New Focus On Women In (Fintech) Start-ups

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This is a guest post from Marguerite Arnold.

It is not just the stunning reversal of fortune for Hillary Clinton at the beginning of November which has stimulated a renewed interest in more diversity in the world of start-ups, and FinTech in particular. The conversation has been underway for quite some time.

Part of the drive for diversity, to be honest, is caused by a failure of women to rise to the top in most large businesses – including the financial services, banking or tech industries, despite a generation (at least) of trying. However, the focus on gender diversity remains, just about everywhere there is a budding FinTech start-up community. And a lot of the calls for diversity are coming from not “just” women, but men.

In Frankfurt Germany, this conversation is absolutely at the front and centre of just about every FinTech gathering right now. The Frankfurt “scene” is absolutely poised to break out on to the global stage, just because of the presence of so many highly educated, financially savvy people –from all over the world. But, as is painfully obvious, at gathering after gathering, except those ostensibly “for women”, the faces are mostly white, and with very few exceptions, all male.

As a result, there is an increasingly dedicated push to change that and for reasons that extend far beyond “political correctness”. This being Germany, there is a push to fill at least 30% of management boards with women as required by new German law that came into effect earlier in the year.

FinTech and Insuretech, in particular benefit hugely from the presence of women in senior positions for many reasons. The first is that the most successful companies in the sector succeed because they are able to define niche markets and reach them in new and often more efficient ways. While men are not incapable of figuring out how to do this, of course, having a different perspective, including unique experience and gender diversity along for the ride, is one way to succeed at this even better (no matter the community being targeted or service on offer). However, beyond service provision itself, the promise of encouraging more women to enter the FinTech industry is the new range of products their insights and experience have the potential to create. Even in the ostensibly “established” world of financial services and banking, the idea of a company (or companies) that provide services tailored to what women want is absolutely exciting. Beyond this, of course, is a wide range of products that interact with the consumer in different ways. Women play a huge role in helping to define the consumer experience – from the services themselves to how users interact with the interfaces.

As a result, there is actually no better time to be a woman in the world of start-ups. And the women who are, despite speaking and pitching to audiences still mostly made up of men , are also finding that for the first time there is a new acceptance and eager willingness to welcome them into the ranks of one of the most exciting industries on the planet right now.

You go girl!

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

(Image Source: Bridging the Gender Gap)

Brexit & The Future of Startups In Europe

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This is a guest post from Marguerite Arnold.

Since 1972, Britain has been part of the European continent. I remember the opening very well. I was a kid, living in London. The new openness meant we could afford oranges from Spain. Every week, an old French farmer would also peddle through London with strings of onions hanging from his bicycle. I thought the arrangement was unbelievably cool and more than romantic.

Fast forward forty years, and the situation is now reversing, and that is not only a shame, but I predict it will have dire and unforeseen consequences for the British.

The England I knew as a child was a fascinating place. It was a country struggling to keep together the concept of a social state, still wounded by the war, and losing the last pieces of its Empire. You could still travel to central parts of London and see unreconstructed bomb sites left over from the war. I will never forget seeing one, incongruent with the bustling scenes around it, and asking my father what it was from. He answered “The Blitz.”

Today, of course, London is a different city, and England is a different country – transformed, much like the U.S. into an economy which may be again calling itself “shared” – but in fact is premised on something very different.

After WWII, most European countries, as well as significant parts of the U.S., believed the future was only attainable by creating a strong social platform upon which the other parts of life would work. “Regular” jobs. A middle class life. A steady pay check. A system to take care of the sick. Retirement funds to take care of the old.

That system is gone now – or at least fading, and we are on the cusp of something else. Thus the explosion of start-ups, start-up culture and the new entrepreneurialism. This is part of the reason that start-ups have thrived in the U.K. – particularly high tech start-ups. The country has been, for a generation, trying to define itself. There is no way the island can survive independently. No country can. The British train system uses German trains. The auto industry is hurting. Oil is an uncertain energy source. Overpriced British real estate in London fueled by foreign investment does not an economy make. Britain, right now, is much like the U.S. Casting off the old very quickly in an attempt to create something that works better (although for whom and how many is still an open question).

However start-up culture is not the same everywhere.

Across the Channel, things are different. There is more social integration and infrastructure. Every country east of France still has a streetcar system that works. There are still national healthcare systems which strive to provide health care for the oldest and sickest. And the approach to start-ups is a lot more cautious – in part because things still work the way they were designed to. People here just do not understand how, for example, a presidential candidate who did not pay his taxes for 20 years can even be credible.

This reliance on a broader superstructure, which the Europeans are loath to destroy in search of something “new”, does not mean there is no innovation. As a professor of mine said to me recently, mobile payments (a particularly hot area of Fintech innovation elsewhere) are just not a priority in Germany because of the continual upgrades and improvements to the customer banking experience (also known as SEPA), that has already created a workable middle way.

However, Europeans in general and Germans in particular, are not deaf to innovation. They too are looking for ways to innovate as the older systems become increasingly outdated. It is just moving a bit more slowly here – and frankly a bit more humanely. Chaos might provide a lot of exciting booms, but that is not a place where most people want to live their lives. And as Britain shuts its doors to the rest of the continent, there are many now who are looking increasingly to both Berlin and increasingly Frankfurt, to be a new platform for innovation.

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In Frankfurt, there is a steadier (and much cheaper) platform for innovation in the form of cheap rent, transportation and an overall standard of living. And it is provided by the security and infrastructure that comes when countries do not throw the baby out with the bathwater in search for “something” if not “anything” new.

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

(Image Source: BBC and Tripadvisor)

The New Philanthropy: The Push For A Renewable Capital Innovation Fund

The New Philanthropy

This post is a collaboration between BROSO™ and Tom Spencer, and was originally posted on Truth Has No Temperature.

Why is the Australian venture capital industry almost non-existent and irrelevant on a global scale?

Three reasons:

  1. A massive misallocation of capital, particularly when it comes to Australia’s $1.7 trillion superannuation bolstered capital pool, the fourth largest capital pool in the world.
  2. An attitude of risk-lethargy that impedes any real innovation from happening within Australia.
  3. An ingrained fear of failure that extends to the commercial world and business start-ups, to the point where in Australia there is a very negative attitude towards anyone who declares bankruptcy, the net result of which is less risk-takers, less innovators, less venture capitalists, and most importantly less GDP growth and a diminished tax base.

Many of the start-up opportunities for venture capital exist in the digital or online space, and these ventures by their very nature belong in an international market. Failure of Australia to play in this global sandpit means that Australia is experiencing a flight of human and intellectual capital.

In order to have a functional venture capital industry you need quality start-ups.

So where do these come from, exactly? Generally in the US and Europe it is from within high-quality University programs.

So where are the incentives to start new ventures in Australia’s vibrant University culture? Perhaps the answer is that Australia has a much too generous University and accompanying welfare system that fosters a sense of entitlement and robs young Australians of the desire to create, or take on any risk.

Why does this matter?

With the level of imagination, commercial creativity and desire to innovate in Australia there are all the ingredients for a thriving startup culture and venture capital industry.

But of course there’s the other side to the coin: capital. This is where the Australian venture capital industry has bordered upon impotence.

They simply can’t seem to raise serious capital.

Here are the facts:

  • Total venture capital investment in Australia in 2013 was barely AU$150 million; and
  • Total venture capital investment in Australia in 2014 increased significantly but still only amounted to AU$516 million.

Compare this with the total venture capital investment in Europe and the US:

  • Total venture capital investment in Europe in 2013 was AU$9.5 billion (63 times the amount of Australian venture capital investment over the same period); and
  • Total venture capital investment in the US in 2013 was AU$42.3 billion (282 times the amount of Australian venture capital investment over the same period).

An interesting comparison is to consider the total investment by Chinese Investors in Australian residential property:

  • Chinese investors pumped AU$5.9 billion into Australian residential property in 2013 (40 times the amount of Australian venture capital investment over the same period); and
  • Chinese investors pumped AU$12.4 billion into Australian residential property in 2014 (24 times the amount of Australian venture capital investment over the same period).

But a lack of capital is absolutely NOT the problem. It’s where Australia is deploying that capital.

Australia has one of the largest wealth markets in the world. Australia’s capital pool has grown at an annual compound growth rate of 12% p.a. since 1992.

The unprecedented growth in Australia’s capital pool has obviously been underpinned by its superannuation system which requires a portion of all Australian workers’ incomes to be contributed to a retirement pension fund.

Are there unintended consequences of the private and public sector both ignoring venture capital as an asset class in Australia?

One of the unintended consequences of ignoring the venture capital industry in Australia is human capital flight. What we mean by this is that if the money is not available to invest in new initiatives and to enable young entrepreneurs to start and grow their ventures in Australia then many of these people will simply leave the country. If the government invests in 13 years of school education and then 3 to 5 years of university education only to see the best people leave the country, then this is a huge gift to the rest of the world and represents both lost opportunity and a huge drain on the Australian economy.

A lack of venture capital money means that it will be difficult for innovative young Australians to launch new ventures and manage to survive long enough to reach profitability.

Consider the enormous tax losses suffered by the ATO and the general reduction of the Australian tax base as a result of losing an entire multi-billion dollar asset class to another hemisphere.

Australia could realistically expect to have a $5 billion a year VC industry.

Now let’s make some assumptions about income tax, corporate tax, and GST.

Assuming there are 250 investee companies and on average each of them generates revenues of $20 million per year that equates to $5 billion in annual revenues overall. If the average company has 20% net margins, then this would produce earnings of $2.4 million and the government could hope to collect $180 million in corporate tax revenues. The government would also pocket $500 million in GST revenues (more than what the VC industry invested in Australia in 2013).

Assuming that salary and wages for each company represents 30% of gross revenues and that the blended income tax rate is 28% then this would also mean that the 250 investee companies would produce $420 million in income tax revenues.

All in all, the government is missing out on a potential $1.1 billion in tax revenues per year.

What are the problems with the ingrained culture of the Australian venture capital industry?

American VC funds are willing to invest serious money in early stage ventures because they know how profitable it can be.

The US sees more exits, at higher valuations, and the success of American VC funds has attracted more VC players, more money, and more entrepreneurial ventures.

Part of the problem in Australia is that there is less money available, which means that it is harder for Australian startup founders to get meetings with investors and harder for them to secure investment.

But lack of money is only part of the problem. Another problem is that startup founders typically have to work harder and wait longer to secure investment. At the early stage of a venture where every day counts, delays in securing funding can mean the difference between success and failure, and distract founders from the vital task of growing the business.

Lack of money and longer waiting times are not the only problems though. The main problem is that the Australian VC industry lacks the visionary mind set required to grow successful new companies in Australia.

In the States, the VC industry is enthusiastic about investing in early stage ventures, whereas the mood in Australia is sceptical and hesitant. American VC investors look for passion and market potential, and know that asking for financial forecasts from a seed stage company is pointless. Down under it is a different story. Australian investors typically require a full blown business model with financial forecasts, which is genuinely impossible to provide if the venture hasn’t proven its business model and doesn’t yet have any customers.

What is the New Philanthropy?

Philanthropy is defined by the Merriam-Webster Dictionary as the practice of giving money and time to help make life better for other people.

The push for a more significant, better funded venture capital industry in Australian can be framed as a type of New Philanthropy.

We believe business is about solving problems and delighting people, and this becomes viable when businesses manage to do this in a financially sustainable way.

In any case, the New Philanthropy is not a new concept: this is basically what Richard Branson already does when he says he believes in supporting new entrepreneurial ventures and to our knowledge he signed Bill Gates’ giving pledge on that basis, which means he is not conforming to the way that most people would delineate business and philanthropy/charity.

Australia requires the New Philanthropy, and the push for a Renewable Capital Innovation Fund.

By Benjamin S. Broso B.Bus LL.B (Hons) and Thomas D. Spencer B.Com LL.B (Hons) (Sydney) MSc Financial Economics (Oxon).
Tom Spencer Ben Broso

Peter Thiel at Oxford’s Said Business School

I had the good fortune yesterday to attend a conversation between Teppo Felin, Professor of Strategy at Oxford’s Said Business School, and Peter Thiel, co-founder of PayPal and recent author of the bestselling book Zero to One: Notes on Startups or How to Build the Future.

Apart from being a co-founder of PayPal, Thiel is also known for being the first outside investor in Facebook, taking a 10% stake in 2004 for $500,000. He now sits on the company’s board of directors.

As if that weren’t enough, Thiel is also:

  • Co-founder and chairman of Palantir, an American software and services company;
  • President of Clarium Capital, a global macro hedge fund;
  • Managing partner of Founders Fund, a venture capital fund with $2 billion in assets under management;
  • Co-founder and investment committee chair of Mithril Capital Management, a global investment firm; and
  • Co-founder and chairman of Valar Ventures, a globally oriented venture fund.

Needless to say, I didn’t want to miss this conversation with one of the world’s tech startup demi-gods.

Below I highlight ten (10) of the key lessons shared by Peter during the discussion.

  1. When it comes to teaching entrepreneurship and innovation there is a certain paradox.  How do you offer a formula for how to do new things? Science always starts with experiments and every moment in the history of technology happens only once. For example, the next Gates won’t create an operating system and the next Zuckerberg won’t start a social network.
  2. A lot of great entrepreneurs have certain diametrically opposed personal qualities. They will be, for example, people who are very stubborn but yet still quite open minded.
  3. Imitation is how culture is built, but it is also how things go wrong. People who are hyper-socialised (for example, business school students) are more likely to follow the big social trends and more likely to be talked out of their truly interesting and original ideas before they are even fully formed.  Innovation requires a certain willingness to buck the trend.
  4. In a company, you want to unite people around a common mission which differentiates the company from the rest of the world. For example, Elon Musk’s company SpaceX is the only company aiming to go to Mars.  At the same time, within the company, you want the roles to be as differentiated as possible. Conflicts tend to arise when people’s roles are too similar.
  5. There is not enough time to A/B test every idea you might have.  We live in a world which is far too skewed towards A/B testing, and not enough towards mission driven and vision driven companies.
  6. If you define the culture of a company the way an HR person would, then that’s probably evidence that you have no culture at all. You shouldn’t think of a culture as “having foosball tables and lava lamps” or anything generic like that. You should define culture around the common mission of the company.
  7. Assuming it were possible to reduce innovation to a formula, Thiel says the three part formula for a successful startup would be to have (1) a great team, (2) some great technology (because Thiel is a tech investor), and (3) a good business strategy.
  8. A startup should have a great team, and the team should in fact be a team. You need very talented people who can work well together. Preferably people who have known each other for a decent period of time, and who have complementary skills. When it comes to finding a startup co-founder, Thiel notes (tongue firmly in cheek) that “you don’t want to get married to the first person you meet at the slot machines in Las Vegas”.
  9. Business strategy is about having a story which explains how the startup will move towards building a monopoly. You can have a great team, and great technology, and no business at all. If your business creates X dollars of value and you capture Y% of X, most people forget that X and Y are independent variables. In most cases Y equals zero percent (0%).
  10. Investment capital is often deployed in extremely inefficient ways. Thiel notes that there is a very big difference between investing your own money, and investing other people’s money.  When you invest your own money, you are just trying to generate good returns. But when you invest other people’s money, you have two objectives. Number one is to get good returns, and number two is to look like you’re going to get good returns.  And the disconnect between those two can be much larger than people would typically think.