The Australian start-up tech ‘industry’

A colleague of mine just wrote a gushing piece about the current batch of investors in Australian technology start-ups.

He is either deluded or maybe just spruiking the dead horse because it’s in his own best interests.

In truth, our tech investment community is so bad that it’s laughable.

Here are the problems in no particular order:

1. The funds are mostly undersized so we get the age-old problem of micro-investments by investors that end up choking their charges as they look to avoid excessive dilution in later rounds of funding.

2. Fund managers are deeply inexperienced. I can hardly think of a single person that has done the ten year apprenticeship as an associate or principal in a proper venture fund. In Silicon Valley this is a requirement before stepping into a GP role. You can’t learn this stuff in a text book and inexperienced fund managers almost by definition fuck it up, slowly.

3. You could throw a blanket over the amount of uncommitted capital in the system. My guess is that there’s only a couple of hundred million, or less, of genuinely uncommitted capital in the system. And that will be spread out over a thousand micro-investments.

4. Not one investor has any way of improving their deal flow. Australia’s tech dealflow is very bad which is reflected in a 30 year negative IRR on VC investment. Nothing has improved – it’s actually worse than ever right now. If you let the deals just spring out of the pavement like weeds in the manner that they always have then you are doomed. I for one would try something different like importing deals from Silicon Valley by offering great terms to them. Or something, anything, other than what has failed for 30 years.

5. I could go on, but what it the point?

Back to the gushing publicity that the tech sector receives. This is a business sector which is so sick that it’s almost dead. And yet about 99.9% of all media coverage is positive and upbeat. Like the publicity around an app yesterday that sets an alarm clock for your parking meter timing … really are people this fucking stupid that they think this shit is worth doing or talking about?

Why is the media coverage so upbeat? Well it’s delivered by or on behalf of vested interests seeking to extract money off fools. And the fools are either the government, ignorant investors, self-funded entrepreneurs (in the case of the incubators) and others. There is no vested interest in recognising the systematic problems. And there is virtually no educated altruism in the system either.

My view is that until there is a balanced and critical media coverage of this sector that things will not improve. As an example of what can happen one only needs to reflect on the sport of soccer which was until recently the basket case of Australian sport. The structural issues were written and talked about passionately in the media until eventually there was enough consensus for Lowy and the government to step in and invest in a genuine structural change and industry development. It looks like it’s going to work. See, we can do Chinese-style 5 year plans, but only in the business of sport.

In the meantime I would like to challenge the media outlets and the journalists covering the tech space to start practicing a bit of constructive criticism in the interests of the industry that they are serving.

At the moment the tech start-up sector in Australia is like the spoilt child that is always getting told that it is fantastic and never, ever, gets any discipline or constructive feedback. And we know how likely it is that these spoilt and deluded kids end up doing anything constructive, don’t we?