field on the sale.
Nick Abrahams is a technology investor and the APAC technology practice leader at global law firm, Norton Rose Fulbright. He is traveling to Silicon Valley in early September to meet venture capitalists. Australian start-ups interested in being mentioned in discussions can ask to be considered.
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