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.

4th AustralAsian Cleantech Forum

I just returned from the two day cleantech conference in Melbourne entitled the "4th AustralAsian Cleantech Forum" (http://www.cleantechforum.com/).

My co-worker Ivor and I had the opportunity to check in with a number of people we hadn't spoken with in a while. The conference is showing tremendous growth over last year, and last year's event was pretty decent. It was good to run into a number of familiar faces - this is giving me confidence that I'm seeing more and more of the players in Australia's cleantech community. As well, 14 companies pitched to the group - 7 either in Seed or Series A stage, and 7 in Series B stage (or later, as some of the companies had already gone public).

The companies showcased an interesting mix of technology. There were two ocean power companies, a high-performance diesel engine, biodegradable plastics, some water recycling companies, a couple of concentrating solar technologies, and some clean coal companies. All in all, a pretty diverse mix, and hopefully an impressive preview of the further improving dealflow happening in Australia.

In addition to the company showcase, there were several presentations and panel discussions. Premier John Brumby opened the conference. It was good to see him there as he is a big supporter of the cleantech opportunity and the benefits it can provide to the state of Victoria. Several US LPs were there, including representatives of CalPERS and Pacific Corporate Group Asset Management. There is growing interested by US investors in the Asian cleantech space, and I think many of them are realizing (as is our thesis) that Australia, as an English-speaking country with a British-based legal system is a great launching point to Asia.

Also of interest is the greater role that India is playing within this forum. Jeffrey and Peter Castellas, the founders of Cleantech AustralAsia have put together a good team to link opportunities, both for investment, and for companies entering the Indian market, between India and Australia. This is a great move. Every VC understands that tapping into the Indian and Chinese market is incredibly valuable for a growing company, and yet both markets can be very challenging. By leveraging the connections between Australia and India, this market entry can be made easier.

All in all it was a great event.

Welcome to Alice Springs!

I'm here in sunny Alice Springs. I'm not kidding, the weather forecast varies from "sunny" to "mostly sunny". The high temperature is 37C, which is 98 to my US friends, and it looks like the perfect place to hold a solar conference. I'm speaking at the ANZSES conference this week. My keynote compares the fortunes of Ballard Power Systems and Sunpower and tries to compare and contrast the fortunes of the fuel cell industry ten years ago to the solar industry today.

If I can figure out how to post a powerpoint presentation, I'll put it up after I present (thanks for the tips, Shuman!). The basic gist is that the solar industry today is looking a lot like Ballard was in 1998. Both Ballard and Sunpower rose from $1b~$2b market caps to ~$6b market caps in roughly 18 months.



Both companies have had a long string of successes. Both companies are built on the premise that there is a huge market to be served (automotive for BPS and utility power for SPWR). Both companies have their hopes pinned on expected, but not yet achieved cost reductions.



So what happened? Well Ballard went from stratospheric to ex-orbital (is that a word?) between January and March 2000. The value of the company shot up to around a peak of a $15b market cap! At this time the markets had thought that Ballard's product (the Mark-900 automotive fuel cell) was ready for mass-production and the market. Over the next 2, 3, 4 years it became clear that, while the product was fantastic (full disclosure: I was a proud Ballard engineer during this time) there were just too many hurdles to getting to market. Ballard's value fell and it is now "only" a $500m company.

What's different with the solar industry and will it suffer the same fate? While it is true that the solar industry, globally, is heavily subsidized, and if those subsidies went away there would be a massive decrease in the new installations of solar, the solar industry does not face the difficult path that the fuel cell industry did. The fuel cell industry faced a huge "chicken and egg" problem - no one would buy a fuel cell vehicle without refuelling stations established - no one would establish fuelling stations without an installed fleet of vehicles. There were many other difficulties too, but let's stick with this one as it is the one which is not solvable with technical improvements. This "chicken and egg" problem prevented, not just mass-production, of fuel cells, but darn near any production of fuel cells. Fuel cell companies could not even begin to start riding the learning curve of production down to reduce costs.

Solar, on the other hand, doesn't face such a barrier. This is allowing solar energy (and here I'm just speaking of PV) to be produced in huge quantities. Each solar cell produced costs less than the cell before that. This is giving the solar energy the momentum it needs to continue to drive down costs, and then eventually compete without subsidy against other forms of electricity generation. This slow, but steady, improvement is an opportunity the poor fuel cell was never provided. Ballard's engineers built a killer product, but it was required to compete fairly with the automotive engine from day 1, and build out a supporting installed base at the same time.

So, are solar energy stocks overvalued? Perhaps, perhaps not. If I knew for sure I'd be calling my broker. However, we at Starfish feel that the opportunities in the solar industry are certainly real, and that, this time, there are real, long-term, sustainable, businesses to be built that have a decent path to market. I'm here in Alice to see if I can support any. Oh, and to soak up some sun!

Hello to RMIT

I had an interesting discussion with business undergrads today at RMIT in Melbourne (apologies to Georgia Beattie, who I accidentally called Georgina...oops). As undergrads I was fairly encouraged that they were as interested as they were in venture capital, business strategy, and what makes a successful start-up. Very likely some of them are reading this blog, so if that's you, I hope you found it useful. I had fun talking with you.

Business Plan Tips Part 1

Part of the purpose of this blog is to help describe what issues are necessary when trying to succeed as a venture capital backed startup, with a focus on Australia and clean technologies.

So, I've started to start a series of postings called Business Plan Tips. These tips will help your business plan be more readable by, and therefore more interesting to, investors.

Today's tip is something that, when I first saw it, I dismissed it as an anomaly. However, I have since seen it four other times, and so I decided it was worth discussing, so here it is. Please do not include a "Total" column in your Income Statement.

I'll explain. If you look to the figure at the left, you see a three year Income Statement for that hot new startup, Fantastic Co. You can see modest growth in revenue and EBITDA, until glancing at the last line you see $9m in sales, with almost $5m in EBITDA. But, wait! Looking up you will see something odd. The company doesn't have $9m in sales in year four. Instead, the company has had $9m in sales across the previous three years. What does this mean?

In short, it means almost nothing. Nobody cares what the cumulative sales/EBITDA/COGS or anything else performance is over some arbitrary period of time. Putting in a Total column is just misleading, because most investors will look to the last line to see how the company is performing in the final year. Companies are valued as multiples of EBITDA, or multiples or revenue, but no company is valued as some total of previous years. I suppose the only purpose of this column would be if the company were to be liquidated at the end, but even then, the Retained Earnings figure on the Balance Sheet would be more appropriate.

So, please don't put a Total column. It's misleading. It's pointless. It frustrates the reader (and worse, once they realize their mistake, the next emotion is disappointment, because the actual final year figure is much less - even if the final year figures are reasonable, why would you ever want your reader to feel the emotion of disappointment when reading your business plan?) The goal of your business plan should be to quickly and clearly communicate your good-news story of why your company will be a success. A Total column just gets in the way.

Renewable Energy Conference

There is an interesting conference happening in September in Bendigo, Victoria, regarding renewable energy. I'm going to be speaking at the conference, giving an overview on how venture capital investing works, and some of things that VCs are looking for in new investments. If you think this might be interesting, I recommend that you look into it.

A national conference on ideas, examples and action being presented in Bendigo, Victoria on 16th, 17th and 18th September 2007.

Regional Australia is particularly vulnerable to the vagaries of alternative energy supplies. Energy for transport as well as industrial, mining and agricultural development is essential if regional Australia is to develop and continue to play its role in the long term success of the Australian nation.

The conference presentations will address questions such as:

· what are the most likely sources of renewable energy for regional Australia?

· what is the state of development of these different sources?

· how accessible are these energy sources to people in regional Australia?

· what needs to happen to make them readily available? and

· what can regional communities do to assure their access to renewable energy?

Keynote presentations from government, business, academic and community leaders will be complemented by a focus on practical renewable energy initiatives.

For more information or to download a registration brochure: www.renewableenergyconference.com.au