Start-ups, innovation and the Australia-Israel Bridge

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Excitement about the future of technology and innovation is contagious when attending a conference like The Bridge. It’s an annual two-day event showcasing start-up Australian and Israeli companies, many seeking funding for new ideas. Robotics, virtual reality, drones, artificial intelligence, e-health and fintech were on display this year, and some of the speakers had already launched and sold ‘unicorns’ (companies valued at over US$1 billion). A great idea that can potentially change society can also be richly rewarding financially and emotionally.

Australia needs more innovation spice

The Israeli start-up scene is widely regarded as second only to Silicon Valley as an ecosystem for new venture capital and technology adoption. Australia is rapidly growing and improving, and each year many Australian delegations go to Israel to see what that country is doing right. According to Doron Goldbarsht, Chief Executive Officer of the Israel Business Club Sydney, each delegation is themed around a different industry and the objective is to deliver commercial benefits to the delegators and strengthen the Australian economy.

How can Australia improve its start-up ecosystem? Speakers said speed to market is essential, and Australians are too slow reaching a ‘minimum viable product’. There’s often the wrong mindset, as it’s not about simply expanding but aspiring to be the best and global. Life in Australia is relatively easy and we don’t dream of going to California and conquering the world the way Israelis do. Australians don’t collaborate enough, we compete, while start-ups in more successful countries share knowledge – they solve problems together.

Success, ‘100 doors’ and the Adversity Quotient

Dov Moran is a megastar of venture capital and was one of the keynotes at the conference. He is the inventor of the USB stick, and his company M-Systems was sold in 2006 to SanDisk for US$1.6 billion. He is now an entrepreneur, investor, and co-founder of Grove Ventures, an early stage venture capital fund which focusses on media, e-health and the internet. He said there is still a lack of risk-taking appetite in Australia, and he wants to see more acceptance of failure and greater resilience to get over the disappointments and hurdles.

He began his talk with a challenge, which he calls the ‘100 doors’, to illustrate the difficulties faced by an entrepreneur. Suppose a room has 100 doors, and there’s a 1% chance of any door being unlocked. He asked, what is the chance that someone can get out of the room? He wanted people to answer instinctively, as business often involves making quick decisions under pressure.

He has found when he asks this question that people working in ‘finance’ are the most pessimistic, usually giving a number less than 10%. People who call themselves optimists or entrepreneurs often give numbers above 90%, because there are so many doors.

He then showed the audience the maths … but first, you have a guess.

The calculation

What is the chance that all the doors are locked?

X = 0.99 ^ 100 = 36.6%

The chance that there is at least 1 door unlocked (ie not ‘all the doors are locked’) is:

1 – X = 63.4%

So the chance that someone can exit the room after trying to open all the doors is 63.4%. In this analogy, if a start-up has to overcome 100 hurdles with the chance of success for any one of them only 1%, then if they try 100 doors, their chance of success is a healthy 63.4%.

Why is the success rate across the world only about 1% for start-ups? He gave four reasons:

1. They stop after receiving too many ‘nos’
2. They are at an unlocked door but they do not open it
3. They are knocking at the wrong door
4. They exit through an unlocked door, but it goes to … a new world with another 100 doors.

He said that if a start-up went through seven worlds, each with 100 doors and a 63.4% chance of exiting each time, the chances are 63.4% times seven, or only 4% that they will exit at the end. That’s why it is difficult to succeed. While success needs the right people, the right idea and the right timing, the most important is a high, AQ or Adversity Quotient. There will be problems with customers, staff and product quality.

Moran said he receives over 200 emails a day, and cannot read them all. The ones who eventually reach him are those that refuse to give up until he responds.

Why is Israel successful?

Ethy Levy is Israel’s Trade Commissioner in Australia. She said that successful technology companies in Israel often feature in the news and on the front page, whereas this rarely happens in Australia. Israel has a small population of about eight million and no natural resources, and companies need to think globally and access external markets to succeed. There is a great emphasis on education. Other speakers said the culture of innovation was a state of mind, and a discipline aided by compulsory military training. In other countries, failure was embarrassing, but in Israel, attempts to innovate are admired. Entrepreneurs in Israel have the same status as sports people in Australia.

Speakers also believe Israeli children are not overly sheltered. They are allowed to walk to school and the local park at a very young age, they join youth groups and later travel the world. It is a diverse and complex society, and its immigrant population helps innovation.

Doron Goldbarsht said the Israel Business Club provides platforms for Israeli companies operating in Sydney, with 30 companies from sectors such as utilities, health care, information technology and telecommunications setting up offices in Sydney in the past year.

A look at the Israeli companies who presented at The Bridge showed how the military impact and necessity to use scarce resources leads to global solutions. 3DSignals can ‘listen’ to machines and detect a potential fault before there’s a break down, delivering savings in down time. Mobileye is a leader in AI (and already a unicorn), applying its technology to driverless cars. Equinom is breeding resilient seeds. OurCrowd has 15,000 investors in early-stage companies who find 150 new start-ups to invest in each month. Airobotics specialises in automatic drones, and recently raised US$30 million and employs over 100 staff. Sidekix is a smart walking navigation app.

It is not all one-way traffic. Australian presenters included three agriculturalstart-ups. Agriwebb has developed an app which uses data to make farming easier, Neotop technology reduces evaporation from dams and SwarmFarm Robotics (presented by former Queensland Premier, Campbell Newman) is a maker of smarter farm machinery.

The legal side of Israeli companies listing on the ASX

At time of writing, six Israeli companies are listed on the ASX, and another two should complete backdoor listings this year. According to the Andrew Whitten, a lawyer specialising in small cap listings, a company must satisfy the minimum admission criteria (profit, assets, number of shareholders, etc) and go through a seven-step process that takes approximately 19 weeks. The process includes:

1. Appointing advisers, such as lawyers, accountants, corporate advisers or brokers
2. Preparing the prospectus and due diligence
3. Commencing the institutional marketing programme
4. Lodging the prospectus with ASIC
5. Applying for listing application with ASX
6. Entering the formal marketing and Offer Period
7. Closing the offer, allocating and commencing trading.

The due diligence focusses on the rights and liabilities attaching to shares offered, the assets and liabilities in the company’s structure, the financial position and the profit and loss prospects of the issuer. Shirel Guttman-Amira from Israeli legal firm Agmon & Co, noted that the deal must comply with the legal requirements of both Israel and Australia, and the ASX has become a valuable source of capital for many Israeli companies.

Graham Hand, Managing Editor of Cuffelinks, attended The Bridge courtesy of the organisers. This article appeared in Cuffelinks and is republished with permission. For a free subscription to Cuffelinks for +61J readers, click here.

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About Author

Graham Hand

Graham Hand is the Managing Editor of Cuffelinks, a weekly newsletter on investing and superannuation with articles written by leading financial market experts. Graham has 38 years of experience in financial markets, including Treasurer at the State Bank of NSW and Managing Director, Treasury at NatWest Markets. He co-founded Cuffelinks with market veteran Chris Cuffe in 2012.

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