The web’s not the only future for start-ups

Zenogen founders Daniel Zafir and Alex MetelerkampTo many people “tech ventures” means internet, web and mobile ventures. The success of the likes of Google, Facebook, Twitter, Instagram and Tumblr continues to inspire a generation of entrepreneurs, has attracted billions from investors, and generated many times that in new wealth.

However, before 1998, when the internet first started to take-off, “tech” entrepreneurs and investors had different, more varied dreams. They hoped to be the next Apple (devices), Microsoft (software), Intel (semiconductors) or Genentech (biotech).

The recent $435K investment in Zenogen by Sydney Angels and ATP Innovations’ Ignition Labs is the latest in a trend of ‘back to the future’ investments in Australian start-ups – backing for new companies that are building technologies that do not just live online. Zenogen is a cleantech venture commercialising a new type of graphite electrode for lower cost production of chlorine and hydrogen by electrolysis. Its technology is protected, its market opportunity is large, and its path to market relatively short and not too capital intensive. All of which helps make for an attractive investment proposition.

Zenogen is just one of many Australian tech ventures commercialising innovations in “hard tech” sectors like biotech, medical devices, cleantech and IT. Elastagen, for example, is a clinical stage medical device company that is pioneering the use of human protein elastin to naturally repair the skin. Another, Endoluminal Sciences is developing a breakthrough technology for the treatment of failing heart valves.

Other promising Australian non-web or mobile-based ventures at various stages of development that have attracted investors include Urban Ecological Systems, Building IQ, Optimized Ortho, Smart Ward, Green Distillation Technologies, Paftec and Taggle Systems. These businesses receive much less popular coverage and awareness than their more easy to understand online or web-enabled contemporaries.

While they may not be as easily understood, the idiosyncrasies and deep technology assets of these start-ups can make for attractive investment opportunities. It can be more profitable to build up a business in a quiet corner where not too many others are looking or can compete, because they don’t have access to the technology because its patented or very time consuming and expensive to develop. Often the technology has its roots in publically funded university research. Skilled entrepreneurs, usually domain experts, can leverage millions of dollars of research and development investment to create very valuable commercial assets and durable businesses.

But there are risks, different to the ones in web and mobile. Technology risk is real. It might fail, or a better or cheaper substitute might emerge. More capital and time may be required to get to market, making it harder for early investors to get a good return when they adjust for time and risk, especially if later rounds can’t be raised. A web or mobile venture can be launched for less than $0.5M and get to breakeven in 12 months. In comparison, many (but not all) clean-tech and biotech ventures require more than $20M and seven years to get to commercial outcomes.

There are many good reasons why web and mobile ventures attract a lot of interest and are popular with investors. The internet is global open innovation platform, a massive marketplace connecting consumers and businesses, providing start-ups with access to a whole world of potential customers at very little cost compared to how other ventures have to do marketing and sales. The pervasiveness and familiarity of web and mobile technology, makes the opportunity to be an entrepreneur or invest in a team seem within reach for many. You don’t need to be an industry or technology expert to be successful. And there are many accelerators and mentoring networks to help you and reduce learning curve risks.

This isn’t true of the other tech sectors, many of them less visible B2B or embedded technology licensing ventures. For all these reasons it is highly encouraging to see investors, including individuals, angel investor groups, venture capital funds, larger businesses, and government programs (such as Commercialisation Australia) backing these companies. Not all innovation is web based, and as this next wave of Australian tech ventures begin to gain traction in the market and build their own success stories, our start-up ecosystem may find itself with the diversity it needs to truly deliver truly sustainable growth.

Richard Dale is the owner of boutique management consultancy firm Dale Advisers and a member of the management committee member of angel investor group Sydney Angels. 

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