Make SA great again - less talk, more contracts

The state government wants to support Adelaide entrepreneurs, so Victorian firm Redfire was engaged to write a series of reports, they suggest that Adelaide needs

  • $50 million Venture Capital Fund
  • $10 million Early Commercialization Fund

Playford Capital was SA’s leading seed technology investor until it was shut down in 2010, this ran at a cost of $1.7M / year.

In 2011 I worked at a similar $30 million fund called the Trans Tasman Commercialization Fund which was also shut down.

Past funds have been shut down because the economics don’t make sense, throwing money at the problem wont fix the underlying problems.

These types of funds have challenges including

  • Expensive to run
  • Only helps a few companies
  • Lack of local experienced fund managers, University commericalization groups focus on contract research not startups.
  • Long payback period

One trap startups fall into is the belief that

“I just need to raise some money so I can pay to get my product built”

Few startups fail because they couldn’t build the product, startups fail because they built stuff nobody wants. Funding a solution that is looking for a problem to solve just prolongs the inevitable.

Startups need customers.

Customer money is better than investor money.

Landing that first paying customer and getting case studies to show to prospective customers is a huge hurdle for new businesses.

Identifying projects, setting budgets and making them accessible to Adelaide companies would help startups answer the question of “who else is using this?”.

The state logo redesign is a perfect example of a missed opportunity.

Imagine a statewide online competition in which all residents of SA could enter and vote on entries from high school students studying art to local design companies.

The budget was large enough that the top 100 entries could have recieved $10,000 each, what impact could that have had for young entrepreneurs?

Instead we payed $1.3 million to a Victorian firm to design a doorway out of South Australia.

When the state government first decided to help the entrepreneurial boom by investing into co-working it passed on supporting the Majoran and instead provided $1 million for an interstate coworking brand to setup shop in Adelaide.

Which begs the question of why? Why wouldn’t the government want to back the local team that already has the tech community’s support? The answer can be summed up with

“no one ever got fired for buying IBM”

a phenomena where people buy inferior brands that are established so that when it fails they cant be blamed.

Navigating government agencies can be a dangerous time sink for startups, meeting with startups and talking about innovative products checks the innovation boxes for government middle management. This can result in false hope for the startup trying to land their first big customer, when all the positive feedback and excitement turns into a no when it’s time to sign.

Stability is at the core of government values, which is good, constant radical changes all the time would be bad for the state. However a culture of stability with a low tolerance for failure, creates a risk for career public servants to back local startups. With little economic incentive for taking that risk its easy to see why it is hard for Adelaide startups to get a foot in the door.

Final Thoughts

Hackathon events like Unearthed and D3 are a start in the government engaging with local talent.

A venture fund might help a few established SME’s to take their companies to the next level but it wont help early stage startups to get their ideas off the ground.

We need the government leadership to set a mandate so that it is in the interest of government middle management is to support the local startup community. This might be requiring a minimum quota be supplied by companies registered and based in SA, less than 3 years old and less than a few million in revenue. Whatever manadate is set it must be measureable and clear who is accountable if it is not met.

Opening up government contracts to Adelaide businesses could be what starts SA back on the path to being great again.

Agree? Disagree? Want to hang out in San Francisco? Let me know in the comments.

Tweet @JayWeatherill this article if you agree.