Page 5 of 26

How to fundraise in the next six months

January 26, 2012 / elias

Is funding for startups now starting to tamper out? The answer is yes but not really.

Long term trends in the industry have fueled the creation of a seed bubble that is now starting to face the consequences of the tranche of new investors that increased activity in the market. The macro economic environment will create issues that impact the players that have driven the seed bubble which will create a sense of crisis in the industry, compounded with a permanent trend where it is simply now more competitive to raise money as a startup.

Ultimately, what is happening is a readjustment in the industry, rather than a cash crunch and a bubble bursting — and that there will still be money for smart founders and their teams. This is so long as they understand that one of the most important lessons to raising money is on the vision of the founder CEO and not just the traction of the product or calibre of the team.

I’ll be unpacking these statements below.

What made things bubbly
In mid 2010, we saw a dramatic turnaround in Silicon Valley: the boom was back. As some educated commentators noticed, a bubble formed in the early stage of the market. Seed stage startups were now raising money at inflated values. Rather than blaming this on any individual player, the long-term trends in the industry created this transformation in the industry,which in short are the lower costs to build an Internet business.

Consequently, the three major investor groups (incubators, angels and venture funds) boosted this trend to become a new boom. So how did it become bubbly?

With the incubators driven by the seed accelerators, it led to a dramatic increase in the volume of startups. The same money, but spread across more startups meant an increase in volume. This in itself is not what helped cause the early stage bubble, in the same way that a forest is not responsible for a bush fire. However, a less obvious explanation on the impact of this is that investors were now being over-whelmed by deal flow, that they now couldn’t spend the adequate amount of due diligence time required to make an investment. Quicker decisions made to not miss out, lead to fatigue due to the volume and consequently poor judgement, which may lead investors making deals that potentially may not have done if things were at a slower pace. When people are making investment decisions not grounded in fundamental valuations, that’s when we have a bubble.

And the angel investors have been no angels themselves. More startups were now getting funded, more often — shifting the perception of (perceived power) between investors and entrepreneurs that anyone could raise money now. Their biggest crime is in funding seed companies with small ideas hoping for quick returns (like talent acquisitions) or for status to build their personal brands, contributing to the amount of companies that survive post incubation by which will never make it past the gates of a VC.

The impact of venture capital in seed has also fueled the boom but on the valuation side. For a VC, putting money into a startup at a seed stage means less to them than an angel (ie, they are not as price sensitive). Several VC’s don’t set the terms of the money they put in, leaving the entrepreneur to, who price their round as high as they can (if someone was to give you a blank check, would you put a lower or higher number?!). So while some people claim it’s the VC’s that fueled the bubble, it’s more correct to say VC’s facilitated entrepreneurs to over-price themselves for short-term benefit — but long term at a disadvantage as they now have a higher bar to meet in follow on funding.

How the economy will impact the tech fundraising environment
You have $10m sitting around — what are you going to do with that cash? Well, invest it of course. You can have it sit in a term deposit, and make less than 1% interest; or you could put it into a startup and make a 900% return: that’s the allure of angel investing in the early stage. But what if you don’t want to do either? What’s going to generate a return in this economy that’s not idle cash in the bank but also relatively safe at generating a good return? The stock market.

When the stock market crashes due to a confidence issue after news is announced about the economy, so does the wealth of these wealthy individuals. For this reason, the correlation between the economy and the appetite of angels to invest will directly be proportional; whereas it will have practically no impact on newly raised venture funds (typically a 10 year fund, will be actively invested for its first three years).

This is especially true of funds that have been performing in the market as they will be able to continue raising money from limited partners desperate to get returns on their capital. (That said, the amount of successful VC’s is a separate issue — I’ve been told only 30 out of 600 firms in the last decade have shown positive returns.)

In other words, don’t let the economic news affect your thinking on fundraising unless you’re trying to raise from an angel: VC’s actually love it in a downturn as they can now regain their inboxes.

The impact of the seed boom and the road from here
It’s now been 18 months since the seed “bubble” really started. It’s also now when we are seeing the results of these investments.

Startups eventually are going to need to tap into larger investment dollars available only by VC’s as angels bow out of the larger rounds. The impact for the entrepreneur is that it’s now a more competitive landscape to raise funding: a VC who previously picked 2 companies out of 20 to do a series A round, now has 100 to choose from…but can still only pick 2.

Why does this matter? If less startups are being funded, it means they will fizzle out. Investors lose their money. And the truth sets in that angel investing is a risky game. This won’t lead to a significant decrease in angel investing, but it does mean a sobering reality for those investors who just lost some of their wealth.

For existing startups that have already raised a seed round (from angels or VC’s), we’re going to see the impact of the seed bubble in three ways:

(a) You need to sell more than a dream now. For startups trying to raise follow on funding, they now have more data points of their traction and so venture investors are more acute of their cost of capital needs being met. Seed rounds are considered the new Series A, meaning the funding is significant enough that a startup can exist for 18 months — a lot can happen during that time period, so when they go to raise their Series A, the VC’s are no longer investing in an idea and team (a “dream”), but an idea, team, and quantified traction of how realistic the business will be (still a dream, but instead that dream is being explained the next day when people are awake…).

(b) You may be great but overpriced. For startups with existing high valuations from the seed round, we’re going to see higher priced Series A rounds. The consequence is that the smart money will simply step away from this. Others may participate. But what was previously thought a good thing — entrepreneurs being able to over-price their seed round just because they could — is now going to impact them as they now will be raising (or expected to) at a much higher valuation without the necessary traction to justify it.

(c) The bar is now higher. VC’s are being flooded with deal flow now, thanks to the broader trend of lower costs to start a company and looser capital at the early stage (and no, that’s not a good thing as it’s leading to burnout in VC’s trying to keep up which will lead to poorly-researched deals being done, making a real bubble). As a consequence and to the point I raised earlier, there is now just more competition for the same finite spots of investment opportunity by a venture fund. You may have a great product, a great team, and some great traction — but you’re now being compared to many more startups who also have great products, great teams, and great traction.

Never forget in fundraising the cost of capital investors need to meet
At the TechCrunch Disrupt conference in San Francisco last year, I noticed an interesting thing: what the angels and micro-VC’s were saying about what you need to raise capital, was very different from what the experienced VC’s were saying. The VC’s talked about vision, the angels talked about customers, revenues and traction.

If you’re fundraising, don’t underestimate vision and quantifying your market opportunity. Cost of capital is the reason.

In finance, the cost of capital is a term to describe a return needed on equity — think of it like the interest rate on debt. Venture funds who raised money from limited partners, have a cost of capital which is to be able to return the fund and then some. I feel like people see professional investors as rich guys that can give money simply if they like you — not quite. VC’s need to make money, and they are going to do that by investing in startups that they think have a chance of generating a return.

So how do that do that? Well, they look at the team and the product because after all that’s the execution part of the equation. But just as important and if not more important, is the market opportunity. If a VC has a $200m fund, that means they need to have a 20% stake in a billion dollar startup for them to return their fund. If they invest in anything that’s worth less than a billion dollars, then it’s not worth the investment. Of course, VC’s have differing strategies in their investment thesis and may invest in something for other reasons, but for the most part, the reason why VC’s are so interested in the vision is because the CEO founder is painting the picture of a best case scenario of what the opportunity is.

The fundraising equation a professional investor needs satisfied in their head could be explained as the market opportunity (potential valuation) multiplied by the probability of achieving that opportunity (the risk factors in execution reducing the probability) multiplied by the percentage stake in the business. If you’re a billion dollar idea which a good chance at success, why wouldn’t a VC want to invest in you? Founders overlook the importance of the vision because they ignore the fact VC’s are professional investors in the business of generating returns, and instead focus on the product, relationship, and confusing a good product from a product that has the potential to meet an investors cost of capital.

As an aside, this is also why long term we will be seeing more and more micr0-VC funds existing, funding smaller ideas. Why? Because if you think of the equation above, the return needed by Micro VC’s (with say a $50m fund) is much smaller now — an acquisition signed off by a Google/Microsoft/Yahoo VP for $50m rather than a billion dollar IPO is all they need.

The moral to this story?
The industry is in an adjustment phase but we’re not going to see the ugly side of the seed boom as the bubble will be absorbed and far away from the public markets.

You need traction to raise money as that proves your execution and reduces the risk for an investor, but traction without vision is just as bad as a vision without traction. In the next few months, people are going to start panicking, but don’t — the best entrepreneurs will still be able to raise money. You just need to be aware of the cost of capital for the investors you pitch.

Just remember to nail that vision bit.

Misinterpreting Kuznets

November 24, 2011 / elias

For years I’ve been thinking that something just doesn’t feel right with the world. It started with when I joined PricewaterhouseCoopers in 2005 and would observe how we’d always be ‘growing’ by 15% a year. Little things didn’t feel right like despite growing, people felt strained; and who cares if we grew that much? Growth in business is justified on the basis of economies of scale whereby the bigger we got the more efficient business was, but fresh out of university, I couldn’t help think about the other side of that theory: diseconomies of scale, where the bigger we got the more *inefficient* we were. And if we grew, what would that mean? A pay rise? Well, it better because if my salary grew below the inflation rate, I’d be effectively getting paid less. Our society was set up like this never-ending tread mill. Make more money, get to spend more money; spend more money, need to make more money.

Two years I go, I admitted I didn’t know the answer but I knew the end goal was “happiness”. And instead of measuring success based on wealth, I’ve come to appreciate success comes from wellness. We don’t just want an increased standard of living, which related to the definition of wealth, is about the accumulation of capital and generation of income. No, what we human’s want is quality of life, which like the concept of wellness, is about allowing us human’s to be at our optimum.

And I’m not the first to realise that.

The US Congress commissioned Simon Kuznets to create a system that would measure the nation’s productivity in order to better understand how to tackle the Great Depression. Despite this, he immediately said not to use it as a measure for welfare. He invented the concept of GDP to do this, and had this to say in his very first report to the U.S. Congress in 1934: “…the welfare of a nation [can] scarcely be inferred from a measure of national income…”. In 1962, Kuznets stated: “Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.”

Everyone knows GDP has weaknesses. First of all, it doesn’t count the things that can’t be measured. Externalities like pollution, which during my university days a decade ago were justified as not being included in the economy because they couldn’t be measured, simply were ignored in economics as if they didn’t exist. (And thank God Australia is leading the way with the carbon tax, to help correct this fundamental flaw in economics.) But also just as problematic, is the fact unpaid labour isn’t counted.

Why does this matter? Because policy decisions are being made, and it biases activity that can be measured. Spending money on pollution cleanup, is seen as a much better way to operate than preserving the environment which doesn’t lead to income. This simplistic way of measuring not only will divert wealth creation (as true costs are not measured, distorting appropriate decisions), but it also doesn’t discriminiate on the inputs to production so that true quality of life value is created rather than just standard of life which chases income generation.

As this great piece six years ago by The Atlantic states:

Politicians generally see this decay through a well-worn ideological lens: conservatives root for the market, liberals for the government. But in fact these two ‘sectors’ are, in this respect at least, merely different sides of the same coin: both government and the private market grow by cannibalizing the family and community realms that ultimately nurture and sustain us.

I think what we need to do is realise, that wealth creation and its associated metric GDP, is simply one dimension to us being happy as humans. A second is our health, because without being alive and able to enjoy life, then what’s the point? What value is there in society if you’re dead before you get to contribute to it? And so with that, why isn’t life expectancy considered a core part of the measurement of our society’s progress, equal or even above what GDP is?

A third however, is something I know but still can’t place my finger on yet. I don’t know what to call it, other than perhaps the pursuit of happiness. When we manage to feed ourselves and keep a roof on top of our heads, then what? We need to be engaged in the mind, always looking to grow internally. We want to learn and experience the world, and always feel like we are progressing. Life’s a journey to Ithaca, where we “pray that the road is long”. And the science backs this up: our dopamine levels are at its highest at the signal of a reward (as opposed to simply the pursuit and then the actual achievement of it).

This is not me trying to push a solution to a problem that doesn’t exist. The problem does exist and it matters: we’re using growth as a proxy for our progress, and yet damaging the environment that keeps us alive which is one side affect of this approach. Our whole system of measure is GDP growth which is fundamentally predicated on the basis of a rising population, but in the next 50 years we’re going to see the western world’s population stagnate which will de-accelerate GDP growth. What are we going to do when we stop growing? We’re operating on a house of cards.

Most pressingly, we are now experiencing one of the biggest financial crises of our collective conciseness with our political leaders unable to decide or able to execute a solution to get out of the mess. Which is ironic, because the concept of GDP was invented the last time we experienced global economic turmoil.

It makes you wonder that maybe the solution isn’t just action, but an entirely different way to how we see ourselves.

The changing dynamics of news

September 7, 2011 / elias

In the recent controversy that has erupted due to the firing of Michael Arrington from TechCrunch, I believe it represents an era in innovation led by TechCrunch that we’re only starting to appreciate.

To start on this thought experiment, consider how four years ago (meaning, things haven’t changed) I wrote about the two kinds of content that exist: data like breaking news or archived news; and culture which includes analysis like editorials and entertainment such as satire.

I argue that each content form has unique characteristics that needs to be exploited in different ways. Think about that before digesting this blog post, because understanding the product (such as news) impacts the way the market will operate.

Some trends of the past
Over the last two decades, we’ve seen the form (and costs) of news be disrupted dramatically.

It started with hypertext systems that helped humans share knowledge (with the most successful hyperterxt implementation, the world wide web 20 years ago forever changing the world); search engines helping us find information easier (with Google transforming the world 10 years ago), and content management systems helping people reduce the costs of publishing to practically zero (with Moveable Type and especially WordPress driving this).

While the sourcing of news still requires unique relationships that journalists can extract to the world, even that’s changed due to social media that’s created a distributed ‘citizen journalism’ world. Related to this is a movement Julian Assange calls “scientific journalism” where the sourcing of news is now democratised and exposed in its raw form.

Some observations of the present
With that, I’ve noticed two interesting things about the tech news ecosystem, who are are helping shape the trends in news more broadly: tech bloggers kill themselves to break stories, to the point where blogs like TechCrunch have become cults for those that work there; separately, the rise of the news aggregators like TechMeme and HackerNews (or Slashdot and Digg before them) have built the audiences who have been overwhelmed by information overload and crave a filter from a quality editorial voice (the latter being why news personalisation technologies cannot work on their own).

The big secret (that’s not particularly secret due to the abundance of ‘share this’ buttons on webpages) about the news ecosystem is that it’s the aggregators who drive traffic to news outlets that report the news. When you understand that point, a lot of other things become clearer.

On the other hand, tech entrepreneurs break their backs for the hope of getting written about on the Tech blogs. The reasons vary from getting credibility so they can recruit talent; exposure so they raise money; and a belief that they can acquire customers (the whole point of building a startup).

Which leads me to think despite all these random observations I’ve listed above, there is a fundamental efficiency evolving in news reporting that may give an insight into the future.

Let’s keep thinking. Other things to consider include:

The audience starts with the aggregators for news and the articles whereby the better headlines tend to perform better
News in its barest form is making awareness of an event (data); anything additional is analysis (cultural) which is to shape understanding around the event
The rise of ‘scientific journalism’ and social media allows society to discover and share information without a third party (due to technology tools).
Press releases are an invention to communicate a message so reporters can base their writing on, who often just copy and paste the words.

Some thinking about the future
News should be stripped to its barest form: a description of the event. It should be what we consider currently a “headline”, with preferably a link to the source material. Therefore professional journalists, bloggers, and the rest of the world should be competing to break news not on who can write the best prose but who can share a one line summary based on their ability to extract that information (either by being accidentally at the event or having exclusive relationships with the event maker). The cost of breaking the news should be simply a matter of who can share a link the quickest.

Editorial, which is effectively analysis (or entertainment in some cases) and what blogging has become, should be left to what we now consider as “comments”. Readers get to have the “news” coloured, based on a managed curation of the top commentators.

Tying this together: Imagine a world where anyone could submit “news” and anyone could provide “editorial”? A rolling river of news of submitted headlines and links, and discussions roaring underneath the item reflecting the interpretation of the masses.

You could argue Twitter has become the first true example of that where most content is in full public view but with a restricted output (140 characters); people can share links with their comments; and the top stories tend to get retweeted which further gains exposure. Things could be similarly said about Digg, Reddit and Hacker News. But these services, along with Twitter (and Facebook) are simply an insight into a future that’s already begun. I think they are just early pioneers before the real solution comes, similar to how Tim Berners-Lee created a hypertext system in a saturated market that then became the standard; Google created a search engine in a saturated market that then became the standard; and WordPress created a blogging platform in a saturated market that then become the standard. Lots of people have tried to innovate in the news ecosystem, but I still don’t think the nut’s been cracked.

News has a lot of value, but there is different value based on who breaks it and who interprets it. For example, when I fire up some of my favourite aggregators, I tend to not click on the original headline but on brands I like so as to read their take on the event (though when I’m deeply looking into something, I dig for the source material). But the problem with news now, is there is a fundamental disruption on the cost structures supporting it: the economics favour those who break the news, with those that interpret news suffering as traditionally both these roles were considered the one function. Something’s going on and the answer is cheaper production, faster distribution and more of a decentralised effort across society and not the self-appointed curators.

While the newspaper industry is collapsing, something more fundamental is happening with news and we’re simply in the eye of the storm. Stay tuned.

What is StartupHouse? It’s a rocket

September 2, 2011 / elias

I’ve been getting a lot of inquiries on what is StartupHouse, a new business I will be unveiling to the world with the help of some of my friends. All will be revealed in due course, but in the interim, you might appreciate a video my good friend Al Faulkner produced on “StartupRocket”. Too many inside jokes to explain, but this parody done for our own private entertainment actually does a pretty good job explaining what’s to come 🙂

Why ICANN’s changes to TLD matter

August 27, 2011 / elias

ICANN two months ago made an announcement that domain names can now be extended beyond the generic TLD’s set (they also are allowing the use of non-Latin characters such as Cyrillic, Arabic, Chinese, etc). Meaning, instead of everyone competing to get a “.com”, people can buy “.yourbrand” and create websites off that. I think it’s brilliant — Ester Dyson, the founding chairperson of ICANN, doesn’t agree.

As someone that’s developed multiple online properties, organisations (both for-profit and not-for-profit) and had people try to rip-off several brands I’ve created, I’ve experienced enough to welcome this as a huge step forward — and here’s why.

ICANN’s strategy originally wanted to disrupt a market place player, which is why they assigned these generic TLD’s like .org and .net (.com was controlled by a corporation). But what matters now is not the historical reasons but what will benefit the world based on historical experience (and failed strategy). That benefit is better consumer protection and reduced costs of business.

Let’s rethink this
Consider the following:
(1) The purpose of a trademark is to allow customers the ability to distinguish what they are buying. It’s for the customer’s protection first.
(2) A domain name is simply a human-intelligent way to to access ip address. Whether it’s apple.com or apple.eats.microsoft — the point isn’t one of branding, but for humans to be able to identify a resource they seek.
(3) While there are plenty of domain names available, good ones no longer exist. There is a bias to having a “.com” and it’s why many companies from the web2.0 era had to resort to creative domains like del.icio.us and missing vowels like flickr.com

What the historical DNS system has done is create an unnecessary scarcity where domain name registrars and brokers of ‘premium’ domain names benefit. Having a company own the name space like “.IBM” makes perfect sense because “.com”, “.org”, and “.net” have lost their original meaning of distinguishing “commercial” businesses over “non-profits” and the like.

What matters more is that when a consumer wants the comfort of the company they seek, they can do it with the assurance it’s correct. “.paypal” for example could have huge implications for fraud detection for consumers (some fraud is done due to misspelled domains similar to the target or switching .com with another TLD). Better still, it actually decreases the cost of businesses for companies because they no longer need to chase the unlimited TLD variations of their name to protect their brand — which they only did so, so they wouldn’t lose customers confused by confusing branding.

ICANN’s changes are a radical change, but they are perfectly in line with the original intent of trademark law. Sorry Ester, but you’re wrong on this one.

Snake oil role models and silicon valley’s ponzi scheme

August 21, 2011 / elias

Several years ago, I considered someone “successful” because he had sold a business to a brand name technology company. Recently, I discovered he practically made no money from it. He’s still successful in my eyes, but when it comes to giving people advice on building a successful business I hold his opinion just as high as any other reasonably intelligent person — but no more.

This is a common issue for people living in Silicon Valley that they can relate to: Smart people that “sell” their company and become celebrated entrepreneurs. As a case in point Facebook has quite openly said they only acquire companies for the talent and not for the business itself. What this means is that the products the startup built isn’t the reason they exited; instead the value of the people in the business are what was acquired. If I was to start a solar company and buy expensive furniture — only to be “acquired” for the value of that furniture and nothing more, that’s not success; that’s just money being shuffled around.

I’ve been observing a trend where smart engineers think they are founders. They start a company, but they lack essential skills that makes the startup gradate to a sustainable business: which is what the entire point is for a startup (the search of a business model, which it can then execute on). These smart engineers are smart engineers — but they are not founders. And because there is a talent crunch, these companies will get “acquired” and be considered a success, distorting the story that will inspire and help future entrepreneurs.

A ponzi scheme built on snake oil
If a company is acquired before it generates positive cash flow or even revenue, it means what they build wasn’t a success in the context of “let’s copy that model”. As to why they were acquired, there could be multiple reasons: talent acquisitions are just one example, but there could be strategic value in acquiring a company as it complements the acquiring company’s existing product line. A product is a solution to a problem, and often people build great technology that is better classed as a feature. An acquisition gives these feature driven technologies a fake sense of validation. It’s a ponzi scheme.

Economically, this ponzi scheme doesn’t hurt so there is no need to regulate it: these founders cash out something and the company that acquires them can likely absorb the losses. In fact, the maturity of the information technology industry now has allowed for outsourced innovation which I think is a great thing. (Innovating in a big company is practically impossible if you ever meet someone who has lived to tell the tale, and now Silicon Valley giants can acquire disruptive innovation rather than solely relying on it to be generated internally.) But it also creates a fake understanding of what success is. An externality of this are small ideas and nothing game changing, the higher calling for those that can change our world.

A true measure of success
I’ve come to realise that the only metric that matters in business is cash. Not revenues, not number of employees — but cash that sits in the bank and the inflow of it that will grow it. I get nervous when I see companies hire ahead of their revenue growth and skeptical of companies that boast about revenue but sugar coat their margins. Cash is king, and any evaluation of a business is useless without understanding its cash position.

Which leads to why the ultimate goal of a startup is to be able to generate enough cash from customers so that it can fund its operations. You may want to change the world and that’s an honourable goal for a startup — but if you are not sustainable, you’re not going to last long enough to have that impact.

When we hear about smart people selling their companies, stop to ask are they really successful? Technology allows us to automate processes, but this simply allows us to scale operations due to reduced cost. But scalability is irrelevant in the same way revenue is irrelevant for a professional services firm that relies on the hourly input of its staff. If you’ve built something that improves society, while at the same time return increasing profits despite a constant investment — you’re a success and you should be ranked according to the fundamental value of the asset you build. And if you sell your company for whatever reason, you’re still a success: just don’t go around rubbing that snake oil in people eyes, because that’s not the medicine we need to foster the next generation of great businesses.

Everest syndrome is the biggest crime in our society

August 8, 2011 / elias

US President Barack Obama made an observation last April:

One of the things every time I come to Silicon Valley that I’m inspired by but I’m also frustrated by is how many smart people are here, but also frustrated that I always hear stories about how we can’t find enough engineers, we can’t find enough computer programmers. You know what, that means our education system is not working the way it should, and that’s got to start early.

A country facing recession and high unemployment, and yet Silicon Valley is in a talent crunch where companies like Google and Facebook have resorted to constantly acquiring companies now just for the talent. How so?

My friend Mike Casey (more on him below) and I have come to call this “Everest Syndrome”. It’s where our smartest men and women are wasting their potential in middle management of a large corporation. Where they climb the corporate peaks for the elusive goal of getting to the top, many killing themselves along the way and only to find out how lonely it is at the top.

I believe it is the biggest crime of our time, as these people should be at the forefront of our economy, driving its progress and ultimately increasing our standard of living.

Sketching the picture with some stats from Australia
I’m good friends with the guys that run Grad connection, the largest graduate recruitment website in Australia and the fifth biggest jobs portal in the country. I asked one of the founders Mike Casey to pull out some numbers to illustrate how graduates enter the workforce. Although their total database is much higher, we were able to get 17,887 students who specified a specific course they had studied — which represents about 12% of the 150,000 students that graduate each year.

While I’m sure we could get more scientific on this sampling approach as there’s a bias on their employers and hence graduates, it still paints a fairly representative picture on the broad base ‘commercial’ disciplines. Gradconnection has just five categories which account for 88% of the total sample population, which are as follows:

Commerce: 31%
Accounting: 20%
Banking: 18%
Information Technology: 11%
Law: 8%

Accounting and banking means 38% of graduates end up in financial services, and the lawyers grow that professional services group up 8% to 46%. (For context, services make 71% of the Australian economy — with the topic of this post referring to the now distinguishable quaternary sector emerging.) That’s not a good thing and here’s why.

A story by the storyteller
I went to a school that made me think doing a business degree was the right thing; and when at university, thought working at a big bank or professional services firm was the ultimate goal and what would make me successful in life. Those things in themselves are not a bad thing, but the attitudes they created were: at high school, I thought the people studying art were wasting time; and at university, I convinced a former school mate to make our newspaper venture a non-profit university society rather than an actual business that his father was willing to bank roll. The reason? I didn’t want to threaten my studies by a project, that would prevent me from “something important” like getting a job at a big firm.

That attitude I had — fostered by my environment — is pathetic. (Although ironically, this “non-profit” which challenged us to find a useful product/market fit exposed me to the Internet and led me to develop my first business idea of electronic newspapers…which fortunately never went passed the business plan.) Everyone can similarly liken it to how every good family has children that become lawyers or doctors, because that’s considered a good direction in life. My father — a lawyer of nearly 50 years now –often complains about the over-supply of lawyers in the industry: there just isn’t enough work to go around to sustain all these graduates.

We need graduates that originate value
I’m a chartered accountant and I’m proud to have survived the grueling process to become one. But like all professions, my training has me biased towards being a service provider. Service providers add a lot of value and we need them, but the thing is that they are optimisers of value, not originators of value.

If you had a nasty court case to handle due to a marriage breakdown, business conflict or car accident — then my father is a God-send because he can help you solve those issues with his expertise. But what happens where you don’t have any marriage, business or car issues that require his help? Well, you’re happy and he has no work. Service providers are inherently dependent on the rest of society, which is why there can only be a fixed supply of them.

This is very different to what I regard the originators of value. The art students I shunned at high school, can now do something in technology that has them one of the most sought after talent: design interfaces. Apple, a company that has brought interface design into the core of the company’s approach to building technology, will probably become the most valuable company in the world ever to have existed.

Similarly, scientists and engineers: they are builders. They can build value, for any industry and a solution to any problem limited only by their creativity. We will never have an excess supply of computer science students, because if they can’t get employed they can simply leverage their skills to entrepreneurship and employ themselves!

Accounting is the language of the business world and it’s why I decided on that path; but I’ve now come to appreciate computer science as the language of the information society. Those who smartly go in that direction, will be the leaders of our future.

We need more people in startups. But startups are not for everyone
If our smart people need to get out of the big corporations as a postulate, where should they go? They should be working in startups. And instead of being service providers at big banks, they should be product builders at disruptive companies.

But not everyone. I’ve observed multiple times personalities that are more detail-orientated and prefer structure tend to get more easily frustrated in the organised chaos that is a startup. They focus on execution, whereas a startup is more experimental and adaptive — and so clash with people who are the latter. While differences in personalities is a given thing in any work environment, the issue with these clashes is that you need people who can hold their head and not blow up. Conflict is fine, as long as it’s managed — and I’ve found more structure-orientated people tend to freak out more and then affect the work of their colleagues (which is the real issue, not the fact they need a more structured work environment).

But with that, is the only disclaimer I’m willing to give to Everest Syndrome. If there was one thing I could change in the world, it would be that. Because ahead of poverty, hunger, and war — it is smart people working on challenging problems that can help change the world. The Internet’s development and people understanding computer science creates the opportunity for not just new startups, but every day innovations that can automate processes (like research), connect people (like disaster relief) and maximise the opportunity for economic and political freedom for humanity.

Not everyone has the intelligence, passion and will to be a science researcher uncovering new medicines, one of the nobler career choices in my eyes. However, computer science is fast becoming the new literacy in business. Put more simply, if you don’t know how to put a website up on your own, then stop feeling pity for the third word’s first order impoverishment and reflect on the rich world’s higher-order impoverishment reflected in your inability. A symptom of a bigger impoverishment of the mind, that is a disillusion of what truly is valuable to drive our society forward.

The backstory on Silicon Beach and an Aussie Entourage

July 13, 2011 / elias

When a newspaper a year ago interviewed me, I matter-of-factly talk about an “Aussie Mafia” in Silicon Valley and how we regularly talk to our friends in Australia. More recently The Next Web rather cheekily said I regarded myself as part of an “Aussie mafia” in the commentary to the video interview. The interview caused a bit of a stir with emails and additional blog posts about the project.

But it wasn’t until this last week when an article surfaced from the July 2011 Virgin Australia inflight magazine “Voyeur” that some noise really affected me. Back in April 2011, the journalist asked for my help on people to speak to and to give him insight in tech which he readily admitted was not his normal beat; but as a consequence of that discussion, I think the article made some presumptions which make it look like I created the Australian tech community and this “Aussie Mafia”.

Well, not quite. Given both the drinks mentioned in that article, the brand “Silicon Beach” and the “Aussie Mafia” are mentioned, it was suggested by someone I clear up the real history. So here it goes.

“Silicon Beach”
The Australian newspaper media popularised the term “Silicon Beach” from a front page article in January 2007 to describe Sydney in Australia that had a growing tech scene. Six month’s later, I wrote a post saying we should call all of Australia “Silicon Beach” as “we’re one island continent anyway”. A year later, I registered the domain name siliconbeachaustralia.org (and later, negotiated siliconbeach.org) with a placeholder website and launched a mailing list which set the brand on fire. I then went onto build the brand further by launching a podcast series with Bronwen Clune, writing a letter to the Australian Senate on behalf the community that had formed around the mailing list (and a subsequent proposal on request of some Australian senators that formally had them refer to the industry as “Silicon Beach”).

Now those infamous drinks.

Back in May 2008 along with Mick Liubinskas and Lachlan Hardy we made a decision by the Shelbourne Hotel‘s Pool table to do a weekly drinks that was ‘same time same place’ to avoid confusion — the goal was this consistency would build community in Sydney’s fragmented technology industry. That afternoon Bart Jellema, Kim Chen, Mike Cannon-Brookes and others in attendance agreed — with Bart and Kim being instrumental in making them what its become (they would often be the only people there!). The drinks initially were called “FITSBAD” based off a public Twitter discussion Mick and I subsequently had, which stood for “Friday Information Technology Silicon Beach Drinks” and separately over alcohol at one of the drinks with Bart we called it “Official Friday” because, well, it gave it more status (Bart pushed passionately, I kept drinking). Months later, I convened Mick and Bart and asked them to call it one or the other as they started competing with each other, and so “Official Friday” it became. But then, it slowly turned into “Silicon Beach drinks” (no doubt influenced by Mick and Bart who are the biggest supporters of the brand, but also because Melbourne hosted a monthly drinks under that brand). These drinks further entrenched the brand I didn’t invent but made and now unfairly get credit for doing everything.

Silicon Beach is a brand that I built but so has everyone else in Australia. Just because I first popularised the term though doesn’t mean I did anything special.

“Aussie Mafia”
I first heard about this term from drunk Facebook posts by my Aussie friends in Silicon Valley when I lived in Sydney (people like Martin Wells, Chris Saad, Mike Cannon-Brookes). It would later turn out my future room mate Marty Wells actually invented the brand and replicated in Silicon Valley what he did in Sydney, which was organise the tech entrepreneurs socially. Which is ironic, because the “Silicon Beach” drinks filled the void when Marty left Australia with the events he ran like the semi-exclusive Dinner2.0 (where I met Marty) and Stirr. Dean McEvoy (an Aussie that formally lived in Silicon Valley and that went on to do something amazing in Australia) even registered aussiemafia.com. Kind of funny, as it was a jovial term to describe Aussie entrepreneurs in Silicon Valley. No one took it seriously, until other people did.

In the months I lived with Marty between September 2009 and January 2010 (I moved to America in August 2009), we called our wifi network “Aussie Mafia HQ” and I tapped into a semi-regular catchup Marty would have with his friends Alisdair Faulkner, Stephen Weir (a Kiwi), Chris Saad and Bardia Housman. It actually started when Stephen and his girlfriend would eat once a week at a venue, and invited other couples like Alisdair, and sometimes Bardia (who was in the near end of an exhaustive year long process in selling his company to Adobe and starting to come up for air again) and their partners hanging out — but when the talk of the boys constantly turned to business the girls decided to let them do their own thing. I arrived in America around the time these drinks became a boys catchup driven by Steve, Marty and Al.

Over the next few months, it became a routine and then a ritual. And when visiting Australian’s wanted to meet us individually (as individually everyone in the group had a profile), we’d often invite them, which in turn built this brand as the “Aussie Mafia” catchup. People would get upset they weren’t invited as it was perceived as some industry event. I’ve actually had several confrontations with women on why they weren’t invited! It got to the point where it felt like work and not friends catching up anymore. This practically killed it, as some personalities just ruined the discussions and defeated the purpose of why us time-limited friends would catch up.

And then?
There is no real “Aussie Mafia”: we pay our taxes, we have work visa’s, and we don’t kill anyone that doesn’t pay us protection racket. And I am not the reason why Australia has a tech community — I simply innovated because I identified early on we needed a brand to rally around in Australia, which turned out to be so successful that these journalists credited me for creating the industry!

But there is something in this extended group that’s special, that American entrepreneur friends of ours profess jealousy of. Both Bardia and Stephen bought the building that I gave a tour of in The Next Web — these two drinking buddies are now business partners. And there are more business arrangements to be announced in the coming months that have been developed along with discussions against trips to Mexico, Vegas and Miami.

There are a bunch of other Aussies and Kiwi’s I haven’t mentioned in this post and they know who they are. It’s an interesting time though because these social friendships (I’ve had some of the funnest nights in my life with the people in the above sketched image) are now becoming commercial relationships. A story of success will come out of this and I guess you could say we’re rewriting our history in this city.

UPDATE: 14 July 2011: Delighted to find out today that Kim Chen was a secret influence behind the Melbourne Silicon Beach drinks. There had been two previous attempts at getting Melbourne to have regular drinks, but it was Kim’s discussion with Roy Hui, Kate Kendall and Stuart Richardson that led to this being a huge success.

Veokami is an awesome new concert video curating service

July 3, 2011 / elias

I’ve been in America now two years (wow!) and one of the best things that’s happened to me since moving here is being involved in the Aussie community of entrepreneurs in Silicon Valley (which actually is filled with New Zealander’s as well!). I don’t know all the Aussies, but the ones I do know have entirely justified the life-changing decision I made to move to America: the combined economic impact this group have had and will have in the next decade on the Australian, Kiwi and US economy really is amazing.

So it’s exciting to see one of my good friends and upcoming entrepreneur’s in the group Brett Welch strike it out on his own with his startup Veokami. Chris Hartley and Brett have built this funky piece of technology that aggregates all the video taken from a concert. For example, hundreds of people will record a show with their camera phones now and some upload it to youtube. Veokami synthesises all these videos and puts them in a timeline, so that it not only will organise the songs in a timeseries order, but will put them parallel to the timeline with videos shown from a different perspective. It’s like watching a TV recording of the concert, with you being able to switch camera angles…except the difference is, all this video is automatically organised and the video comes from hundreds of amateur footage shared by the Internet.

Check the video below for a sneak peak. And please vote for them on the hacklolla challenge as I’d love to see this service get integrated into concerts around the world, which further enables the power of the Internet and computing to transform our lives. It’s tools like this that put more power in the hands of the consumer and that alone is a reason why we should be supporting startups like this.

The potential of this technology really is interesting when you consider any public organisation of people — from political rallies to conferences to parties — the ubiquity of mobile camera’s now is unleashing a new collective intelligence in our world and Veokami helps stitch that intelligence together in a curated way.

There’s something about you turntable.fm

July 3, 2011 / elias

Three weeks ago, Turntable.fm became the hype in the echo chamber. Like I do with everything, I’m been observing and reflecting on how it’s being used by other people and myself. In short, I like it. It’s such a simple idea that could further disrupt the traditional radio business.

What it is
For the uninitiated, it’s an an Internet radio station, with a quirky web page that people interact in. People either sit in the room bopping their heads (approving the music) or people put themselves in the DJ chair and compete against another 4 DJ’s for the best tunes according to the room theme.

My first observation: Spotify will kill it. Or not.
While they appear to be completely different, I keep thinking about my Spotify experience a year ago when I was in Europe: I was hooked. And it was for the same reason — I could subscribe to a friends playlist (turntable I can follow a friend and hear when they play). The benefit is that I can get filtered serendipity and discovery, like how radio has done for decades. (For example, you may love a particular kind of music but have no idea what the latest tracks are or the time to curate playlists — but you have friends who do so would rather follow their enthusiasm.)

Turntable’s cool, but I keep thinking it’s Myspace and Spotify is Facebook. When Spotify launches in the US (rumoured to finally be this month), then turntable’s core value in providing this discovery will be replaced as Spotify is just an amazing service. But I’m not so sure about that now, as actually it might be away where playlists in Spotify get generated so it’s completely complementary.

My second observation: it’s competitive curation
In this explosion of social media, people are starting to appreciate the role editors played in the traditional media. Curated content is a skill that algorithms still can’t beat humans at (and actually, the best kinds are based off existing human preferences).

With Turntable, you select a room and sit there listening to the music. People compete for the “DJ” spot at the table (of which there are a maximum of 5). A chat room allows people in the room to chat like the old days of IRC and give direct feedback to the DJ’s or discuss music. The vote meter helps regulate the quality of music as high votes not only impact the DJ’s rating but down votes can cut the song being played and move onto the next DJ’s track.

This motivation to please the crowd means there is an active effort to curate the playlists into something worthwhile. That’s an interesting concept to consider, as playlists in past have tended to be done by people along without real consideration of others listening to it (or at least, real time feedback to consider it).

My third observation: it’s social, like the Athenian assembly social

I don’t fully understand why yet, but the chat room aspect is the most powerful component of the experience despite being the most subtle. While the voting mentioned in my second observation creates a motivation to enhance their DJ reputation by playing good music, the chatroom makes this curation directly in touch with the audience.

It’s like a democracy, where those representing and controlling the room’s music are actually completely dependent on the goodwill of the audience. The voting is the main way this is enforced, but the chatroom is where people will negotiate. Games will be determined where certain patterns in music will be played; feedback of bad songs will be given to DJ’s; and requests will be sent. It’s like a radio station completely accountable to its audience.

Like Twitter, the service will evolve based on these discussions. Some of Twitter’s most useful features like @ replying (which turned it into a communications tool) and hashtags (which turned into into a information resource) were invented and popularised by their most passionate users. Turntable.fm offers a similar utility around music and I think will evolve in a similar way. Like any startup, it’s hard to know where turntable.fm will be in six months time, but one things for sure: it’s sticky and it’s only going to get better.

Blog of Elias Bizannes