Australia’s missing high-tech billionaires

Mike wonders why Australia has so few high tech billionaires compared to the US, even when adjusting for the different sizes of our economies. In truth we have hardly any and the ones that do sneak through generally piss off as soon as they can.

Australia has a population which is equivalent to the US population in 1850. Even in 1850 the Americans had already developed an appetite for risky technology ventures that we do not really have in Australia today. The problem is not the size of the economy per se.

A lot of this has to do with cultural differences relating to how the two countries were occupied from Europe. With much faster growth early on in their history, much more competition for resources and opportunities, a larger capital market, a different mix of immigrants and freedom from colonialism, the Americans developed a culture of risk taking very early on. And they had a much bigger market in which to make it work.

Fast forward to today, even if we in Australia wanted to compete against the US for ‘market share’ in the deployment of capital into high-risk tech business all we would be doing is over-supplying the global market with capital. That is, the US has captured this market and, being much better at it through practice, I doubt they will need to let go of their market share any day soon.

From a symptomatic point of view the main difference between Australia and the US with respect to investment in high-risk technology opportunities is the American habit of creating opportunities and solving problems with excessive capital investment. All other factors such as tax and labour laws, immigration policies, university structures and relationships with industry, the military machine, etc are, I believe, quite secondary and have been developed to help support the habit of excessive investment.

Often in the US, billions of dollars will flow to a company without any real demonstration of capability. Think of Tesla – a few years after the initial investment the capital has been used, probably quite inefficiently, to create electric cars and now solar energy storage products and, maybe in the future, the world’s leading rechargeable battery production capability.

This approach to investment works because, say, a billion invested might produce a startup with only limited revenues, many many customers, and an IPO value through the roof. Or not, as in the case of Solyndra and others.

On average though, enough make enough money for the capital to keep flowing and the hope of landing a ‘big one’ alive.

We in Australia pride ourselves on capital efficiency and in doing so, making small successes out of great technologies. And we hardly ever invest even millions of dollars into visionary leaders who simply offers the opportunity for investors to believe in the dream, and nothing else.

By way of example we can compare two taxi app companies, Uber in the US and Ingogo in Australia. Ingogo has raised $15m in 4 rounds of funding and is doing well in the local market. Uber has raised $5.9b in its 10 rounds and will likely be the market leader on a global scale for years to come. Need I say more?

The American model only works because the companies that they are over-investing in serve global markets and not just their local market. Fortunately for the Americans no other country has figured out how to re-create their wacky investment capability and this has ensured that their IRR remains healthy enough, on average, for the model to continue.

Only the Chinese have come even close to realising a competitive model to the Americans. What they have done is partially put up trade barriers to US tech companies and then they have used their government land reclamation scam to offer what is effectively free capital to tech companies. This model will only prevail while the real estate bubble purrs along, after which the capital may run out.

Israel does well, but in truth, in the context of high tech companies it’s just a franchise of the USA.

A friend once asked me if I liked his new jacket. I replied quite unkindly (this was a long time ago mind) that I would if it were ‘another colour, cut and material’. Similarly, I would argue that Australia has every chance of joining the USA in the business of over-investing in technology opportunities just so long as we can change our history and culture.

It can’t be too hard can it?

If someone forced me to develop policy on the subject I would probably go down the route of using all that cheap Chinese capital to do it. I suspect we would be much more willing to spend other people’s money on high risk technology company opportunities.

Getting money off the Chinese would be an interesting challenge but there are ways and means that our government could consider. And I am not talking chicken feed sums here, like the current Significant Investor Visa program. We would need billions to flow in return for, say, future assurances on the flow of resources to China, or selling off an Israel-sized chunk of Western Australia.

Even if we secured these billions the same old cultural reserve might come into play and the pressure to put the money into something like a Future Fund, with all it’s risk adverse investment policies, might just prevail. Collectively we simply would choose, through the electoral process, to put the money into implied sinecures rather than risky investments.

It’s how we are wired and we may as well accept this and move on.