Book Summary —Invention to Innovation
How Scientists Can Drive Our Economy
You can find all my book summaries — here.
1 paragraph summary:
The best account of the Australian tech industry I’ve come across going all the way back to the 1970s to now. Lots of great tidbits on Startmate, Main Sequence, CSIRO and Blackbird.
Australia as Innovation Nation
Australia is a great country in which to be a scientist. Across our universities and government agencies, we have an amazing community of outstanding discoverers — people who are curious, at the leading edge technologically, and able to do things that others can’t. Yet when it comes to connecting these talents to entrepreneurship, we hold ourselves back. We are much too cautious in striving for commercial impacts. There’s a weird cultural belief that great companies and great research cannot be led from these shores.
This book is an antidote to such views.
CSIRO = Commonwealth Scientific and Industrial Research Organisation
Aussie Inventors of Wifi
In 1996, the team led by Dr John O’Sullivan, and including Dr Terry Percival, Diet Ostry, Graham Daniels and John Deane, secured a patent for Wireless Local Area Networks (WLAN), which would go on to be one of the technologies enabling what we now call wi-fi.
Fast wi-fi was an amazing breakthrough that generated massive value and is a gift that has kept on giving. It is one of CSIRO’s — and Australia’s — proudest inventions;
Valleys of Death
In Australia, we actually have three Valleys of Death, respectively caused by our culture, our capital, and our customers, as shown in the following figures.
The first Valley of Death reflects our cultural focus on strong academic performance, which has seen Australia continually deliver world-class science excellence. We love great science, which is wonderful — but high academic excellence, measured here by NCI (normalised citation impact), is usually low on commercial readiness, measured here by TRL (technology readiness level). To commercialise research, you need high TRL.
The second Valley of Death reflects our national preference to put our capital in low-risk, high TRL investments, like infrastructure assets.
The third Valley of Death is the most common one that all ecosystems have and reflects different customer bases that drive a company’s growth — the gap between early adopters and the mass market that brings in sustainable revenue.
All three of these Valleys compound to create our ‘innovation dilemma’: Australia’s world-class research doesn’t result in commercialisation-ready inventions; those inventions are often too high-risk for our existing investment community to support; and even when we do support them, we don’t usually support them all the way through to sustainable revenue, so either they fail or someone else invests and reaps the value.
Venture capitalists don’t want to have to pay royalties to research organisations for the life of the company or to have them on the startup’s capitalisation table — they want to invest all their money into the people focused on making the company successful after the invention, not before, so equity is a tough model for universities to recoup their investment into the initial research. Royalties might do that, but they don’t create jobs or new industries for Australia the way startups can.
Our scientific research is world-class — Australia is in the global top 10 for science — but we lose our best ideas to be commercialised overseas where thriving innovation ecosystems are powered by VC, government investment, industry engagement and world-class research, which all come together to form bridges across the Valley of Death.
We won’t be successful — or innovative — if we try to copy what other countries have done, but we can learn from the insights, successes and mistakes of other nations, like Silicon Valley in the US, to build a uniquely Australian innovation system that reflects us at our best and solves the problems that matter most to us. We have our own potential, our own strengths and our own opportunities, and can create our own unique ecosystem.
While we cannot compete on size or scale, we can use science to play to our advantages by reinventing those strengths to solve the seemingly impossible, because that’s what Australian science has done, time and time again.
I believe Australia won’t fix climate change without first solving our innovation dilemma.
As Australia transitions to a net zero future, reducing our income from mining and fossil fuels, we can either lose a third of our economy or turn the disruption into an opportunity to create a new economic pillar from innovation, driven by our excellent science and ability to solve our greatest challenges, including climate change, to give all our children a better future right here in Australia.
Our Industries
Australia has even created a few innovation-led companies, like ResMed and Cochlear in the 1980s and Atlassian and Canva more recently.
I think that is aligned with the reality of the composition of our economy. Our dependence on mining and financial services — and an absence of deep manufacturing or any other advanced industries — means we’re less likely to innovate with advanced technologies in large sectors of our economy compared to other nations.
In Australian schools, enrolments in STEM subjects are at the lowest levels in 20 years with the number of school students studying STEM in later secondary (years 11 and 12) plateauing at around 10 per cent or less. The long-term trends also indicate students’ performance in STEM subjects is slipping.
Australia has developed a habit of taking the easy road: we dig big holes in the ground and sell what we dig up as a commodity overseas, but then buy it back as a finished product at 10 to 100 times more cost. Why couldn’t we manufacture products like batteries and electric or hydrogen-powered cars here instead, which would create jobs and wealth while speeding our transition to a low emissions economy?
Enterpreneurs
“My career is a series of failures, culminated by success.”
‘We have a special word for a failed entrepreneur in Silicon Valley,’ and then I ask them, ‘Do you know what it is?’ I tell them, ‘Experienced. In any other country, it’s called a failed entrepreneur’. Blackbird co-founder Niki Scevak said failure should not only not be feared, but actively encouraged.
Boards are usually focused on maximising the value of the company, so their actions are more designed to make the company successful than to protect themselves from liability. They’ll do anything to help you win. I haven’t seen a lot of that mentality on boards here, because ultimately, directors are personally at risk, so they’re more likely to put themselves ahead of the company.
Australian scientists tend to think of the worst kinds of business leaders because, more often than not, those are the ones in the headlines. You don’t see many headlines about good leaders doing humble things because that’s not ‘newsworthy’ today, and as a result it’s a hidden model for leadership. Scientists aren’t usually getting Harvard Business Review delivered with their Nature subscription, so they make assumptions about entrepreneurialism.
I wanted my kids to have part of their childhood here, and I want them to have as many career opportunities here as they would overseas; I know a lot of expats who feel the same. We shouldn’t try to recreate the innovation hubs of Silicon Valley or Israel here, but we can build our own versions by harnessing our love for where we live and a passion for wanting to do what we love in the place we love. This passion brings the best minds back home to build a better future for their children.
I think we’ve got it better here. If we want to ensure our kids have the quality of life we do, and make sure it’s a prosperous nation, we need to be creating technology jobs here in Australia.
Niki on Dandelions vs Orchids
I came across a great parenting metaphor a while ago of dandelions versus orchids. Orchids are a fragile plant and need lots of love and care, water it a couple of times a day, and don’t let anything bad happen to it.
Don’t let your kid make any mistakes and don’t let them graze their knee.
Dandelions don’t get watered, are exposed to the elements, and for some reason still survive and build resilience.
In the world of tech and science, you can be an orchid who wants government sunshine, people to love them, and all the great programs, or you can be a dandelion who doesn’t complain and just gets on with it.
Dandelions don’t care, let the fragile orchids talk about how the world isn’t perfect and that they’re not getting enough attention.
I see Atlassian as a classic dandelion.
All of the successful people I meet don’t care about all the other stuff.
There’s ‘in the arena’ stuff and then there’s ‘peanut gallery’ stuff, and this is peanut gallery stuff to them.
They’re on the field, they’re motivated by achieving the mission that they set out to do, they’re internally scoring themselves to make sure they get better every day and they’re their own harshest critics.
Orchids are not their own harshest critic, they blame anyone but themselves for their failures, so to me, it’s dangerous to cater to the orchids versus supporting the dandelions.
The really good Australian tech startups are phenomenal, because you’ve got to make do on the smell of an oily rag.
You’ve got to build your businesses without funding — although that’s changing — you’re a market that’s a long way away, it’s small, you’re Australian, it’s hard to get attention in the global marketplace. Especially in the US. So the best we have are very, very good. Catherine Livingstone, former Cochlear CEO and former CSIRO Chair, said this ability to do impressive things with few resources has historically been part of Australian ingenuity bred from a childhood living on the land. This
First wave (1970s to mid-2000s) Bankers and advisors
Bill Ferris is considered by many to be the ‘grandfather’ of Australian venture.
In 1970 he founded Australia’s first VC fund, the International Venture Corporation (IVC), which inspired the creation of many other VC funds in Australia. IVC invested in industries like road surfacing and concrete, consumer finance and leasing and property services, just to name a few.
Bill and his investment partner Joseph Skrzynski started a new fund called Australian Mezzanine Investments Ltd (AMIL). By the late 1990s, AMIL had co-invested with the Australian government and the Walden International Investment Group of San Francisco to form the AMWIN innovation fund, which would go on to make Australia’s first landmark investment in a tech startup, LookSmart.
By August 1999, LookSmart was the first business backed by Australian venture to debut on the NASDAQ and set an Australian record for the largest IPO, valued at US$1.7 billion, or A$2.5 billion.
Second wave (2007 to 2012) Bridging investment ecosystems
Southern Cross was the first fund to operate both in Silicon Valley and Sydney; this meant we had created a bridge to link Australian founders here to the money in the US. Our first fund was about $180 million — one of the biggest funds ever raised at that time.
Third wave (2012 to present) For founders, by founders
In the early 2010s, whenever I was visiting Australia from the US, I’d spend a day with Startmate, a network that connected established entrepreneurs with young Australian founders and companies in need of mentoring and advice as they built their businesses. It had been started by Niki Scevak, who had moved from his hometown of Newcastle, New South Wales, to live in New York for a while and founded two software companies there, before returning to Australia. Like me, he’d made the move from deep-tech founder to deep-tech investor. Startmate brought in a wide range of mentors, from second-wave investors like Bill Bartee and me through to newer investors like Mike Cannon-Brookes and Scott Farquhar, co-CEOs of Atlassian.
Australia, but on the other side of the coin, you had all of these already successful companies, obviously Atlassian being the best example, but there were probably 20 more, like Campaign Monitor, Aconex, RetailMeNot, WiseTech, Xero, the list goes on, of companies that were already successful and showing promise.
Startmate was about supporting ‘technical founders with no business experience’ versus ‘businesspeople with no technical experience’.
The same is true on the investor side — you need to have that empathy of seeing how a company is created and been through the journey of creating something. If you’ve created a company, or you’ve been through a few of those learning journeys, that is the better mindset for the investor.
Due diligence, to me, are the silliest two words in seed investing. It’s pretending to know by investigating and having the answers, versus just knowing that this is an interesting person with an interesting idea and let’s go and explore this market and this product and this journey and see where we go.
You need an exploration mindset versus a lot of venture capital investors, who have a teacher mindset. ‘I’m the expert, come to me for my advice.’ An important question they ask when investing in a company is, ‘How can I help the company?’ Does that really matter? That’s introducing your ego into the situation. At the opposite end of the spectrum is the student mindset: ‘What am I going to learn from this person? What am I going to learn from this idea? From this company?’ Always putting yourself in the student mindset will lead you to doing something new.
Australian Uniqueness
You should, at some fundamental level, be investing in something that you know nothing about. Because if something is new, no one knows anything about it at certain points in time.
And yet it’s the kind of characteristic that I think is uniquely Australian. Whatever our version of ‘innovation nation’, Silicon Valley, or whatever we want to call it, it’s going to be uniquely Australian in the same way those entrepreneurs were — and still are.
So rather than trying to make us become these American-style pitch monkeys, we should do a better job of educating the world that, when an Aussie said they’re going to do something, they’re going to over-deliver.
‘In the last 30 years, we have created 100 Australian tech companies worth $100m plus. More than twenty have gone on to become unicorns. They include great companies like Atlassian, Canva, Afterpay, Wisetech, Seek, REA, Airwallex, SafetyCulture, Go1, Cultureamp and most recently Employment Hero.’
In Australian universities, we make it incredibly difficult for students to pick up subjects outside of their core qualification. When I was finishing my Physics PhD at Stanford, I could sit in on business classes and learn about how to be part of the Silicon Valley ecosystem outside the classroom door. But in Australia, our courses are much more formal.
One of the big things we miss out on at the moment is an equity-raising founding-business course — it only needs to be one semester course for two hours a week to actually enable scientists so that when they’re sitting in front of any of the VC/PE [private equity] funds that they can actually say, ‘I actually do know what a liquidation preference means and I don’t think I’m happy with that. If you want to sit there equal with me then you should come on the ride for that valuation.’150
Startmate Niki Scevak founded Startmate on many of the same principles explored in this book, including the reason an MBA is not the right qualification for running a startup, the need for a clear market vision drawn from product management expertise, and the missionary passion that pushes through risk aversion, which Niki characterises as a naivety that hasn’t been squashed by years of business experience.
Under its new CEO Michael Batko, Startmate has gone on to become similar in some ways to ON and I-Corps (discussed further in Chapter 6), but in its early days, Niki was driven by purpose over the need for a formal program.
He recalls:
The original thesis of Startmate was helping nerds become great CEOs.
It was the view that the technical founder or the product was the hero.
If you had a great product, ultimately, you would win over time. The essential ingredient of a great company is a great product roadmap that can last many decades. There’s plenty of stories where the product roadmap was great but the people were bad so the company implodes, but there’s no case where you have this compounding over decades company without that magical product or the magical product roadmap. That was the hero starting point. So is it harder to get a product person to be a great CEO or to be great at business, or is it harder to get a great businessperson to be great at product? You can look at Steve Ballmer at Microsoft or John Sculley at Apple, or all of these other stories, where the businessperson learning product was not really that successful an outcome. It was always the belief that great product people would have an easier journey to becoming a great CEO. You know it’s an unlikely story and you know that it won’t work out most of the time, but when it does work out, that’s when it’s truly special.
You observe Mike [Cannon-Brookes] and Scott [Farquhar] were just finished university and had no business experience; if you look at Facebook and Microsoft [founding CEOs], they didn’t even finish university and now they’re great CEOs; Google’s [founding CEO] had just finished university. All of these super successful companies are actually staring you in the face that you should invest in these unqualified technical people and, if they do become great CEOs, then those are the best companies in the world. It’s those unlikely, unqualified people, first time founders, first time CEOs, that’s where the super successful outcomes come from. Not necessarily from a percentage of people that succeed, but from those who disproportionately account for the power law company. When you are successful, you have something to lose. When you have something to lose, there’s something defensive that creeps in and something that holds someone back. It’s like trauma or lack of naivety. We always discuss naivety as a positive attribute because it… Some highlights have been hidden or truncated due to export limits.
It’s like kamikaze pilots, most of them die, but some win the war. That was very important. That was the central insight, we want to invest in product and technical people with no business experience to see what happens. There is a chemical reaction where, if you believe in someone at the right time in their life, it just actually builds them. It creates something. That is the beauty of venture capital, when you believe in someone when they almost don’t believe in themselves, or you nudge them to a higher ambition. That’s the joy of the business when that reaction happens. Tyler Cowen is an… Some highlights have been hidden or truncated due to export limits.
Main Sequence started its first fund with $100 million — $30 million in royalties from CSIRO’s wi-fi patent and $70 million in government investment under NISA — and raised $140 million in private investment towards the end of 2018, creating a first fund worth $240 million. Building on this success, Main Sequence raised over $300 million in private investment for a second fund in 2021, bringing its funds under management to over half a billion dollars, from an initial government/CSIRO investment of $100 million. The Australian government committed a further $150 million to Main Sequence in February 2022, paving the way for its third and fourth funds, which were in development at the time of writing.
It’s similar to the way Niki Scevak created the Startmate accelerator first, followed by the Blackbird venture fund.
As Niki has focused on growing Blackbird, Startmate has evolved under new CEO Michael Batko to support other parts of the innovation system in need.
Niki applauds the work Michael has done with Startmate, noting: I’m almost embarrassed to say that I’m a founder of Startmate because the current CEO Michael Batko basically re-founded Startmate a few years ago.
The team now is 18 people and it has its own identity. Startmate is an accelerator but they’ve also started fellowships, which are almost like an accelerator for people’s careers, and helps them get a job at different kinds of startups at different points in their career.
There’s also a community of investors, supporting angel investors get started and get smarter.
That combination of startups and investing in startups, career education, and then investor education, that as a trio warrants Startmate being an independent company.
You can cut through the complexity of driving a system-wide change by finding a common motivator: there must be economic rewards for industry participants, job creation and solutions to policy challenges for government, and opportunities for research excellence and real-world impact for scientists — and, ideally, these collaborative efforts will be engaging and inspirational for the next generation of leaders. It sounds
Larry’s Suggestion
That recipe, we added a few uniquely Australian elements that both leverage our strengths and tackle our innovation barriers (as discussed in Chapter 1), as I discussed with Mariana all those years ago.
First, Australian missions are more strongly funded by industry than government, a reversal of the EU model.
Second, they should drive cultural change by embracing collaborative networks instead of linear or hierarchical ways of working, as well as running towards risks in an effort to fast fail — or fast succeed. This helps narrow the gap across the first and second Valleys of Death.
It does a disservice to our great Australian culture to suggest we should copy Silicon Valley or any other innovation system around the world — we just need to make it that little bit easier to leap across the Valley of Death.
Not everyone will make it across — and nor should they.
The market operates the way it does for a reason. If anything, we should expect to see more failed startups strewn across that Valley — because it’s only by supporting more deep-tech startups to make that leap that more will land successfully on the other side and flourish, luring more and more to follow their path.
👇My Newsletter — SUBSCRIBE HERE👇
