There can be no question that there has been an increased appetite for locally developed technology start-up businesses over the past 3 years.
The first big move was Silicon Valley firm Accel Partners $60 million investment into project management software company Atlassian in mid 2010. Australian online measurement platform Effective Measure raised $4 million from Rho Ventures that same year. In April of 2011 Accel made another investment in an Australian start-up, design marketplace 99design, investing $36 million. In August of 2011, e-commerce provider Big Commerce raised $15 million from General Catalyst. Later that year Mooter Media, the creators of Imagesocial, raised $15 million. In mid 2012 innovative retailer Shoes of Prey raised $3 million from US investors Crunchfund, Bill Tai and Atlassian founder Mike Cannon-Brookes. On March 20, news broke that unlaunched design start-up Canva had raised $3 million via a VC raise and a commercialisation Australia grant.
And that’s just a handful of the examples of Australian technology businesses with large funding rounds.
However, in most cases the investments were coming from cashed up overseas sources. The general consensus has been that raising within Australia is a challenging, frustrating and ultimately unsuccessful tactic. It appears this is becoming less of an issue, with investment opportunities involving Australian investors appearing to open up over the past 12 months.
However, the money doesn’t seem to be coming from institutions — a large amount is coming from those actively involved within the start-up scene, many of whom have enjoyed large-scale exits and are looking for companies to invest their money in and companies that can benefit from their skills and experience.
Pollenizer is an example of this. Whilst Phil Morle, Mick Liubinskas and Tony Faure are the central players in the Pollenzier business, it has some heavyweight investment partners such as Greg Roebuck (founder of Carsales), Scott Farqhar and Mike Cannon-Brookes (founders of Atlassian), Matt Rockman (co-founder of Seek) and even TV personality and Port Adelaide Football Club Chairman David Koch. Morle and Liubinskas were involved in controversial file sharing software business Kazaa; and Faure has led both Yahoo! and ninemsn, founded the DVD rental company Homescreen, and served on the boards of businesses such as Seek, Australian Independent Business Media and Lasttix.
According to Pollenizer chairman Faure, Pollenizer “create brand new businesses with co-founders and entrepreneurs, combining their passion and deep industry knowledge with our start-up science and platform.” The daily deals site Spreets is Pollenizer’s highest profile success story, selling to Yahoo!7 in 2011 for a reported $40 million. Pollenizer is also involved in innovative legal start-up Lawpath, payment business Pygg (also backed by Seven West Media COO and former Yahoo!7 CEO Rohan Lund) and professional services marketplace Accruto.
According to Faure there is significant untapped potential for Australian start-up businesses, particularly within Asia.
“There are huge markets on our doorstep which Australian companies are well-placed to create products for — not only China and India but SE Asia, where there are another billion people. We see big, near-term opportunities in Indonesia and the Philippines, for example.”
Other examples of successful local technology entrepreneurs entering the investment space include Seek co-founder Paul Bassatt, who has launched Squarepeg Ventures and has funded nine local start-ups. 99designs and Sitepoint co-founders Mark Harbottle and Leni Mayo have invested in the closed developer marketplace Tweaky.com, and Effective Measure founder and CEO Scott Julian have also made investments in selected Melbourne based internet plays. Recently formed Blackbird Ventures has raised $30 million for a fund which involves many already successful entrepreneurs, including Atlassian founders Farqhar and Cannon-Brookes as well as founders from companies such as Aconex and Campaign Monitor and US investors such as Dave McClure and Bill Tai. The fund aims to invest in 25 companies. Pollenizer, which is currently seeking investment of $5 million from the market, aims to use these funds on 10-20 businesses.
For entrepreneurs and founders, the idea of partnering with those who have gone through the process of founding a business and seen success at the end of it is no doubt extremely appealing.
Faure believes the funding environment for early stage technology companies is improving but still has a way to go and that “getting to Series A for most Australian companies remains as tough as ever.”
“There has been some improvement in the willingness to fund start-ups, although not nearly enough to create a robust ecosystem like those in Silicon Valley, New York, London and even Israel. Two things that have helped are some increased government support through the Innovation Investment Fund (IIF) grants, and more significantly, the emergence of a group of successful entrepreneurs who are willing to re-invest in the community themselves.”
The Federal Government’s IIF grants were announced last week, with $100 million of government funding being divided up amongst Mark Carnegie’s Carnegie Venture Capital, GBS Venture Partners and Innovation Capital Associations. These firms are required to match the government investment dollar for dollar.
Faure believes the opportunity for disruption of established industries is full of potential. “We think all industries will eventually be disrupted” he said, adding that Pollenizer “see professional services, education, health, real estate and government as likely candidates.”
Perhaps the age of a robust Australian venture capital scene is about to arrive.