Internet startups may traditionally be associated with Silicon Valley, but startup culture in Melbourne is flourishing with the aid of bright ideas.
Ideas spawned by Melbourne’s entrepreneurs include Catch of the Day, which sells just one discounted product a day online, BugHerd, a website bug reporting tool and 99Designs, which provides a marketplace for web design and logos.
Darcy Naunton, a general partner at Adventure Capital, says that Australia has a “distinct lack of capital” to fund startups. The US, however, “is suffering from the opposite problem and too many companies are receiving large amounts of capital”.
Seed funding (or “angel funding”, which provides initial capital to start and grow the company) is provided by incubators in Australia including AngelCube, Startmate and PushStart. As Naunton points out, however, “these spots are intensely competitive”.
According to AngelCube’s website, these incubators take a “minority equity stake in internet companies and in return provide seed capital, mentorship, marketing, connections, administrative help and support services”. Unlike their American counterparts, however, AngelCube requests a 10 per cent stake in the company, whereas American incubators like Y Combinator request 2–10 per cent and TechStars six per cent.
Adventure Capital is part of the new-breed “super-angels”, who provide funding in the so-called “valley of death space” — companies that require between $300 thousand and $3 million, where fewer funds are prepared to offer capital. These ventures are generally considered “too small for traditional [venture capitalists] such as Southern Cross and Starfish, but too large for angels”, according to Naunton. Naunton says the fund looks for a variety of characteristics including product market fit, above $10 thousand of revenue, a team beyond the founders and external capital from angel investors.
Shared work environments for like-minded entrepreneurs and digital media companies are also becoming popular in Melbourne. York Butter Factory was founded last year by Naunton and Stuart Richardson, another partner at Adventure Capital. The space offers permanent desks at $600 per month, currently housing 30 companies and 65 tenants.
Tenants of co-working spaces are able to bounce ideas off each other, gain access to events and mentoring. York Butter Factory “is a talent pool where people can access others with domain expertise,” says Naunton. “For example, there are specialists in SEO, outsourcing, UI/UX [user interface and user experience], media and publishing, financial modelling [and] law, as well as a multitude of technologies and programming languages all working from the space”.
However, like in any industry, there are dangers in startups failing.
“Aussie startups often lack the knowledge of competitors serving this global market,” Naunton explains. He would like to see “regular trips to the Silicon Valley and other startup hot spots (Israel, Germany, etc) in order to get a feel for what an ‘A-game’ is”.
Simply getting the attention of users in a crowed web market can be difficult too. Nauton believes that “nailing the social media marketing, viral loops and other traditional marketing channels seems to be something that needs more work”.
Naunton’s tips for budding entrepreneurs are identifying your market (“solving a real problem or pain point for a significant market”), getting an experienced mentor and reading The Lean Startup by Eric Ries. “This book provides a framework for the modern entrepreneur to build a product that the market wants and values rather than efficiently building the wrong thing”.