Business wilderness hosted founder and Chairman of Investors Org, Adrian Stone. Adrian co-founded the organisation with one of our previous guests, Brian Goldberg to connect high net-worth Australian investors with Silicon Valley. Adrian has invested in over 60 tech startups in the past 5 years.
Trends and Patterns
People often try to pick trends, like Augmented Reality (AR) and Virtual Reality (VR) for example. In Adrian’s view, VR is not ready to become commonplace yet as it still requires a bit more development before it’s ripe for business use. AR on the other hand, is primed and looking to heavily impact the way we conduct business. Another such trend that is gaining momentum is voice technology, nonetheless it is still in its infancy.
From his previous investing experience, Adrian notes that he has learnt not to look into the future, but rather has come to appreciate the importance of looking to the past. He also mentioned the fact that unlike other portfolios of investing, where he would typically not diversify his investment, with startups you have to. The chances of businesses failing in the startup scene is much higher, hence more investments are required per successful investment.
Importance of the individual
When he started investing, Adrian initially invested in the concept and idea of the business or brand. He admits that this is a short-sighted form of investment and you can kiss that money goodbye. He favours focusing on the people behind the startup, he notes the irony in his statement, especially considering the topic is tech. In his own words, ‘It’s all about the people.’
Some of the things to consider after you’re happy with the founders and you feel they are worth investing in, it’s time to assess the market size. He mentions that this is often a shortcoming because the Australian market is very small. There are only few markets where Australia is big enough to operate in solely.
Ideas that don’t make money
Many startups are arising out of a need to execute a great idea their founder has come up with, however there is a serious disconnect between the concept and profitability. Tech investors are typically two types: those that invest early and in the idea, others that wait for traction and signs of life.
The Australian startup scene has matured of late and investment has become more of the second type. Startups typically front-load, so they bring their product to market too late rather than too early. Most investors will tell founders to get the product to market as soon as you can, to assess the customer base’s feedback so you can adjust things accordingly.
On another note, Adrian notes that there is a worrying trend of companies wanting to IPO (Initial Public Offering) too early. According to him, the ASX is at risk of not reflecting a true stock exchange, but instead a place for raising venture capital. It has become common that companies that cannot get funding overseas in places like the US, bring their companies down under and IPO. There is a lack of liquidity with these companies continuously joining the ASX.
The issue is that once companies reach unicorn stage, over 1 billion dollars, there are very few trade sales they can make at that size, hence they are pushed into IPO and joining the stock exchange. The other layer of complexity lies in the fact that businesses being unicorns is meaningless to investors unless they can trade sale or IPO. That’s why these businesses are compelled to IPO.
Tips and Advice
Entrepreneurs should have their products accompanied by a good story. Investors will look for former founder-like qualities such as opening a lemonade stand in those that are requesting investment. The entrepreneurs must be addressing a real issue, Adrian is looking for a pain killer rather than a vitamin tablet.
Pain killers find a way of getting rid of the pain point that customers are suffering from and focus on fixing it. Others find a slight enhancement or a better way of doing something. This he says, will not get people talking about your brand and hinders access to word of mouth marketing.
We thank Mr Stone for his wonderful insights into the world of investing and Australia’s startup ecosystem.
Follow him on twitter: https://twitter.com/SmallTimeVC
You can listen to the full podcast here: https://www.ahmadelhawli.com/business-wilderness-podcast/