An inside look at StartupHouse

We love to celebrate local start-up heroes when they strike gold in Silicon Valley but it takes a lot of work to hit paydirt.

We love celebrating the success of local tech start-ups once they have hit the big time but pay scant attention to all the toil leading up to that process. It takes a lot of effort to build an Atlassian or a 99designs and the road to striking gold in Silicon Valley is an arduous one.  

To get an idea of the process and the level of commitment needed by aspiring start-ups I spent a week in San Francisco's Startup House, a 3,344 metres squared warehouse located in the SoMa (South of Market) district of North San Francisco.

The warehouse, converted into shared hostel dorm style accommodation for about 50 people, is designed to serve as a hub where young, hungry tech entrepreneurs can fully immerse themselves in the start-up experience. Apart from living quarters, facilities in the space include a kitchen, co-working open plan desks, Wi-Fi and plenty of places to sit and ponder ideas.

As a facility, StartupHouse is akin to a late state beta, serviceable but lacking detail. While clearly past the Minimum Viable Product (MVP) stage the building is still rough around the edges. Like the Hitchhikers Guide To The Galaxy you have to bring your own towel, because StartupHouse isn't designed to be a hotel. 

For as low as $35 a night, you get accommodation, access to a locker, shared bathroom, TV projector/games room and laundry. However, the real value is the sense of community and camaraderie that is built up during extended discussions with other residents. Having that many people with a similar purpose in one area acts as a catalyst for idea sharing and forming. During one late night dinner shared with other residents someone new arrived in the kitchen/common room area. After exchanging names and asking him what his startup idea was we gave him some suggestions and he ended up changing how his company name was pronounced based on our feedback.

One of the denizensof StartupHouse is Simon Lenoir, CEO & Founder of B2B start-up Rezdy Pty Ltd, which provides a turnkey booking system solution for the travel industry. Simon was staying at Startup House as a recipient of a NSW Department of Trade & Investment grant that supports selected NSW startups to utilise the facilities at StartupHouse with a subsidy of up to 50 per cent of the costs up to $1,250.

Lenoir's journey to San Francisco actually started in Thailand where he managed a dive centre and got frustrated at having to reply to emails and phone calls instead of maximising scuba diving time with customers. That frustration led to the conceptualisation of Rezdy. He immigrated in Australia to give shape to his idea of making life easier for the hundreds of thousands of small businesses owners that try to make a living in the travel industry.

According to Lenoir, breathing life to Rezdy in Australia has been a chastening experience.

“Australia is a great country but one of the hardest to start a business due to the lack of connections between the rare business angels and the growing numbers of entrepreneurs.”

Rezdy was one of Fishburners (largest co working space in the southern hemisphere) first residents and is one of the only three out of five startups in Fishburners that raised money in the last 12 months.

Lenoir adds that getting raw deals is par for the course for Aussie start-ups.

“We all get bad deals compared to US based startups, and getting bad deals in the first rounds is critical for the life of the business, as our companies need us, founders, more than money at the early stages," he says.

"This is why many of us are looking to come to US as soon as possible to fundraise”.

No guarantees

However, there is no guarantee of success and Lenoir says that  the success rate for Australian startups to raise in US, at any stage, is very low.

He attributes this to a number of reasons. Firstly, US venture capitalists don't understand Australian corporate structure and won't invest in a business if the founders have already lost 30 per cent equity. Then there is very little assistance from Australian investors, who are less than willing to lend a helping hand to the entrepreneurs when it comes to highlighting further funding channels.

At this stage, Rezdy has market validation but Lenoir admits it's still quite a struggle. His business is growing fast, with customers in 12 countries and has clocked up $500,000 in sales in the last  months. The numbers are impressive but investors in Australia are still asking Lenoir  for more security.

Unfortunately, Lenoir's experience is quite commonplace and for many budding start-ups raising money in Australia is almost not worth the effort.

 “It's a waste of time to try to raise in Australia before break even and growth, and it's almost impossible to grow with money, so the startup scene is flat," Lenoir says.

"In Sydney, if you are good and spend 50 per cent of your time trying to raise money, you can get one meeting per trimester with a real active investor. In the US, you will pitch three times a week and if you are good, you can get three meetings from it”.

It is this level of engagement, long a hallmark of Silicon Valley, that has start-ups knocking at the doors of StartupHouse. While there is money in Australia the willingness to take a punt on a tech enterprise is sorely lacking on the part of the professional investors.

"They still see the technology companies with an accountants eye focused on revenue," Lenoir says.

"Even the Deloitte Fast 500 is focussed on revenues where companies like Facebook and Twitter didn't have any for years. In the USA investors ask you to give away your product for free for two years, to be first in market etc”.

A step in the right direction 

However, there are signs of improving attitudes and most of all a wilingness at government levels to provide a modicum of assistance. 

Lenoir says that he would have struggled to get into the house without help from the NSW government. The initiative shown by the NSW government is certainly a step in the right direction but what's needed is a sustained effort that harnesses the public and private sector to invest in Aussie talent.

That investment can come through multiple channels and in the case StartupHouse, the NSW government is subsidising up to 50 per cent of the costs for 12 early-stage technology ventures to spend time in San Francisco.

My brief sojourn at the incubator certainly highlighted the deep level of commitment on display by those inhabiting the space. It's the sort of commitment that is part of the DNA of today's tech entrepreneurs and when combined with a hyper-collaborative environment could potentially lead to the next Aussie hit in Silicon Valley. 

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