Pretending risk does not exist, or taking a “wait and see” approach, shrinks the number of available options should disaster occur while simultaneously raising the cost of any solution.

If you’ve ever turned a blind eye, you’re not alone.

Even Microsoft’s Bing was caught short when a fire in the building housing their data center disrupted service, because it did not build any redundancy measures into its system.

Investors need you to understand risk

If your banker took that same approach with risk  — i.e. refused to consider the ramifications when considering investments, sought out only those deals that sounded romantic (“I have a tower in Paris to sell you”) — would you partner with her?

Of course not, yet entrepreneurs ask venture capitalists to consider them as superior investment candidates with no comprehension of the risk they represent to investors.

How can you expect to successfully pass a due-diligence review if you have no knowledge of what risks potential investors might find?

A better approach would be to demonstrate that you know your company’s risk and that you have a mitigation plan in place and have taken steps to reduce that risk’s impact. Plus, if you address the risks, you are better positioned to frame the facts.

I am not suggesting twisting the truth, but by taking the lead you can position the story in a way that is most advantageous to your company.

How to identify your risks

Risk management is one of those things that can be as simple or as complicated as management desires, but for a company starting from scratch the following proposed method is a good start.

The initial process can be as simple as brainstorming with a pen and paper. I’d suggest making some categories first to ensure that all areas of risk are considered.

Look at customer issues, sales, environmental, supply chain, succession, you get the idea, and start listing everything you can think of. Don’t worry how big or small they are, just list them, get them noted.

Also, forget about doing this exercise on your own. Bring in your team as they will have insights you may not have considered, both in what qualifies as a risk and what steps might be taken to mitigate them.

Calculate the ‘risk factor’

Next to each risk identify, if you can, the highest likelihood and cost. It’s ok to start with very rough numbers, as the exercise helps you identify fuzzy areas in your knowledge.

Continuing on the Bing theme, one example could be where your data center loses power in a typhoon, and you have no provisions in place for temporary power. First consider the likelihood of that occurring during typhoon season, and not some average factoring in time off-season: say 8% likehood of that happening. Then consider the cost for the downtime this will cause, lost revenue, and any downtime fees built into contracts with customers: say $750,000 in lost revenues.

These factors will be refined as better estimates are developed but they give you a starting point to select the risks with the greatest impact.

The “risk factor” is the result of taking those two numbers and multiplying them together.

In this case 8% x $750,000 equals $60,000.

Once all the risks have an associated risk factor, this number should help you quickly identify where to focus your resources, as the higher the risk factor the greater the potential impact to your company.

You’ll probably notice that some risks that seemed significant may not have scored as expected because the odds of them happening are low, and relatively weaker risks might score higher because they are more likely to occur.

Datacenter down due to typhoon: 8% x $750,000 = $60,000
Sales team defects to competition: 40% x $150,000 = $60,000
Strike by union building vital widget: 80% x $125,000 = $100,000

Set Yourself Free

The risk factor helps the entrepreneur focus on her immediate priorities. In the risk list above, a strike has the greatest potential to affect the company and steps may be considered prior to a strike, such as finding some alternative sources for that key widget, or other creative work around that mitigate that impact and reduce the anticipated cost.

After addressing the most critical risks, determine if there are ways to mitigate other risks on your list.

In the case of the data center, a retainer like agreement with a generator supplier might be the ideal interim solution to cover the down period between when the center’s batteries are drained and the restoral of power. The cost would be nominal and protect against lost revenue, spoiled reputation, and contractual fines.

Time to Go

Risks are not stagnant, they’re not lurking in the coat closet waiting to leap out. Their likelihood ebbs and flows depending on the conditions; sometimes given the stage of the company, they may be “retired”- never to tarnish the list again. Others might be seasonal, consider a florist worried about having enough roses for Valentine’s Day.

You cannot afford to be complacent and think that risk decrease as time progresses. Nothing could be further from the truth. Companies go through stages and cycles, new risks should be continuously added to the list.

LouAnn Conner is Managing Director of Sagacious Consulting, a global consultancy that helps companies achieve operational excellence. Sagacious Consulting is head-quartered in San Francisco, California.

Scott Farquhar – Atlassian

According to the survey, compiled from a registered database of 5,400 high net worth, wholesale, professional and international investors for the second quarter (April to June) of 2010, the sectors that investors are seeking to invest in right now are:

• Cleantech (42.7%)
• Mining (30.0%)
• Internet/IT (28.2%)
• Property (27.3%)
• Biotech/Life Sciences (22.7%)

This represents a significant shift from the January to March quarter survey, which indicated a greater preference for Internet/IT investments, at 25.3% and Cleantech at 22.1%.

The study also indicates that angels may, indeed, ‘travel in flocks’. According to the survey, 35.5% of investors have over five (5) people in their networks who have also invested in private companies.

While the private investors naturally seek a high return, other considerations also affect their investment decisions:

• 46.9% of investors surveyed are targeting an IRR of over 25% when investing into Private and Pre-IPO opportunities.
• 20.8% said their investments are strategic in nature.

Asia was identified as the most attractive growth market according to the investors surveyed:

• Asia is overwhelmingly believed to have the greatest export potential for Australian companies (83.2%).
• The Middle East second (23.8%).
• Asia and North America were the top two (2) geographical regions for Australian investors.

More generally:

• 60.4% of investors are seeking to invest into Private companies, with 50.5% seeking Pre-IPO opportunities
• Most investors are looking to contribute intellectual capital and business networks, along with their financial capital, to their investments
• 61.4% of investors believe now is a good time to invest

This one employs some pretty high production standards (courtesy of the competition’s 2003 winners, Fusion Sport) to present an endearingly candid interview (stutters and all).

Enterprize Competition (2010) – Fusion Sports

It has also been pleasing to watch the program expand beyond the borders of UQ and, then, Queensland. The competition is now open to all Australian entrepreneurs who have a business idea that is ready (or almost ready) to be launched.

According to the website, the competition:

• Provides seed capital to promising start-up companies
• Gives participants the experience of drafting a professional business plan for review by potential investors
• Fosters networking with venture capitalists and angels
• Supports new venture ideas

More information can be found at the Enterprize website.

Pitch Club LITE is back in Brisbane every month starting from 15th July.

What you need to know:

Date: 15th July 2010
Time: 5.30, for a 6pm Start.
Venue: The Bank Bar
Address: Crn Anne and Brunswick, Fortitude Valley.

Entry Cost $15 (Paid up members free).

The Pitch Club LITE presentation will be given by Peter Christo (founder of Pitch Club), talking about ‘Evaluating your big business idea before the investors do, an entrepreneurs perspective’.

Click to register.

During the final panel session, a young entrepreneur asked me an interesting question, “If Twitter hadn’t happened yet and you had the chance to invest in it at start-up, would you?”

As it turns out this is quite relevant as I did have the chance to invest in Twitter during a very early funding round through my own networks in Silicon Valley.

I turned the offer down.

Why didn’t I invest in Twitter?

First, the idea of a service that has millions of people streaming their free flow of consciousness onto the Internet in little bite size chunks held little appeal for me.

Second, the even more bizarre idea that there are millions of other people out there spending all their time reading those chunks I still find quite astonishing. (I don’t know where they all find the time!?!)

Now, in hindsight, I know that Twitter has grown well beyond these first impressions and, indeed, of all the major social networks, I suspect that Twitter has the greatest potential to monetise its millions of eyeballs profitably.

Twitter took advantage of the convergence of the Internet and mobile computing, specifically, mobile phones.

A tweet fits within the requirements of the Short Message Service (SMS) which, for many traditional telcos, has become one of their fastest growing and most profitable revenue streams. Those companies just adore the millions of customers who feel compelled to disgorge their daily lives upon the world in 140 character snippets.

Then there are those millions of folks who are busy “following” a tweeter (or ten or one hundred or many more!) and busily retweeting, so that the first SMS tweet can spawn an ever-expanding army of fee-paying repetitions like the proverbial ripples from the pebble in the pond.

These days, Twitter is building new capabilities that will empower companies to make effective use of the Twitterverse for all sorts of commercial purposes from basic word-of-mouth advertising to rapid response customer support and more esoteric fee-for-service ecommerce outcomes.

Having built it, they have come.

Now the folk at Twitter (and their investors) are eager to figure out how to get the cash rolling in from both customers and users.

What about MySpace, Facebook and YouTube?

The other leading social networks also came to prominence by exploiting a trend — an increase in capacity and capability of the Internet that would support stickier interactions.

MySpace and Facebook, shortly after, came to the fore when the opportunity arose to exploit first music and then photos and finally video with YouTube. These approaches made automatic allies out of the companies that get paid for moving the bits and bytes about the Internet. (The same way that Twitter attracted automatic allies.)

To be sure, there were short-term cries of anguish as the infrastructure was stressed but, the network operators all happily built out their infrastructure so those cries were more about missing out on the short-term profits than about opposing the social networks.

Investing in social networks

So, reinterpreting the question in Hobart, will we invest in any new social networking opportunity?

I still see yet another (and another and another) social network play from an Australian entrepreneur every week or two.

Sadly, these tend to be largely me-too type opportunities seeking to emulate one of the two or three major networks with some marginal wrinkle.

For me to get excited about investing and to convince my colleagues to invest, I need to see someone who is going to leverage a very real and sustainable aspect of the changes in technology and do so in a way that co-opts major companies as supporters.

That strategic synergy of making other firms more revenue and profits is essential for an enterprise that is unable to monetise its own services at the outset.

A social network that uses existing technology and simply focuses on an under-served niche market may well succeed. However, it is unlikely to produce the exponential value growth that offers the rewards to match the risk of early-stage investment.

It was a great question and triggered a convergence of my own thoughts.

As an early-stage investor for over two decades, I am inclined to seek opportunities that can make a big difference by introducing or exploiting pervasive technology. On the Internet, I prefer opportunities that have both customers and users over those that only have users.

Similarly, in digital media and software applications I like ventures that are selling a benefit driven value to customers. Advertising is a valid revenue stream but, there are very few businesses that can be born today to grow and survive exclusively on winning a large share of the advertising pie.

Australian entrepreneurs are as likely to give birth to the next Google, Twitter, or Facebook as are any other entrepreneurs. What did I learn from turning down Twitter? The companies that succeed will be the ones that offer value to both users and customers (there is a distinction) and, in doing so, create the most allies.

Jordan Green is an experienced executive, entrepreneur, engineer, venture capitalist and Angel investor. He has over twenty-eight years experience in growing and advising technology oriented companies in Australia, USA, Asia and Europe. A Silicon Valley software veteran, Jordan was a founding partner of one of the best performing venture capital fund managers in Australia, he is co-founder and Deputy Chairman of the Australian Association of Angel Investors and Jordan founded and leads Melbourne Angels Inc.

• 0 to 100 km/h in 3.2 seconds
• 320 km/h top speed

Take the tech specs of Porsche’s latest 918 Spyder prototype unveiled at the 2010 Geneva Motor Show. With a silver streamlined body and a convertible overhead, the seats are placed so low between the front and rear wheels that the driver’s bum almost touched the ground.

It’s not only the fastest sports car Porsche has ever built, it can even go stealth – if you switch to the noiseless “E-drive mode” to use pure electricity as the car’s only source of propulsion power.

Love it or hate it, the hybrid-driven 918 Spyder comes fitted with a power plug next to its fuel tank. In the same motor show Ferrari and Lotus also displayed its own top-of-the-end hybrid concept cars – the Lotus Evora 414E and Ferrari 599.

Tesla launched the pure electricity powered Roaster two years ago targeting the mid-market, while at the Frankfort Motor Show a few months earlier Nissan demonstrated a cheaper electric model LEAF due to launch in Q4 2010.

Electric cars – pure or hybrid – seem poised to challenge the domination of internal combustion engines in every car market segment.

The struggle to become mainstream

Picture yourself standing at the city’s busiest traffic intersection, cars silently glide through the streets and the howling of combustion engines is nowhere to be heard. You raise your head to inhale a lungful of unpolluted air, and the sky is crystal clear.

Surprising as it may sound, this was how it was like over 110 years ago in the New York City, USA. In 1897, a fleet of electric taxis built by the Electric Carriage and Wagon Company of Philadelphia dominated the streets of downtown New York. Back then, the electric car was the mainstream.

But its heydays ended when technology breakthroughs in the internal combustion engine increased petrol-driven car’s speed and range to double that of the early electric car. Meanwhile companies like Ford Motor Company implemented standardised manufacturing systems (known today as Fordism) that reduced the cost of petro-driven cars to half that of an electric car. The competition became no match.

It wasn’t until Al Gore’s An Inconvenient Truth sparked the global race for a clean energy solution that electric vehicles – alongside other alternative energy solutions like solar and hydrogen – reclaimed global attention in universities and manufacturers’ research labs.

In the MIT Lab, the latest developments in lithium-air battery aim to increase battery life by three to ten times in the next few years. China recently announced a subsidy programme of 60,000 Yuan (AU$10,700) for buyers of pure electric cars and 50,000 Yuan (AU$8,900) for hybrids. The UK government had also announced a £250m subsidy plan to promote low carbon transport over the next five years.

Better Place, an ambitious, venture capital backed company, is building electric car infrastructures targeting major cities around the world. The idea is simple yet constitutes a radical departure from conventional wisdom – instead of stretching the technological limits of a battery’s life, Better Place is constructing a network of battery swap stations that will allow electric cars to replace its depleted battery for a new one in less than 60 seconds. The company currently has active operations in Australia, Japan, Israel, Denmark and the United States.

Last month, taxi passengers in Tokyo may have noticed a strange quietness if they were lucky to catch one of the city’s battery-powered Nissan Rogues. It was part of Better Place’s project in partnership with Nihon Kotsu, Tokyo’s largest taxi operator, to test out the effectiveness of its battery swap stations in a nearly around-the-clock service for a 90-day period.

In Australia, Better Place is rolling out its first network in Canberra.

“We aim to start construction on our charge spots and battery swap stations in 2011 and start supporting customers in 2012” said Australia CEO Evan Thornley, who in 2008 famously quit his role as Victorian Parliamentary Secretary the night before he was expected to be promoted, and took up the top job at Better Place.

By as early as 2013, Better Place aims to link Australia’s east coast cities with battery swap stations dotted along the highway.

And the money is pouring in. Better Place Australia has so far received capital injections from Lend Lease Ventures, ActewAGL, Royal Automobile Club of Australia (RACV) and a group of private investors totalling $27 million. This is in addition to a $350 million Series B investment to its global operation from an investor consortium led by HSBC Group last year.

With money, research, leadership, government, manufacturer, infrastructure, attention and demand all coming to one place, is electric car really going to be the killer app to end climate change?

Zero emission or a hollow delusion?

It’s true that electric cars don’t puff out any smoke on the road, but the “zero emission” status often claimed by electric car proponents can be misleading. Unlike petroleum, electricity is an energy carrier, not an energy source.

The World Wide Fund for Nature (WWF) estimates that in Australia 84% of electricity is generated by burning black and brown coal. It is the largest source of greenhouse emission in Australia, pumping 170 million tons of carbon dioxide (CO2) into the atmosphere every year. Contrary to good intention, if our cars start simultaneously sucking electricity from the same power grid, the amount of CO2 emission will only increase (and dramatically).

The counter argument is that electric cars will free our transportation system from its sole dependency on oil. Once the uptake for electric cars reaches a critical mass, consumers and electricity distributors will have the market power to negotiate for cleaner energy source, such as hydro and wind power.

Some electricity companies in Australia are already offering optional clean energy packages and carbon offset programmes. Collectively, consumers are slowly steering the electricity industry in Australia towards an environmentally friendlier one.

If nothing else, the flexibility to switch energy sources without having to purchase new car models will make it economical for us to embrace the carbon neutral alternative when, not if, it happens.

The launch of Allegro Fund II follows the 50% rate-of-rate performance of its $300 million Allegro Fund I, which Allegro commenced managing in 2008 when it was appointed to replace the previous fund manager, ABN AMRO Capital Australia.

Allegro Fund II will invest in companies in Australia and New Zealand with an enterprise value of up to $100 million. The Fund will target both turnaround businesses requiring capital to restructure or unlock growth potential, and emerging (non-distressed) businesses requiring funds to accelerate growth or affect a change in ownership.

Allegro Joint Managing Director, Chester Moynihan, said Allegro Fund II was well timed to capitalise on the promising vein of mid-market private equity investment opportunities emerging as the economic outlook of both Australia and New Zealand improves.

“Business owners are feeling more confident about bringing their companies to market and their businesses are in better shape when they do. Prices for portfolio assets in this segment are also at more realistic values compared to the peak years before the global downturn,” Mr Moynihan said.

According to its media statement, Fund II intends to take an “opportunistic approach”, with Allegro already seeing strong deal-flow in the education, health and aged care, mining services, retail and waste management sectors. Preferring majority equity stakes, Allegro expects Fund II to take equity positions of up to $30 million in its portfolio investment companies.

Allegro Fund II will be open to superannuation funds, fund-of-funds and other institutions in Australia, New Zealand and Asia. First close will be as early as September. A number of Allegro’s Fund I investors have indicated they will be investing in Fund II.

“At this early stage we are confident of raising the capital we have targeted. The response from institutional investors in our early discussions has been very favourable, and our Fund I investors have indicated strong support for Fund II,” Mr Moynihan said.

Allegro Fund I portfolio includes CH2 (healthcare and medical services), Babies Galore (retail), Discovery Holiday Parks (tourism and leisure) and Bluestone Group (financial services). Allegro’s operationally-focused management style has seen the companies in Fund I reduce working capital and net debt and increase earnings, thereby increasing equity value.

FUND BACKGROUND

Allegro Private Equity

Founded: 2004
Location: Sydney CBD
Employees: 11

Allegro Private Equity is an independent Australian private equity manager owned and operated by its principals. With 11 employees and 76 years of collective experience, Allegro has the largest Australian deal team with a proven track record of value creation in turnaround private equity. An operationally-focused, ‘hands-on’ manager, Allegro invests primarily in small mid-market businesses in Australia and New Zealand, with an enterprise value of up to $100M, including:

• Distressed businesses that require capital to fund a restructure or affect profit improvement initiatives to unlock growth potential; and,
• Non-distressed businesses that require fresh capital to grow or to fund a change in ownership, and thereby bring about a step change in the business.

Allegro was appointed by institutional investors in 2008 to be replacement manager of the $300M ABN AMRO Capital II Fund.

So far, that makes sense and seems like good advice.

Next, you decide to approach investors so that you can ask them to put their hard-earned money into your fledgling business and help turn your great IP into mountains of cash.

That too makes sense and seems a reasonable approach.

Your IP attorney, or your lawyer provide you with the correct documentation — a Non-Disclosure Agreement (NDA) or a Confidentiality Agreement (CA) designed to protect your intellectual property (IP). (One copied from a mate is not a good idea, unless your mate is a specialist lawyer.)

Investors have agreed to meet with you and, to pave the way for a full and frank discussion, you send them your NDA to sign and return prior to the meeting.

Yet, they say no!?!

You’re bewildered and think, ‘Are these guys out to steal my idea? Do they not take seriously the confidentiality of my business? Will they betray my great IP to my competitors? Why are they being so difficult?!?

What is the commercial value of an NDA?

There are two very good reasons for having an NDA:

1. To create a paper trail to protect IP prior to getting formal IP protection in place; and,
2. As the basis for legal action after damage has resulted from an intentional breach.

The former is most commonly relevant for IP that may be subject to patent protection and, thus, must be withheld from the public domain. The latter is only relevant if it happens and if there are sufficient funds to undertake the expensive, protracted legal battle over an issue that is often harder to prove than it may seem at first glance.

Different investors will have different answers and I can’t try to answer for them all.

So, instead, I will restrict myself to those who are conducting themselves professionally and those who are intentionally seeking to invest in a portfolio of early-stage non-biotech companies (i.e. (the vast majority).

If yours is not such a company or your prospective investor is not such an investor then the reality of your situation may be very different to what follows. If you are an inventor and not an entrepreneur then your situation is very different again and what follows may be instructive but, is not the right discussion for you.

The Investor’s Perspective

To build an early-stage investment portfolio an investor will typically have first meetings/conversations with dozens to hundreds of companies a year and invest in no more than a handful at best.

Investors tend to seek opportunities in businesses that they understand. So, they usually see many businesses with very similar ideas for very similar markets. This means that while you think your secret idea is unique, the investor may have already heard the same idea from one or more others.

Ethical business people, including investors, will not sign contracts which they know they cannot honour, or which make unreasonable claims on their own right to operate. An NDA can be such a contract if presented as a precursor to any discussion. To honour the contract the investor must have constant and perfect recall of every little idea and detail she/he has heard from possibly hundreds of discussions on the topic and not to speak those details in the wrong context.

Investors expect the entrepreneur to be able to explain the business opportunity without revealing the intimate detail of the “secret sauce”. There are many aspects of the business opportunity for consideration before it is necessary to delve into the intricacies of the protectable IP.

Whether the secret sauce is software (copyright), hardware (patent), branding (trademark), or process (trade secret), it’s the outcomes — the effects, the market, the pain to be solved — that is of most initial interest to the investor.

When seeking investment it is the entrepreneur’s job to be a salesperson. When selling to a customer one doesn’t have to explain the secret of the product, one only has to explain why the secret delivers a benefit to the customer that the customer values. If the entrepreneur can’t have that conversation with an investor then he/she probably is not yet ready for investment.

Does the investor want to trust an entrepreneur who must tell his/her secret at the very first meeting? Does that inspire confidence in the business acumen of the entrepreneur? Probably not.

Once an investor is engaged and serious about considering an investment then it is normal to make a formal agreement on confidentiality. For example, confidentiality is a standard term in a terms sheet. If the investor doesn’t use that process then he/she may well be ready to sign a suitable NDA, one that has clearly defined coverage, lasts for no more than twelve months maximum (usually six months is more reasonable) and limits the liability for the investor to a reasonable claim for damages due to intentional breach.

A good investor will often require that the NDA be two way but, more on that below.

From the investor’s perspective, the detail of the IP is either unimportant (as it often is at first contact), so there is no need for the NDA, or the detail of the IP is of critical importance (as it often is once serious interest in the investment opportunity has arisen) so the NDA is a natural alignment of interests.

The Entrepreneur’s Perspective

The entrepreneur has worked hard and long to develop something he/she sees as unique and of commercial value. Some initial advice from an IP expert has reinforced the belief that, subject to proper scrutiny and description, the IP is protectable. At that point, all too often, the entrepreneur needs someone else’s money to pay for the IP protection.

Thus, we come to the apparent catch-22 of having a secret that you mustn’t share but is the basis for convincing an investor to support the business. This is a misconception!

Investors rarely invest in the secret IP and usually invest in the commercial opportunity to sell a business based on the IP. Investors want a return, not to steal an idea, not to cheat an entrepreneur and not to be difficult to work with in a business.

To raise investment capital an entrepreneur will typically have dozens of meetings with prospective investors over a period of anything from six months to six years. The initial goal of contacts with investors should be to engage them in the market opportunity, in the vision for a solution and in the credibility of the person/team to execute/realise the success of that solution.

None of that requires disclosure of how the solution works.

As mentioned above, when seeking investment it is the entrepreneur’s job to be a salesperson. A sale is a process and the first step in that process is not to demand exclusivity. Exclusivity is either bought or earned and, in the case of raising capital, it is usually earned. An NDA implies exclusivity and that brings with it constraints on both parties. Would you ask a date to sign a pre-nuptial agreement before the first date?

Most of these NDA are one way, designed to protect the entrepreneurs IP. Will those entrepreneurs sign a two way NDA, one which protects the investor’s IP and prevents the entrepreneur from using any of the investor’s suggestions, comments, or observations without prior license from the investor to do so?

Will the entrepreneur’s legal advisers counsel them to sign such an NDA? Can the entrepreneur afford to negotiate such an NDA with every prospective investor before knowing if the investor is interested or capable of investing?

From the entrepreneur’s perspective, there must be more to the business opportunity than the core IP and there must be a story about how to build value in the business that leverages the IP.

The Reality

An advisor who tells you to stay away from investors who don’t sign your NDA before the first conversation is giving bad advice. Life is not that simple.

Make sure the advisor has the commercial knowledge, as well as the legal knowledge, to be giving commercial advice.

If not, get a good commercial advisor to complement the IP advisor. Whether one advisor or two, the advice should guide the entrepreneur on disclosure and strategy so that it is possible to have several, ever deeper conversations with a prospective investor before invoking the need for an NDA.

Protecting IP is in the common interests of the entrepreneur and the investor.

I know that Angel groups typically give a best effort undertaking of confidentiality for information submitted to them. Many VC firms provide similar assurances.

The commercial acumen to conduct business without betraying company secrets is an essential quality for any businessperson. There is a time and place for an NDA and that is once both parties have established sufficient mutual interest to know it is worth their time to delve into the deeper mysteries of the protectable IP.

Jordan Green is an experienced executive, entrepreneur, engineer, venture capitalist and Angel investor. He has over twenty-seven years experience in growing and advising technology oriented companies in Australia, USA, Asia and Europe. A Silicon Valley software veteran, Jordan was a founding partner of one of the best performing venture capital fund managers in Australia, he is co-founder and Deputy Chairman of the Australian Association of Angel Investors and Jordan founded and leads Melbourne Angels Inc.

He has led a number of Google’s key strategic acquisitions in the U.S. and internationally. At X|Media|Lab Global Media Ideas on 18 June, 2010, Zoufonoun will share his thoughts and experiences on start-up success.

In an advance email interview, we asked him to share his views about future opportunities for Australian startups and what he looks for when evaluating investments.

Q: What do you think will be the next big thing / game-changer in

Digital media that will attract investment dollars?

I believe the web will continue to be at the forefront of innovation.

As mobile devices provide richer web experiences, applications and even traditionally offline content move to the web.

There will continue to be waves of successes as technologists develop new ways for people to interact with information and services online.

Q: How will the Asia Pacific market fare for tech investments for the next 18 months?

The world is more connected than ever, and the current financial crisis is a global one that affects everyone directly or indirectly. Until we see continued stabilisation throughout key markets and hopefully some surprises from emerging ones, it is difficult to say what will happen in the next 18 months.

Q: What is your approach for evaluating potential investments?

At the highest level, our focus is on user experience. We believe if we do what’s right and what’s needed for users, success will inevitably follow. As such, we look for technology, products, services and people who can help us create better products and services to serve the global community of web users.

Q: Best advice you would give a start-up looking for growth capital?

There is so much to talk about here, when, with whom, how much, why/why not, how to structure.

My best advice is for entrepreneurs to seek the advice of seasoned and successful entrepreneurs who have faced similar situations to avoid a costly mistake. It is sometimes difficult to turn down money, but sometimes that’s the right thing to do.

On the other hand, sometimes one needs to raise capital when there isn’t an apparent need. The art of raising capital is just that: an art. As such, it should not be taken lightly as when/from whom/how much/how money is raised affects many aspects of the company going forward.

Q: What will your focus of your keynote presentation at Global Media

My focus will be on where we’ve been and seem to be going on the web — how much work there is still to do in old and new areas, as well as what start-ups should understand (about corporate investment/m&a) and do to position themselves for success.

Q: What experiences and skills will you be sharing with your ‘Lab’ mentoring projects at Global Media Ideas?

Having spent seven years at Google in a role that has enabled me to be at the forefront of strategy and innovation both internally and externally, I would like to share my experiences concerning start-up success, failures, pitfalls and opportunities.

Amin Zoufonoun is a speaker at the X|Media|Lab Global Media Ideas Pro Day Conference on 18 June 2010, Sydney. He will be speaking among powerbrokers from Mobile Entertainment Forum, the Oprah Winfrey Network, Starz, StumbleUpon, The New York Times, MIT and more! Find out more.

“Always invest in an A grade team with a B grade product rather than a B grade team with an A grade product”.

The presumption is that an early-stage company is growing in a dynamic, rapidly changing environment and what starts out as a product perfectly suited to the market opportunity will lose its edge as the market changes. A great team will, hopefully, always find a way to adapt and make keep their business relevant and valuable while a second rate team will struggle to keep up with the changing world.

I can see this in action with three of my current investments.

A well-resourced ‘A-Team’

In the first example, the CEO/founder and his team are top class, truly entrepreneurial, collaborative with their investors and partners, honest and honourable, dedicated and are right now turning the corner into outstanding success.

Along the way, they have had to deal with a market that has undergone regulatory change, technology change and political change, as well as overcome internal challenges of limited resources, inventor syndrome and changes in key personnel.

This is, at its core, an ‘A-Team’ and it has attracted A grade investors, advisors, directors and partners. It is also maintaining an A grade product!

An ‘A-Team’ of one

In my second example is a CEO/founder who is going it alone. He has avoided having a Board, experimented with business partners, partner businesses, growing staff, shrinking staff and constantly evolving and adapting his product/service offering.

His conscientious focus on ethical business (even when competitors — and his own employees! — stole his ideas, his processes and his documentation) has stood him in good stead. His focus on customer value and understanding his customers’ needs continues to provide him with insights that underpin his competitive advantage. The company is at the top of its market niche and set to do great things.

Intellectual agility, hard work, dedication and a mind open to opportunities and advice have all been hallmarks of this A-Team — even if this team is made up of one person.

Then we come to the third example.

Incompetent or just evil?

In this case, the company had world-beating technology and a window of opportunity to realise a return. My co-investors and I would have readily contribute substantial improvements to the scale and probability of realising that return.

Sadly, the CEO/founder deceived the investors.

He did a very good job upfront of convincing investors that he knew what he was doing, that he recognised his own shortcomings and that he was open to getting assistance and advice. Indeed, he had already been successful at attracting and maintaining a substantial investor for several years before we came along.

Unfortunately, that investor was out of his depth, not knowing how to invest in or grow an early-stage company and, thus, has fallen prey to all the worst mistakes. The most unforgivable of which was, through incompetence or collusion, joining the CEO in his deceptive activities that wasted investors’ funds by distracting the collective effort away from realising the agreed goals.

In that company, what was an A grade technology was largely undermined by a substandard team.

Allocating investors’ money toward high salaries, lining their own pockets, that team has failed miserably. Of course, the main parties blame the failure on everything and everyone else but themselves. When the market found the technology wanting, the team responded by asserting that the technology is perfect and the market doesn’t know enough to recognise that perfection.

This company is doomed to almost certain, imminent failure.

Failure is caused by people

Every failure I can recall in a business where I have worked or invested in has been due to the failure of the people.

Sometimes, it is an innocent result — caused by the wrong person in the wrong place at the wrong time — but, honestly, the players in these dramas are usually good people and, as such, are open to advice and help.

More often, disaster is caused by either a single pivotal individual or a small team of collaborators who hold the view that their interests are paramount over everything and everyone else. In such circumstances, these people fail to recognise what is actually in their interest, instead holding dearly to their egos and blind belief in their own infallibility.

Unethical and immoral behaviour are totally unacceptable in all circumstances. They do not lead to success and they most certainly do not make for a good return on investment.

Get judgemental

Judging people is never easy and any early-stage investor worth his/her salt will spend a lot of time constantly working on his/her ability to make good judgements.

Indeed, many of the Super-Angels in the USA rely almost entirely on their ability to judge a person and to do so quite quickly. After all, when you are trying to invest $25k to $150k in one new deal each month, at least, there is not much time for finicky due diligence.

Those men and women each have their own way of meeting and assessing the entrepreneur.

They make their investment decisions based almost entirely on the perceived quality of the founders. There are factors of scale in terms of their own resources and the market in which they operate that enable them to act in this way.

In Australia, we may not have quite the same opportunity but we have plenty of entrepreneurs and innovation. The challenge is to evaluate rapidly and effectively the investment opportunity.

With so much uncertainty in the technology and in the market for an early-stage business, clearly our primary focus is to find those A-Teams with A grade people.

Jordan Green is an experienced executive, entrepreneur, engineer, venture capitalist and Angel investor. He has over twenty-seven years experience in growing and advising technology oriented companies in Australia, USA, Asia and Europe. A Silicon Valley software veteran, Jordan was a founding partner of one of the best performing venture capital fund managers in Australia, he is co-founder and Deputy Chairman of the Australian Association of Angel Investors and Jordan founded and leads Melbourne Angels Inc.

As such, you might expect him to know a thing or two about innovation and growth.

In this fast and furious clip, filmed at the Churchill Club’s  11th Annual Top 10 Tech Trends event in California last month, Jurvetson is given two and a half minutes to explain why he thinks the future looks bright for ‘disruptive’ startup companies.

Talking Business is a weekly 15-minute podcast review of the Australian economy, presented by seasoned business journalists Leon Gettler and Garry Barker, produced in association with the RMIT College of Business. It features interviews with prominent business leaders and expert analysis from RMIT academics, such as Steve Kates.

Australian Economy In Review

RMIT economist Steve Kates talks about business investment, which is headed back to 2008 levels. He also looks at construction activity which appears to be flat with reduced investment in residential housing. This will exacerbate the housing shortage. He predicts high debt levels will drive inflation around the world as governments are forced to print more money to stay afloat.

Talking Business Podcasts on iTunes

Garry Barker and Leon Gettler both have established careers with ‘The Age’ newspaper, where Garry Barker is its Technology Editor, and Leon Gettler is a Senior Business Journalist. Gettler also works freelance on a number of other publications.

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How to raise more capital than you need

How do I raise capital for my company via ASSOB?

Business Advisers: How do I list my clients on ASSOB?

Simon co-founded the independent Zomba Group of music companies (now a subsidiary of Sony Music Entertainment) with Clive Calder in the 1970s. In the mid-90s, he was Executive Vice President of Capitol Records and Blue Note Records in Hollywood and started EMI Music’s global New Media division.

He started Yourmobile (later renamed Moviso), the first ring tone company in the Americas, Europe, UK, Australia and Africa, in 1997.

In 1998 Simon predicted that, “Mobile phones would become the indispensable voice/social networking and music companion for consumers and their increasing mobile lifestyles.” He worked on convincing United States music publishers to grant the very first ring tone rights.

As a result, he is now often referred to as “The Father of the Ring Tone.”

At X|Media|Lab Global Media Ideas on 18 June, 2010, Simon will address various ways Australian Internet start-ups can find capital or smart support for their company and commercial ideas.

In an email interview, we asked him to share his views about the ‘next’ round of mobile technologies and what he thinks about Australian innovation.

Q. What’s exciting about the mobile/digital media space right now?

One of the most exciting areas is the smart phone and what will be the best loved “user experience” on the new designs and devices. The iPhone is going to get a lot of UI challenges from the likes of HTC, Google, Nokia and Sony Ericsson, but the insatiable demand for social broadcasting and social networking will drive greater and greater use of mobiles and mobile devices.

Q. What do you think will be the next big thing / game-changer in digital media/mobile?

One of the game changers is touch screen technology, and applications that benefit from strong touch interfaces. A smart team in San Diego has developed a very compelling platform for “social micro-wagering”. Mobile is also seeing an explosion in the use of the so-called mobile wallet – mWallet – and also the mobile phone for health applications and lifestyle applications. Mobile TV on the mobile Internet is going to become pretty much ubiquitous within the next 12 months as we go over the 4bn mobile phone tally worldwide.

Q. Best business decision you ever made or best advice given to you?

Best advice is a quote: “The dirtiest four letter word in the English language is…. w-o-r-k. Don’t be afraid of it. Do it! Work hard and be nice to people. Do what you love, then it’s not work”.

Q. What is your view of the Australian market? Will you be looking for any business opportunities while in Australia?

Australia is one of the most important new media intellectual and development centres in the world. The level of coding and technology knowledge is on a par with the best in Silicon Valley. It would be great if there were greater VC interest in Aussie tech and software development as it applies to mobile entertainment. Australia has always led the way with modern Telco infrastructure and broadband provision in Asia and Australasia. I am interested in companies that find new uses of music and mobile. For example, www.tunewiki.com uses music in a compelling and new mobile way. Game changing mobile games and lifestyle companies are on my target list.

Q. What will your focus be for your keynote presentation at Global Media Ideas?

One of the main focus points of my keynote will be to look at some of the key new developments in mobile, and more specifically in cross-platform or trans-media where the seamless interfacing of mobile, web and TV screens can create wider global audiences for your work and company and technology. Australian creative and geeks have every reason for being immensely successful in the international market if they come up with something viral and compelling enough – Farmville came out of nowhere!

Q. What experiences and skills will you be sharing with your ‘Lab’ mentoring projects at Global Media Ideas?

I will be talking about the various ways one can take to find capital or smart support for your company and your commercial ideas. I will also give examples of common issues and difficulties that hit start-ups and new companies that have great ideas and little patience to wait for the corporate to “get it”.

Q. Favourite online or interactive experience that not enough people know about?

Zappos Shoes – great customer service and interface

Ralph Simon is a speaker at the X|Media|Lab Global Media Ideas Pro Day Conference on 18 June 2010, Sydney. He will be speaking among powerbrokers from Google, Mobile Entertainment Forum, the Oprah Winfrey Network, Starz, StumbleUpon, The New York Times, MIT and more! Find out more.