TECH ENTREPRENEUR'S BID TO BRING $2 BILLION TO START-UPS
Written on the 13 August 2015 by Nick Nichols
AUSSIE expat and Silicon Valley entrepreneur Ben Sand is on a multibillion-dollar mission, and it's start-ups in south-east Queensland that could be the big winners.
The co-founder of Meta, a company invested in wearable smart-glass technology, says that following his latest visit to Australia he was blown away by the depth of start-up talent - and equally by how poorly this talent is being recognised by capital markets.
Sand says part of the problem rests with the start-up entrepreneurs, often because they aren't very good at selling themselves. But he also says the issue is compounded by what defines a start-up in Australia, compared to his new stomping ground in Silicon Valley.
"Start-ups have a connotation here of a few people hanging around in a garage doing their own thing," says Sand, who has just completed a Queensland Government-sponsored speaking tour with start-up incubators and business forums.
"Where I'm based in Silicon Valley that's not what a start-up is. A start-up is the most effective tool for creating a large change in industry in a very short space of time and a very rational place to allocate, in the case of the US, $30 billion every six months or so.
"There's a different perspective on it and there's a very strong sense of seriousness over there about what you can do with this business tool.
"The high-growth technology ventures, which is what these things are in the US and maybe what we should call them here if we want to think about them differently, is an area where success is lower than traditional businesses (10 per cent or less), but the rewards are far greater.
"As a sector it's the right side of history. Almost by definition everything is getting replaced by these organisations."
Sand says compared to the many billions invested in start-ups each year in the US, in Australia the sector is worth a paltry $20-$30 million a year.
But now he wants to ramp up the local numbers with plans to bring $2 billion of investment into Australia, particularly south-east Queensland, by the end of 2018.
"We are trying for $20 million this year in the next six months, $100 million by the end of 2016 and $500 million by the end of 2017, culminating in $2 billion by 2018," he says.
The funds will come primarily from US investors, and some from China.
Sand, who grew up in Sydney before relocating to the US after establishing Meta about three years ago with tech wiz Meron Gribetz, says his company was able to raise $23 million from key investors, even though it had just $2 million in revenue.
Some of the funds came from interests associated with Li Ka-shing, one of Asia's richest men and one of Meta's lead investors, as well as Silicon Valley venture capitalist Tim Draper.
"I have found companies in Australia with millions of dollars in revenue that can't get investment," says Sand. "I can't understand it. It doesn't make any sense."
Sand believes part of the problem is that Australian start-ups traditionally garner offers that "don't make them feel good". He says reality shows such as Shark Tank don't help, with low-ball bids from the "sharks" in exchange for a big stake in fledgling companies.
Sand wants to change the local perception of venture capital as he targets Australian companies that he believes are a perfect fit for investors.
"I'm sitting down with companies that believe they have a scalable business model that would create 200-300 per cent growth a year," says Sand.
These companies are generally valued at 20 times revenue, he says.
"The thing that's stopping them growing now is money. These are great candidate companies that make big changes very quickly.
"Usually their problem is communication. They don't talk about themselves very well and they don't explain what they're doing very well."
Sand says he has already met with a number of companies and is exploring more. He plans to visit Australia every couple of months to engage with more.
"I'm more interested in companies that are looking to raise $5-10 million, but I'm not that useful to companies looking to raise $150 million plus," says Sand.
He says higher revenue organisations are more mature and usually less scalable.
"The investors are more interested in growth, and I have found great companies that are unaware of the opportunities for them. I feel like I'm just scratching the surface."
HOW TO HANDLE A VENTURE CAPITALIST
Keep it simple
One of the biggest issues entrepreneurs face is explaining their business model. It's not unusual for Sand to take two or three meetings to fully understand a business and why they are better than anyone else.
"Part of the problem is they haven't had anyone sit down and listen to them, so they try to get everything out at once," says Sand. "That's the way to overwhelm and confuse somebody. It's best to focus on the simplest idea."
Sand says Uber has created a $30 billion business by asking one question: "Where are you?"
"What was the technology?" he asks. "It was a map that already existed, it was a payment process that already existed, and their innovation was sticking the picture of the taxi on the map. You take that product to any person at any university in first year and they could throw that product together. That simplicity was extremely valuable. It meant that everyone knew what they were doing."
Know what you're doing
"It's one thing for investors to not know what you're doing," says Sand. "But when you go to your company and you ask everyone in the company what the company does and they all have a different answer, that's not good."
Focus on positives
Often Sand says start-up entrepreneurs begin by talking about 10 things they can't do before they even introduce themselves. This might include admissions that they have no revenue and no customers.
"This happens way too often," he says. "I get them to stop talking and I start with: what do you do and who are your customers?"
Don't talk about exit strategy
"Everyone in Australia talks about exit strategy," says Sand. "No one uses those words in the States. It's just implied. It's not that people don't care, but why talk about something you have already figured out?"
Sand says the exit for technology companies is less likely to be an IPO, but rather a buyout from the likes of Google.
"The IPO market is looking a little better, but most people end up getting acquired and they get acquired for a lot of money," he says.
Forget the Shark Tank
Fear of losing control can be one point of resistance for Australian start-ups looking for an equity investor, but Sand says the thinking by venture capitalists is more collaborative than many might expect.
"Good venture capitalists will make sure you are organised and are getting on with it," says Sand. "I think it's a lot easier to innovate with venture capital than without it."
Author: Nick Nichols