From the Churchill Club Event on the 30th April 2009
Two questions were put to two Americans, and an Australian whom had just picked up $5M of investment from an American VC in the middle of the Global Financial Crisis: One – How do Americans see Australian technology firms moving into the USA, and Two – How does the USA feel about Australian investments? Since most of our advice comes from Australian Government employees, or Australians with limited experience in the space, we thought it would be nice to get some answers, straight from the horses mouth so to speak.
Our panel was:
Bipin Shah – Managing Director, Kovair Software, Inc. and former president of TiE (Silicon Valley)
Mike Gigante – CEO, Evostor
Jim Balog – Principal, Colfly
Brendan Lewis – The Churchill Club Ltd
The USA on Australia Generally
Australia is not particularly on the radar for American Investors, Bipin Shah only made an investment here after coming as a tourist.
However for those aware of Australia it is scene as a land of opportunity much less damaged by the Global Financial Crisis. In fact Gartner Research has indicated they feel only two software markets will grow in the next two years, Australia and Latin America.
Travel to Australia is not seen as a big impediment as for many its quicker than travelling to India or other Asian regions.
The USA on Investing in Australian firms
Australian Revenue’s aren’t overly attractive. As a rule of thumb for an American business serving global markets; 50% of revenues would be generated in the USA, 33% from Europe, 14% from Asia and at best 3% from Australia.
Australia is perceived as being much cheaper to operate in than the USA or Europe. Engineers in Australia are two thirds cheaper than those in Silicon Valley and half as much as Engineers from the Midwest. And this is usually combined with much deeper expertise (All SV engineers turn over jobs regularly, Some Midwest Engineers hang around for the longer term, but they are normally dead wood).
Venture Capitalists from the USA like to exert more control than their Australian counterparts. Terms for investment would normally include appointment of a CEO (Gun for hire) where an Australian VC prefers to guide from a board position.
Australian business models are not perceived as being very good for generating global sales. One structure that was attractive to American VC’s was a Delaware registered company, with R&D operations in Australia but Sales & Management in the USA.
American VC’s also like to syndicate some of their investment to Australian VC’s as it gives them local eyes on the ground. Evostor was invested in by Hummer Winblad but with a portion syndicated investment to Australian firms Starfish Ventures and Southern Cross Group. The local VC’s also enjoyed have a very large American lead in their investment.
It was perceived that Australian Universities are generally fairly open to collaborate with in generating new IP.
Australian firms on Investment from the USA
In Silicon Valley, quality local introductions are the key to getting money from Venture Capitalists. These introductions are normally either though angel investors or lawyers with the right connections. So you need to have the right lawyer or Angel investor if you want to take the next step.
Currency fluctuations can make an enormous difference. Evostor’s investment went into escrow as US$ and came out as Australian dollars a couple of weeks later, 20% higher.
The concept of a deal “smelling” because it has been shopped around to much doesn’t really exist in the US. As every VC has a different appetite for risk, technology, foreign investment and business models. So getting a “no” from the first dozen or so VC’s doesn’t matter.
As a reference point, Evostor:
- Made 150 pitches to 55 VC’s
- Attended 400 general meetings
- Had 60 due diligence meetings
- And spent $150,000 on the process to raise $5Million.
Pitches were generally done to extremely hostile audiences, whom won’t sign NDA’s or keep secrets and whom may only be listening to validate competition for another investment they are actually making.
Due diligence meeting were regularly held over the phone at 2am with teleconferences that may include competitors or other “worst nightmare” people involved.
All references were checked plus plenty of others generated. Nothing could be hidden.
The USA on Australian Firms doing business in the USA
The American market does not care where you come from. The fact that you are Australian is irrelevant. What matters is the ability to quickly fit in and understand how business is done there.
The USA has all the same industries as Australia; Banking, Agriculture, Mining, Telecommunications however they are all much wider, deeper and faster moving.
The USA is more “regional” than Australia, so there are more markets that matter. Think what Australia would be like if there was 20 plus cities bigger than Sydney in it. Silicon Valley isn’t the only place for IT. Don’t forget other centres such as Boulder Colorado, Austin Texas, North Carolina, Pittsburgh Pennsylvania, Cambridge Massachusetts, New York and Los Angeles.
You have to remember that large firms talk behind the scene and news travels fast.
The key to success is of course localisation. In Silicon Valley they don’t care where you are from but you must learn to fit in fast, or you are guaranteed to fail.
Remember that despite the fact that the culture & language are similar, communication , and its subtleties, are going to be a problem. For instance it may take 5 meetings to come to an agreement in the UK and 3 meetings in Australia, a decision is expected to be made at the first meeting in California.
Some lessons Australia could learn
Americans simply aren’t nationalistic when it comes to making a dollar. Many of the Silicon Valley Success stories have been from immigrants to the US. For instance two of the four founders of Sun Microsystems were foreigners (an Indian and a German).
High profile universities in the USA (Stanford, Berkley MIT etc) don’t just attract the best people from around the world because they have great courses, but they connect their people into great networks and have employers lining up at the door to grab these great people when they are finished studying.