Risky ideas in Australia: why we don’t back ’em, why we need to

Creatomic interviews alan jones from BlueChilli

Jon: I wanted to talk about a post you’ve recently put out on Medium, I believe it was called “Australia needs to invest in riskier ideas in 2017” — it definitely resonated with me. There’s a great spark in there about the dangerous safety zone that we’re investing in, here in Australia. What prompted that particular train of thought?

Alan: I usually participate in startups’ first or second round. Before that, it’s normally about funds from friends and family, and before that they bootstrap it or they do an angel round, and all of this while they’re holding down a job. At that point there is almost nothing there. They’ve got an idea, maybe a framework, a basic product. More often there is some early validation and testing from friends and family and colleagues.

Once a founding team gets to their serious funding rounds, with the level of progress they’ve made, if the idea is really good enough, the general reaction from Aussie VCs is, we love you and love what you’re working on — keep in touch. Get back to us when you’ve made some more progress. Get back to us in 3 months.

And then that three months turns into another 3 months, and so on. Then it’s 18 months later. Meanwhile, that startup is probably in a highly competitive space. The whole reason you invest in a startup is that you’re making a bet that they’ll grow faster than their competitors and carve out their place in the market. If 18 months later you are still making up your mind, you know that the competitors are already doing better and owning the space and then it’s too late. Then you ask, why would I invest when their competitors already have them beat?

For fuck’s sake — you created that situati0n.

Jon: You gave the example of Airbnb as a company that most Aussie VCs wouldn’t have invested in. Can you expand on why you believe they would have passed over the idea? Is it just risk aversion, or is there a connection to the wider problem we often see here of Tall Poppy Syndrome where we often tear down the truly great ideas?

Alan: Here in Australia we have a broad business culture of aversion to failure. I heard somebody on the radio the other day who was talking about the move to end penalty rates. He said they have lasted much longer here than everywhere else. The reason we’ve had it this long is that we are uncomfortable with our convict heritage and respectability has been the most important value in our lives. Those penalty rates are a sign of that higher emphasis on respectability. So we have that emphasis when it comes to workers’ rights, but we also have it in almost every other area.

We have that emphasis when it comes to failure, too. We see failure as a blow to our personal respectibility.

That affects our startup founders as well. Very few come back for a second try. I think the number is only 50% of new entrepreneurs have started something previously, and that comes down to that reputational damage. You can ask most people in Australian business to name a spectacular failure, and they can almost instantly. You can ask a cabbie to name a business failure and they’ll rattle off names.

There is a small difference emerging though, and it’s about that word founder. The word founder is interesting because most Aussies think an entrepreneur is someone who rips people off and gets away with it. Christopher Skase, Clive Palmer. But founders are being seen more and more as a different breed, as we see people like Mike Cannon-Brookes speaking up more, and particularly with the recent Tesla tweets. There might be more room for failure from founders.

Is that failure around protecting ourselves from tall poppy syndrome? No. I used to think tall poppy syndrome was true but my jury is out on it when it comes to tech success.

Jon: Does it come down to the money as well? Is there more risk aversion simply because there are less funds to go around?

Alan: No, not at all. The money is definitely there. We invest as individuals more money per capita in mining stocks and real estate and we host the world’s biggest horse race — but we don’t invest that money in startups. It’s not about a fear of losing money, because when we lose money at the Melbourne Cup, people don’t laugh at us, they say good on you for having a punt.

Jon: What do you think of the benefits of a risky company, beyond the high potential returns? IE, the mindset that a risky success produces in the wider community? Is that something that you think VCs need to consider?

Alan: We all want to see evidence that something good has happened before we try it ourselves. Jon, If I set up a crash pad outside the window of the [BlueChilli] office and said hey, do you want to jump? You’d ask me if I have ever done it before. If I said yes, you’d be more likely to do it. If I said no, you’d never agree to it.

And that’s what a risky company represents here, if it succeeds. Role models and case studies. These are more and more key to encouraging people to take risks.

Jon: I want to expand on that a little more actually. Great startups don’t come out of nowhere. They come out of communities, ecosystems and spaces that encourage innovative thinking and doing. BlueChilli do a great job of pushing and encouraging that. Do you feel other VCs have any responsibility to make investments in those communities now in order to develop an environment where great companies will be built down the track?

Alan: I travel a lot for my work. When I’m in Sydney I live in the northern beaches and work in a different co-working space rather than always out of the BlueChilli office. And the nature of the space influences the work I do in the space. The amount of work, how much I seek collaboration, how much I work solo. How much focused work I can get through.

Whereas when I’m in BlueChilli the work is about meeting people and facilitating that collaboration. When we moved into this space we felt that it communicated the company that we aspired to. We had outgrown the space both physically and emotionally, and the new space reflects more positively what we’re doing. In the same way as spaces are important, communities are important. The wider space that we’re in as founders informs and guides the kind of startups that are being built and the way that happens.

Jon: This is a question I’m asking everyone right now. What role should governments be playing in Innovation? We’ve heard a lot of hyperbole from a lot of Aussie politicians using Innovation as a buzzword, and having a Minister for Innovation, but doesn’t it really depend on the wider policies of Government? IE, education, infrastructure, immigration policies, investment in the arts and investment in STEM research?

Alan: Governments shouldn’t mistake building spaces for jobs done. There’s been a lot of support for building physical spaces, but we do need more than that to build an eco-system. Mentorship, curriculum, marketing, pr, advertising etc. all need government support.

Before the last election, with the innovation agenda, what I loved about talking to them at the time was that one of the things that they adopted was “let’s not try and think through a perfect policy right off the bat”. The idea was to start a policy and then innovate. If they had been able to pull that off it would have been great. Unfortunately, the double dissolution killed federal government support. That was definitely a tactical error in more ways than one. Thankfully, we do see generally bipartisan support for innovation, so that is positive.

Jon: Do you feel the current government and opposition policies are going to really have an impact on innovation? Will things change at the next election?

Alan: Next election things won’t change. But they will shift over time. It’s interesting though that there are models for less party politics. I’m a big fan of the work of GetUp! — the idea that you can shape politics without necessarily having members elected.

Jon: That’s something that the far right parties have pioneered here. Do you think in general that startups need to look at lobbying in the same way that corporates do?

Alan: Startup lobbying doesn’t really happen because we are all hackers rather than collaborators. We see someone doing something and we don’t want to go and join in, we want to build our own versions. Not nearly often enough do we get together to actually meet with the government. And we don’t go and purchase tables at dinners to influence politicians, It’s morally wrong to buy that influence. MiVote is quite interesting in that approach to representing voter influence.They have a detailed, nuanced system for direct democracy — and their goal is to get 5 senators in Victoria.

Then rather than having a room full of old white men getting things for old white men, you can have blockchain to identify yourself and you can vote online on what those senators should do on any issue and they’ll follow the consensus.

Jon: Shifting gears here, when you’re looking at a startup, what tends to interest you or give you faith in what the team are working on?

Alan: This is an evolving hypothesis for me. I mean, I am always convinced that my current hypothesis is the right one, but to what makes a startup interesting — there are two parts. The first is IP. Some startups have at their core a unique technology IP. Some startups have at their core a key business model IP. A great example of that second category would be eBay. When I worked at Yahoo we looked to buy eBay, and we couldn’t. Then we tried building our own. It looked pretty easy, technically. What we misunderstood was that eBay had spent a lot of time following people who would come together at trade meets and swap meets and studying how those economies worked. People who bought and sold models and toys and stamps. eBay then analysed bid prices. For example, the Beanie Baby — you could be fairly certain of getting $5 for a Beanie Baby at one location. If you were prepared to drive down to a different meet up you could get $8.50. Then if you extended that out all the world, you got a delta between the cheapest market and the most expensive market. So they studied the markets that had the biggest deltas and how did the participants find out that these events were on? Did they happily trade with anybody? was there a power and selling structure or was it open and democratic? All of this data helped them to actually build a detailed and working business model IP. Business model startups go global faster. Tech startups don’t. The Dream startup is something where there is unique tech and business model IP.

The other big part of this is the personal relationship. I’m investing to have an active relationship with a startup and its founders. There is a financial return and emotional return. If there is that emotional connection with the team and what they’re doing, that makes it interesting or worth investing in. That connection isn’t always easy in practice. Often times with my participation with a startup, the more successful the founders feel it’s going, the less likely they are to talk to me. When something blows up — that’s when they call. Statistically speaking that happens at 9 pm on a Sunday night and you panic. In my experience.

Jon: Just to finish on that, do startups in Australia ask for help less, or not enough?

Alan: No more or less than anywhere else. Startups in general don’t ask for help enough. If you look at the traits, founders have more self belief, more determination and a clearer view of what they’re working on. Those 3 factors mitigate against taking anyone else’s advice.