A VC Perspective: Innovation & Start-ups Landscape in Australia

Vishal Sunday, April 06, 2008 , , , ,

Today we showcase a story of a man who is a migrant, an entrepreneur and now a successful VC, helping a lot of Australian business to realize their dreams. Rick Anstey who is based in Gold Coast, Queensland, Australia is running a VC portfolio, under iQFunds umbrella.

Let us explore bit further how Rick is helping others and what he thinks about innovation coming out of Australia. This is what Rick has to say in his interview with me.

• Please tell us about yourself, your background and interests?
Rick Anstey- Started my career in I.T. (data processing at that time) in 1972, with a UK insurance company, doing the normal in house training from operator, programmer and systems analyst.
Got married in 1973 and immigrated to Australia in 1976 – difficult to get in – had to pay our own way and applied 3 times before success. Arrived in Sydney in 1976 with no money one child and my wife. Worked with TNT and then with Comalco before starting my first company in 1983. Naturalised Australian in 1983 and had achieved 4 children by then too !!!

Main focus in technology was user driven software development using the benefits of emerging 4th generation languages. The company was called Tangent Group and in 1994 I was approached by 2 companies to be acquired. The company had given me much freedom to explore joint ventures and associated companies including being a co-founder and silent partner in Strategic Publishing – a group that built a stable of 3 publications around the IT industry – MIS magazine, CFO magazine and Information Age.

In 1994 I sold tangent to Techway – had a 1 year handover and moved the family to Queensland. I commuted from Queensland and had full intentions of developing my role within the Techway group. Reality was somewhat different and when the 12 months was up I left the company.
So August 1994 – sat in Queensland aged 43 and wondering what to do next . I spent the next 4 years with little pressure, building up my knowledge of the early stage technology market and helping entrepreneurs wherever I could and also worked closely with the Local and State Governments to attract International Technology Companies to establish operations Queensland. This involved me in negotiations with global companies such as IBM, Citibank, International Call centre Groups and local partners such as Telstra.

In 1996 I presented to an inaugural meeting of the Queensland Government’s FIG initiative (Financing I.T. Growth). I spoke about venture capital and how to fund an emerging technology company through equity finance rather than debt. This was admittedly very early days in Australia for venture capital and the concepts were unknown to most IT entrepreneurs.

In 1998, my long time friend , Bob Hayward – who was Head of Gartner Research in this area encouraged me to explore Venture Capital as the next career move. We both had discussion with a number of advisory groups and decided to initiate a fund to support the emerging technology industry in Australia. Bob took a sabbatical from Gartner and joined me.

1999 was a year of convergence for me, when a number of projects came together
I was introduced to my current business partner – Dr. Laurie Hammond who had similar aspirations as myself and was passionate about commercialising Australian Innovation that is world class. Also, one of the people I sought advice from was Ross Grant – Founder of prestigious investment bank – Grant Samuel and Associates.
My first initiative in 1999 was to establish Grant Samuel Technology Capital as a partner with Grant Samuel and associates. Secondly, Laurie and I applied for the Federal Governments backing for early stage fund managers through the BITS program.

By April 2000, we were aware that Grant Samuel Technology Capital would not crystallise given the DOT COM crash – but it had given me a fast track apprenticeship in Investment banking and institutional investment. However, in April 2000, the Federal Government announced our success with the application for BITS Funding(initially $9.5 million for us to invest, followed by a further $4.5 mill in 2004).
BITS was an initiative of the Federal Government (Building IT strengths ) which was funded from the Telstra 2 float. Our venture was called inQbator which highlighted the Q from our Queensland Heritage.

• What is the name of your venture firm?
With the passing of time inQbator has become – iQFunds with a management structure called iQ Capital management Pty Ltd

• Please tell us about your venture firm?
iQFunds mainly focuses on the management of the portfolio we have developed through inQbator. We have 15 active companies in the portfolio, 3 of which are now based in the U.S. All of which has a strong international focus for markets and partnerships. The portfolio has attracted well over $70 Million in follow on funding. The portfolio is essentially split into 2 sectors

  • Cleantech and
  • Convergent technologies.
In addition, we have interests in a corporate advisory group – InterFinancial Ventures Pty Ltd and I am an independent Director, on the board of a number of promising companies and organisations.

• Who are the people behind this and how it started?
The partners in iQ Capital management pty Ltd are
  • Rick Anstey
  • Dr. Laurie Hammond
  • And in November off 2007, 3 minority partners joined us
  • Adrian DiMarco – Founder Chairman of Techlogy One Limited – ASX : TNE
  • John Puttick – Founder Chairman of GBST Limited – ASX: GBT
  • David Merson – Founder and ex Chairman of Mincom Limited – Australia’s largest Software House
• How long you haven been working in this environment?
I have been working in Technology and related sectors since 1972 – 36 years. I have been working essentially in the investment side of Technology (VC since 1998).

• What is the main objective/mission behind your venture?
Our objective is to identify and support emerging Australian Innovation and to provide the funding and expertise required to commercialise that innovation and provide a significant return for the stakeholders of which we will be one.
We are a national company with an international focus and mind set and proudly based in Queensland.

• Please tell us how does a VC work? Its one of those professions which seems like a black magic to others and sometimes don’t understand what exactly they do?
There is no one answer to this – personalities, markets and global rends play a major role in defining this. Venture Capital certainly means different things to different people in different markets.
Essentially, Venture Capital should be risk capital that is used to seed and develop emerging entrepreneurial ventures. Once that risk has been minimised, further investment tends to become Private Equity Investment.
The amounts appropriate for a Venture capitalist to invest, range from $100K - $20 Million depending upon what area of the spectrum the firm sits.

• What ways/models VC's get engaged with a business/startup?
Seed funding and early stage expansion capital is hard to provide through a commercially viable business and therefore Government funding has been the most appropriate.
But other forms are:
  • Family and Friends
  • Angel Investors,
  • Early stage investments groups
  • Venture capitalists
  • Government investment programs and R&D funding.
• What sort of due diligence process is followed and what factors attracts a VC to be a part of a business?
VC's are attracted to invest in a company for one reason only – the promise of a large return on their funds. With such high risk and many ventures not succeeding, the return must be significant to balance out and equate to an attractive return across the whole investment fund.
So VC Funds are looking at potential returns of 5-10 times their original investment.

• What business models are common for engaging with a business /company?
Typically, there is an original approach to the firm and that is registered as Deal Flow.
These approaches are qualified over time – which could be weeks, months or even years.
Eventually the VC will decide that they have learnt enough to minimise their risk and are happy to go ahead and inject funds in the company for equity.
Typically, genuine VC companies do not want a majority position as they want the entrepreneur to have every possible incentive to be successful.
However, control, is typically underpinned by a shareholders agreement.

• What is an angel funding, seed money and other common terminologies used in this profession?
  • Angel Funding is typically that investment which comes from wealthy individuals who wish to put a % of their wealth at risk in return for a potentially high reward.
  • The Australian authorities define the term Sophisticated investors as anyone investing over $250K and having written approval from their accountant which support their ability to lose these funds without great exposure.
  • Seed Funding is certainly the early stage funds that prove the product or service. These funds will not guarantee that the company is going to be successful, but they certainly provide whether the business plan works and can be executed successfully.
What stage would you invest in a company? And what do companies have to show before you're interested?
We invest in a conceptual project which requires the full spectrum of commercialisation through to a viable existing early stage company that wishes to maximise their position through accelerated growth.

• What other services a VC firm provides, for people who are looking for help? What market segment verticals are you targeting?
Information technology, telecommunications, and anything within the convergence of Entertainment, I.T. And Telecommunications. Life Sciences and renewable energy

• How many ventures/companies are using your services?
18 of our own + ++ a number receiving advisory services

• What sort of marketing you are using to spread the word for these portfolio companies?
Very little – marketing is a function of each company directly.

• How are you measuring the success of your portfolio? Are any special mechanisms/tools are in place to monitor the progress?
We monitor our performance regularly for our shareholders. Portfolio valuation is carried out regularly using the Valuation Guidelines set down by the Australian Venture Capital association – AVCAL.

• What is the monetizing/revenue model used in various companies? Is their any new model, which is being tried?
This is certainly a major focus of each company and I cannot go into each model, but happy to discuss offline.

• Which are the main competitors or major players in this segment, when it comes to Australia?
A wide pool of investors from High Net Worth individuals to Private Equity Funds.

• How often do you catch up with others trying similar things and where do you catch up? Do you have dedicated communities in your city?
There are a lot of networking groups that have been running many years but essentially a group of synergistic peers are developed by working with one another.

• What’s your thought on being a VC? How tough it is to be involved in a venture as a VC in Australia?
VERY Tough and not commercially viable if you do help seed and encourage early stage companies. Needs Government support if we are ever to capitalise upon the huge investment Australia makes in R&D.

• What do you think of new ventures and innovation coming out of Australia?
World class – and very competitive if given the chance

• We recently interviewed owners of 35 new/mature tech startups and all of them have said that raising money in general via a VC is very tough in Australia? Why is that so?
Australian investors are typically risk averse – property and Mining have offered greater returns without the risk. Only a small handful of people have bee en successful with investment in early stage investment. These successes are not highlighted and therefore others do not know about the opportunity to be successful.

• Do you think VC’s in Australia are more conservative in their approach and don’t take many risks in technology based business?

• How does Australian VC industry compare to the one in the US?
Depends upon timing and markets – currently less aggressive that previously, but that has meant that eyes are now focused outside of the U.S.

• Any new ventures you think are worth keeping an eye on?
YEP – and that’s what we are doing ..

• Do you think we can create a new Google in Australia?
It will be very very hard – and almost impossible ,,....but times are changing.

• Which city in Australia is more vibrant and can be regarded as Silicon Valley of Australia?
Victoria and South east QLD

• What do you think of our TAFE/Universities and their curriculum in terms of promoting and encouraging entrepreneurship and innovation?
Positive but not he total answer – they contribute to achieving our goals.

• What do you think government (federal and state) should do to improve the culture of innovation and software industry?
A long long discussion which is currently being worked up. The new Government has initiated a formal review of Australian Innovation and Dr. Hammond, my business partner is actively involved in this review.

• What government resources have you used to help your business? And have they made an impact?
Government grant funding has been very helpful. We have had great success with Federal and State Government grant funding.
  • Commercial Ready in particular – Federal
  • And TeQstart – QLD Government.
• Have you sought any funding/help from govt or other sources?
yep – see above

• Would you move your portfolio companies to another country, and if so, for what reasons?
Yes - to have access to larger markets and by association, access to larger pools of investment funding. Typically valuation tend to be stronger in larger markets.

• At the 2020 conference, PM Kevin Rudd is meeting with top 1000 people from different background to discuss and collaborate on the issues facing the nation. What issues would you like to raise if you are given a opportunity to attend?
No comment

• How a new venture should approach to a VC?
Be prepared – not many have patience to see you continually until you get your story right
Its all about whether the people can execute, have the tenacity , have the product and proof that there is market demand

• Do you have any advice for people who want to start their venture?
Lots – but see above and best done face to face

• Do you have any business advisor/mentor?
Yes – older Banking/Finance industry experts

Thanks Rick for sharing your thoughts. We look forward to hearing from you in future on the progress of iQFunds. All the best for future.

For coverage on other Australian startups, innovation, tech trends check this out and our coverage on interviews can be found here

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