Telstra’s recent announcement it has launched a $40 million fund which will be to invest in early-stage ventures raises the question why large Australian businesses have been slow to invest in fledgling enterprises.
US giants such as Facebook and Google and American Express have a history of snapping up hot, cutting-edge businesses.
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But, with few exceptions (for instance, Fairfax’s acquisition of FindABabySitter) until now large, listed Australian businesses have turned their backs on the start-up market.
Faced with a near-moribund venture capital market, budding Australian entrepreneurs also have to operate in an environment where the nation’s leading business figures appear to be keener on complaining about the impact of the internet on their profits rather than backing innovative start-ups that utilise it.
But is this image fair, or are Australia’s largest businesses belatedly starting to eye up the country’s hottest young ventures?
Commenting on Telstra’s new fund, Dale McCarthy, founder of Foundry, which hothouses up-and-coming digital enterprises, thinks it’s only sensible for large businesses such as Telstra to quarantine their start-up investments from their core business in a separate fund. In a previous life, McCarthy worked for Fairfax Digital.
“Having a separate entity [to invest in start-ups] lets the business put potentially loss-making businesses in a bucket that’s separate from the overall P/L. It’s a structure that allows them to take risks they might not be able to from inside the main business,” she says.
McCarthy says structures similar to Telstra’s that corral riskier business ventures from the mature side of the business are also advantageous for start-ups because they set up a mandate in the fund that welcomes risk.
Phaedon Stough, managing partner of specialist recruitment firm MitchelLake Consulting, agrees there will be an accelerating trend of large businesses acquiring innovative minnows.
He points to APN’s August acquisitions of online catalogue business CC Media and Jimungo, a virtual betting portal, as well as News Limited’s purchase of online parenting website Kidspot, as examples.
“Big businesses are trying to understand digital and acquired businesses can help them do that. They tend to make an acquisition for a specific purpose, not just to generate a return,” he says.
A complementary trend, says Stough, involves former senior employees from big corporates investing in early stage ventures, citing examples including McCarthy and Conrad Yiu, former corporate development director at News Ltd. He now runs Arden Point, which develops early stage eCommerce ventures.