Monday, June 30, 2008

Happy Canada Day

To all my readers - Happy Canada Day!

While it is a bit weird to be celebrating a typically summer holiday in the dead of the Australian winter, it's a nice reminder of home all the same.

Friday, June 27, 2008

Australia's Per Capita Excellence - #2 on Internet Spend!

I don't know why, but Australia has an amazing amount of "per-capita" excellence. Now, part of scoring high on any "per-capita" ranking is to have very few people (the Vatican always seems to do well), but with 21m people Australia is big enough that some very real factors come into play. An example of both of this is the fact that, on a per-capita basis, Australia came in 3rd in the 2004 Olympics (with 49 medals - the US was 34th with 103 medals); however, it was behind the Bahamas (with 2 medals) and Norway (with 6).

However, in another very real way Australia has shown itself to dominate the world stage, and this is on internet spend per capita. A really interesting post on Techcrunch discusses potential valuations of social networking sites (the few comments on DCF are especially entertaining). But the part that I found particularly interesting was the following bit, showing the average internet spend per person for a given country:

The U.S. (at $132 per person), by the way, is only the 4th most valuable market per Internet user, trailing The UK ($213), Australia ($148) and Denmark ($144).

So, Australia has the second highest per-capita internet spend in the world. This is interesting. The time that I've spent here has given me some insights to why this may be. First off, the power of the internet is as the great market leveler. The more inefficient a market, the more likely the impact of the internet can be. Due to Australia's size and distance from major markets, it has been my experience that price competition in Australia between retailers is, shall we say, far from fierce (the car I purchased in Australia cost almost 2x what it would have in the US, for example). Being savvy people, this turns many Australians, where they can, to purchase products off the internet in larger numbers than would be the case when retailers would be more price competitive. That's at least my current theory. There may be other factors, but it's certainly interesting to discover that this country, which is a huge adopter of other types of technologies (internet penetration, mobile phone use, etc) is #2 on per-capita Internet spend.

Sunday, June 22, 2008

Hatch That!

Hey! My friend Ross Hill's online entrepreneurship magazine, HatchThat, published a discussion with me recently. I'm impressed with the breadth of people that Ross has spoken with, especially in such a short period of time. Check it out!

Non-Disclosure Agreements

Bill Snow has a great summary of why venture capital firms do not sign NDAs (non-disclosure agreements).

Here's his introductory paragraph:
Let’s take a look at one of the most common miscalculations made by early stage entrepreneurs: Asking potential investors to sign a non-disclosure agreement (NDA). In the pantheon of entrepreneurial mistakes, the NDA is right up there with the infamous line, “these projections are conservative.” Simply put, if you hope to raise money from VCs, you increase your chances of success by eschewing the NDA request. Most (if not all) VCs will not sign the darn things. There are bound to be some exceptions to this rule, but not many.

The rest of the article goes into why that is the case. However, the gist of the reasoning is that venture capitalists see a vast number of deals, and it is simply not feasible to enter into non-disclosure agreements with each of them. The liability and the potential conflicts are enormous.

It is the policy of most VCs not to sign NDAs for the business plans that they are sent. A simple poll of angel investors and VCs in Australia shows that many firms have similar policies. Yet, a large number of entrepreneurs approach me, and are adamant about having an NDA signed. Why is this?

I believe that this is due to cultural factors, bad advice, and ignorance of how the industry works. The cultural factors stem from, what I have perceived is an Australian bias that assumes that "people" (banks, investors, business partners, the government, etc.) have it in for the company. Rather than looking at what a business partner, such as a venture investor, can bring to a business (ie, maximizing the upside), an entrepreneur may be more likely to be suspicious on how the business partner can hurt the business (ie, minimizing the downside).

The second factor is bad advice. Entrepreneurs look to their advisors, such as their lawyers, or investment advisor (intermediaries) for guidance. I have been impressed by far too few of these professionals that I have seen. Most do not seem to understand the position that the venture/angel industry takes because they are ignorant to the industry's requirements. The entrepreneur then approaches the investor demanding an NDA, "because my lawyer said I needed one", and this can prevent things from moving forward.

The third factor is ignorance of the industry. This is, in part, what this blog hopes to correct. However, similar to point #2, there are few sources for Australian entrepreneurs to learn what the industry requirements are. When told that an investment firm will not sign an NDA, the entrepreneur does not have the background to understand why. However, I am optimistic that this is changing because a) entrepreneurs are becoming more sophisticated all of the time, and b) the number of sources of information for entrepreneurs is growing all of the time.

So, why the AVCAL NDA then? This comes from a difference between venture capital and later stage private equity. Although our friends in private equity have their own issues, discussed here and here.

So, to close I'd like to loop back to Bill Snow's article above. While asking for an NDA is not the kiss of death, starting an early stage raise with that discussion is not the way to lure in an investor. You control the information you release - keep the super proprietary details to yourself and only worry about disclosures once the deal has progressed sufficiently. I can pitch Google's value as an investment without disclosing their algorithm, and you should be able to do the same for you business as well.

Sunday, June 15, 2008

The Hive networking event

Earlier this week I spoke at a networking event for entrepreneurs called The Hive . I was extremely impressed by the organization of the event, and I think it's a great opportunity for Melbourne based entreprenuers.

I have been looking for events like this to meet new entrepreneurs and to talk about my investment interests and there haven't been many well targeted events. There are various conferences about Cleantech and business financing, and there are various lunchtime seminars put on by government organizations (which can be quite good - especially Innovic's), however, my experiences at MIT have taught me that the most exciting startup activity happens when a bunch of really smart, really motivated people get together over a beer. This is what The Hive offers.

About 100 people were on hand to listen to me give some of my thoughts on the industry (I'll boil these down to a few blog posts in the future), but more importantly, I felt that this gave a really good cross section of those interested in starting their own companies. There was a lot of passion in the room, and that's something that I think fills me with the most optimism about the future of the Australian startup scene. If you are based in Melbourne be sure to check out future events!