Tuesday, September 19, 2006

Top 10 ways non-US 2.0ers do without VC

For some reason I'm on the AVCAL mailing list... oh wait, it's because I started a business. Silly me. Anyway, so today's email congratulated Southern Cross Venture Partners on the first close of their first fund at A$100 million. The fund will be capped at A$200 million, a level expected to be reached by the end of 2006.

“The Australian marketplace is highly attractive for early-stage technology investing due to the excellent deal flow and persistent shortfall of early-stage venture capital,” said Southern Cross Venture Partners Managing Director Bob Christiansen.

“The fallout from the tech bust saw investors move towards more conservative later-stage investments, but the time is now ripe for early-stage investing as a new stream of experienced entrepreneurs and interesting innovations emerge.

“Our experience shows the Australian early-stage market is grossly undercapitalised with not enough capital to support the qualified deal-flow for at least the next four to five years.

Okay, that's all well and good. But this only crystallises, to use a Butterssism, what I have been hearing and experiencing about the local VC market. I have had my own attempts to secure venture capital backing, as have fellow local consumer Web plays b5 media, Feedcorp and The Podcast Network. I'm not talking out of turn with any of these Aussie companies here, they've all blogged about it themselves. And they have, as far as I know, had no joy. Nik Cubrilovic basically moved to the US to get VC for Omnidrive. Minti managed to snare A$1.5 million in February but it wasn't done through an actual VC firm AFAIK, was only Perth-based, and sounded more like angel funding.

Thus I present the top 10 ways that non-Valley-area 2.0 entrepreneurs have found to get around the fact that VC funds in your area are shitscared of consumer-facing businesses.

1. Don't spend any money at all.
This is largely my strategy. Our outgoings are negligible, and have so far been covered by AdSense. (AdSense doesn't count as its own item, it's assumed. We're Web 2.0, baby!)

2. Spend your own money.
You used to work at a dead end job at a multinational conglomerate as a salariman, and you had the bright idea to strike out on your own into the bright blue future. Good job, idiot, your bank balance is losing digits fast.

3. Spend the bank's money.
If you already have one mortgage on your house, what's so bad about having another one? Interest rates will come down again, won't they? Surely?

4. Spend your parents' money.
Ah yes, the bosom of one's familial units. I plead guilty to sponging a roast dinner once every week, although admittedly the benefits may be outweighed by the petrol costs in driving 100km round trip to get there.

5. Spend the government's money.
Have you heard about this NEIS program? It's like angel funding for no equity! All you have to do is sit through three months of boring seminars, then you get $10,000 in cold hard cash! Sweet!

6. Spend money you don't have.
You know this one guy who built a million-dollar business just by buying supplies on his credit card. No worries! Not only will those pesky interest rates be coming down again real soon, you get all those lovely frequent flier points to fly to places to spend more of this money you don't have.

7. Earn consulting money.
Sure, your skill sets may not fit with being an actual entrepreneur, but you can always dip your toe back in your old industry. Just one more day and you'll get back to your own business. Honest. Well, that per-hour rate is pretty tempting.

8. Go back to work for The Man and become a silent partner.
You were never the main guy anyway, you've made your contribution. Someone needs to earn some money around here! 2.0 is stupid anyway. I've still got equity, remember!

9. Spend MSM money.

This is great, we're screwing The Man for real dollars! By day we tug the forelock and get ordered around by middle managers for phat consulting bank, and by night we undermine the MSM on our blogs. We're engineering the revolution from the inside, man! And yes, if you want to buy us, of course we're not tainted by association.

10. Hope you'll get some MSM money at a future, indeterminate date.
... guilty as charged.


Anonymous Nik Cubrilovic said...

Now all they need to do is find 20 companies to invest in within the strategy they have set forward (which sounds broad). Having a US presence is a smart move, but they have raised this fund at a time when US firms are struggling to get new funds together, so it is good news for Australian startups.

As an aside, we didn't go to the USA to raise VC, it's because this is where the big market is :) Incidently, we have not raised financing that has involved any VC (venture capital nor viet cong).

7:59 am, September 20, 2006  
Blogger redbarren said...

paul. while there are structural problems with aussie vc (they dont do early early stage, angels do.. and vc's in general invest in very few deals blaagh blaagh) there is actually a truckload of money to be invested in the space within australia.

problem is lack of companies to invest in (too many are stuck in the middle - lack local or global leadership) which is a symptom of not enough of the right people skilled to work in such ventures locally. the online industry was decimated around 2001 and the best people either left or stayed at the big online companies. there is therefore little to invest in locally.

the biggest benefit of playing in socal mountainview is that getting staff with the skillsets is easier. capital follows brains. the au money is there, in excess actually, just a lack of companies to invest in, who cant get the right people and then decide whether to execute locally or globally. (we have been approached for vc but it's too early for that.. saw it all last time thanku.. obtaining capital wasnt the issue at all.)

1:07 pm, September 20, 2006  
Anonymous Clay Cook said...

Yes - our funding was angel funding... not VC.

7:06 pm, September 20, 2006  

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