ENTREPRENEUR’S STARTUP SCALEUP GUIDE IPO www.smeguide.org ENTREPRENEUR’S GUIDE STARTUP | SCALEUP | IPO Download the electronic version of the guide at: www.smeguide.org Published by Entrepreneur’s Guide: Startup | Scaleup | IPO Publisher: Tim Dempsey Project Manager: Libbey Clayton Consulting Editors: Colin Kinner, Startup Onramp Josh Collard, Australian Securities Exchange Spiro Pappas, National Australia Bank Design and Composition: Technica Editorial Services Cover Design: Kathleen Nestor Printing and Binding: Ligare Australia www.smeguide.org Entrepreneur’s Guide: Startup | Scaleup | IPO Is published by: Caxton Business & Legal, Inc. 27 North Wacker Drive, Suite 601 Chicago, IL 60606 Phone: +1 312 361 0821 Email: [email protected] Web: www.caxtoninc.com First published 2018 ISBN: 978-0-9964982-3-4 Entrepreneur’s Guide: Startup | Scaleup | IPO © May 2018 Front-cover artwork: © Australian Securities Exchange Copyright in individual chapters rests with the authors. No photocopying: copyright licenses do not apply. DISCLAIMER Entrepreneur’s Guide: Startup | Scaleup | IPO (the Book) contains summary information about business practices as well as legal and regulatory aspects of entrepreneurship. It is current as of the date of its initial publication (May 2018). Although the Book may be revised and updated at some time in the future, ASX Limited ABN 98 008 624 691 and its related bodies corporate (“ASX”), National Australia Bank and its affiliated companies (“NAB”), the publishers, and the authors disclaim any duty to update the information contained in the Book, and will not be liable for any failure to update such information. ASX, NAB, the publishers, and the authors make no representation as to the completeness, accuracy or currency of any information contained in the Book. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence. This book is written as a general guide only. It does not constitute and should not be relied upon as a substitute for specific professional or financial advice. Professional advice should always be sought before taking any action based on the information provided. Nothing in this book is legal advice, nor does it constitute the establishment of any attorney–client relationship. Every effort has been made to ensure that the information in this book is correct at the time of publication. The views, opinions or recommendations expressed in this book are solely those of the authors and do not in any way reflect the views, opinions, recommendations of ASX. ASX, NAB, the publishers, and the authors do not accept any responsibility for any errors or omissions contained herein. It is your responsibility to verify any information contained in the Book before relying upon it. www.smeguide.org I INTRODUCTION AUSTRALIAN SECURITIES EXCHANGE Max Cunningham, Executive General Manager – Listings, Issuer Services & Investment Products Becoming an entrepreneur—it is something many of us have thought about, but few actually take the plunge and even fewer succeed. It is a hard road, there is a lot of risk involved and the challenges can be immense…but so too are the potential rewards. The pride and satisfaction you feel having built or contributed to something from which others gain value is hard to beat. While being a startup is currently in vogue, it is, of course, not a recent phenomenon, and Australia has a long history of innovation, initially driven by necessity given our geographic isolation. Indigenous Australians were our first entrepreneurs, leading the world in utilising tools and techniques in advance of other societies. In more recent times, Australia has contributed many initiatives and innovations, such as the black box flight recorder, cochlear implants and Wi-Fi technology. Operating at the heart of Australia’s financial markets, the Australian Securities Exchange (ASX) is proud to help entrepreneurs and founders bring their ideas to reality by providing the platform to raise their capital and grow their businesses. Be it a junior mining explorer, financial services firm, life sciences company or technology startup, ASX has long been a partner in raising growth capital for companies—an avenue that is not always available for early-stage growth companies in other markets around the world, but something we have been doing in one form or another since the gold rush in Victoria in the 1850s. Entrepreneurialism is crucial in driving economic growth—global businesses have been built from Australia. Capitalising on our favourable conditions, including access to a large pool of investable funds, high regulatory and governance standards and a growing investor appetite for earlier-stage ventures, ASX is the destination for capital raising. We are also seeing those who have successfully built and scaled up their businesses prepared to put both time, by the way of mentoring, and capital behind the next generation of emerging start-ups. By creating a sense of community among our entrepreneurs and having supportive policy settings in place to foster their growth and innovation, I am confident we will be in good hands as the next wave of disruptive businesses make their way to the mass market. We hope this publication serves as a guide for those who are considering becoming, or have already taken the leap to being, an entrepreneur. Packed with practical advice and insights, it will provide guidance and inspiration for years to come, whatever the stage of your business. III F FOREWORD NATIONAL AUSTRALIA BANK Anthony Healy, Chief Customer Officer, Business and Private Banking National Australia Bank has been at the centre of the Australian economy for almost 160 years. Although the world has changed dramatically during that time, our purpose has remained the same: to back the bold who move Australia forward. During this time, we have partnered with our customers to weather financial crises, dot-com bubbles, a once-in-a-generation commodities boom and 26 years of uninterrupted economic growth. And throughout all these events, we have seen Australia’s greatest strength shine through time and time again. You only have to look at our history of innovative Australians who have assisted with everyday activities, such as hanging out the clothes to dry on a washing line, putting food into the fridge so it keeps fresh, taking antibiotics to help a throat infection and hearing people laugh if you were born deaf. These examples are affirmation that our greatest natural resources have always been human, not mineral. The inventiveness, tenacity and grit of Australia’s entrepreneurs has underpinned progress for decades. Their growth stories were not built on a wave of good luck; they created their own good fortune. But something is holding back the next wave of budding entrepreneurs. Since the Global Financial Crisis, the number of small and medium-sized enterprises (SMEs) in Australia has grown by 1.2 percent year on year. At the same time and over the same period, our population has grown from 20 to 24.5 million people—a staggering 20 percent increase. The numbers do not quite add up. We should be seeing more innovators in this mix of population growth, more risk- takers willing to have a go and bring to life their business vision. Seventy percent of Australian SMEs believe Australia is a great place to do business. But while they share an optimistic outlook, economic uncertainty on a global scale has proved to be a barrier to their growth. Our job—as business leaders—is to encourage more voices in the conversation so we can plan and build the right vision that supports a prosperous nation of entrepreneurs. We are proud of our role in backing businesses so that they can be bold. This idea sits deep within our DNA and is the foundation for Australia’s next growth story. V Enabling growth-minded business owners and Exchange and other corporate contributors on entrepreneurs to achieve their goals is key to this great initiative. cultivating a vibrant, confident and capable business sector in Australia. This is why we are proud to partner with the Australian Securities FOREWORD VI TOC TABLE OF CONTENTS INTRODUCTION III Max Cunningham AUSTRALIAN SECURITIES EXCHANGE FOREWORD V Anthony Healy NATIONAL AUSTRALIA BANK PART I. STARTUP 1. WHY AUSTRALIA? 3 STARTUPAUS 2. SO YOU WANT TO BE AN ENTREPRENEUR? 7 TRANSITION LEVEL INVESTMENTS 3. EIGHT THINGS ALL STARTUP FOUNDERS CAN DO TO ‘UN-FAIL’ THEIR STARTUP 13 STARTUP ONRAMP 4. FROM PEPPERCORN TO UNICORN: SEVEN WAYS TO FLY OR DIE 19 POTTINGER 5. FINANCING THE STARTUP SECTOR IN AUSTRALIA 23 NATIONAL AUSTRALIA BANK 6. FROM A FOUNDER IN THE STARTUP TRENCHES 29 SILICON VALLEY FOUNDRY 7. STRUCTURING YOUR STARTUP FOR SUCCESS 35 LEGALVISION Vii 8. SUCCESS STARTS FROM WITHIN 41 EMPLOYSURE 9. WHAT MAKES YOU DIFFERENT? HARNESSING THE FULL PULLING POWER OF BRANDING 49 PRINCIPALS 10. DEVELOPING AN IP STRATEGY 55 SPRUSON & FERGUSON 11. FUNDING ISSUES AND INNOVATION 61 GLASSHOUSE ADVISORY 12. RAISING YOUR EARLY ROUNDS OF CAPITAL 69 LEGALVISION 13. IS AN ANGEL GROUP RIGHT FOR YOU? HOW TO WORK WITH ANGEL INVESTORS 75 SYDNEY ANGELS 14. HOW VENTURE CAPITAL FIRMS INVEST 81 MAIN SEQUENCE VENTURES 15. NURTURING ‘DEEP TECH’ STARTUPS 87 CICADA INNOVATIONS PART II. SCALEUP 16. STARTUP IS GREAT—BUT IT’S JUST THE BEGINNING! FOCUS ON SCALEUP 95 AUSTRALIAN CENTRE FOR BUSINESS GROWTH, UNIVERSITY OF SOUTH AUSTRALIA’S BUSINESS SCHOOL 17. FROM STARTUP TO SCALEUP 101 NATIONAL AUSTRALIA BANK 18. FUNDAMENTALS OF FINANCIALS 107 KPMG ENTERPRISE 19. FROM GARAGE TO GROWTH: WHAT STARTUPS AND ENTREPRENEURS NEED TO KNOW ABOUT REAL ESTATE 113 CBRE 20. DIRECTORS AND OFFICERS INSURANCE: table INSURING YOURSELF AND YOUR COMPANY 119 CLYDE & CO. of contents 21. ALTERNATIVE WAYS TO FINANCE YOUR FAST-GROWING COMPANY 125 PARTNERS FOR GROWTH AUSTRALIA VIII 22. DEVELOPING AND REFINING YOUR BUSINESS MODEL AS YOU SCALE 131 UPGUARD 23.