Australian startups have complained of how hard it is to raise money locally for as long as I remember. And that’s a good thing.
Although SydStart 2013 speakers yesterday described a thriving ecosystem of entrepreneurs, technologists and investors, conversations in the corridors echoed familiar strains of a funding shortage.
Whether or not such a shortage exists, the notion of Sydney as a cash-starved vacuum could help Australian companies avoid what has been identified as one of the world’s largest start-up killers: premature scaling.
Premature scaling refers to a business taking on growth stage activities, like extensive hiring or marketing, before validating that the market wants their product. It’s the most common reason for startups to perform poorly according to the 2011 Startup Genome report.
Perhaps the perceived shortage of funds should be taken as an opportunity for entrepreneurs to refocus on solving important problems.
Look at AngelList, a San Francisco-based company that matches early-stage companies with investors, and whose 12-person team facilitates more than ten million dollars in investments each month.
Speaking from the SydStart stage yesterday, Sydney expat and AngelList hacker Ash Fontana shared some of the cultural DNA that has shaped AngelList into such a highly impactful service.
The most surprising cultural gene Ash revealed, judging by audience reaction, was a near fanatical focus on personal leverage and automation. AngelList forces staff to focus on high-impact work by restricting resources: its few employees have to do everything themselves, so they only do important things.
Fontana cited AngelList’s job matching feature as an example of a product whose design, development, marketing and support are performed by a single employee. When a high volume of low-quality job-seekers and companies threatened to swamp recommendations, this employee had no choice but to develop a way to automate quality scores and filter recommendations: manual inspection was out of the question with thousands of introductions each month.
The irony of a company that helps entrepreneurs raise money being internally driven by scarcity is wonderful, but Angel List paints a valuable example. They themselves have never raised money beyond founder funds (although they’re rumoured to be raising now). Limited resources help them focus on their business’s important problems.
As Sydney Angels co-founder Mathias Kopp told SydStart, Sydney has multiple structured angel investment groups and lucrative government commercialisation support. With many private investors, crowd funding platforms, and the apparently novel technique of earning revenue also available, Australian start-ups have plenty of funding options once they can convincingly demonstrate traction with a valuable product.
So perhaps the myth of a funding shortage will help our startups focus on worthwhile problems. As the poster I liberated from the wall on my way out of SydStart yesterday says: “Life is short, build stuff that matters.”
Alex North is a software engineer and Sydney native. He has worked at Google and Posse, co-founded two of his own businesses, and mentors local startups through incubator PushStart and UNSW’s school of computer science.
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