STARTUP CAST | Episode One – #FinTech
Mathew Beeche interviews Chris Gilbert and Jonny Wilkinson from startup Equitise, part of the first intake of the AWI Ventures accelerator about the FinTech scene in Australia.
Intro: Welcome to StartupCast, Australia’s premium place for in-depth conversation across the Australian start up scene, brought to you by startupdaily.com.au.
Mathew: Hello and welcome to StartupCast brought to you by startupdaily.com.au. Today we are talking about financial technologies and I have with me Chris Gilbert and Jonny Wilkinson from Equitise and they are also part of the first intake of the 2014 for the AWI’s ventures program. How are you guys?
Chris: Very well thank you Matt. Thank you for having us.
Mathew: No problem. So I guess let’s start off by telling us a little bit about Equitise and what you guys do there so we have a bit of an understanding.
Chris: Not a problem. So Equitise is an equity crowd funding platform which is focusing on the Australian market. So we are taking advantage of the change in legislation which is coming in towards the end of the year in the federal government. So equity crowd funding is essentially a crowd funding in the public arena using the power of the crowd to enable startups and SME’s in Australia to raise capital for their businesses.
Mathew: Awesome, now tell me a little bit about, are there other countries that are already have equity crowd funding as like a legal kind of legislation?
Johnny: Definitely Mat, so the UK is one of the first to move and they have the most established market. So crowd (inaudible 01:30) both have raised more than $20 million on that platform for companies over there. The rest of the AU is starting to unroll, Italy has passed some legislation and then more close to home, New Zealand has passed legislation as with the beginning of the year which allows equity crowd funding and they are going through the grading of licensees. There are other countries that are tangling with the problems at the moment; the US jobs act is legislation they are trying to pass to all the equity crowd funding and Canada is doing some similar things but it is all taking federative time. So I hope that the Australian government can act quickly and can pass the review that CAMAC has given them.
Mathew: So I’m a huge fan of what is going on in the Fin-Tech space in Australia, I read a couple of articles a few weeks ago that kind of analyze some of the things that were going on, you know and I looked at kind of pocket book and was also looking at AWI ventures. What was one of the big criteria that AWI was looking for when they did the intake, I believe it was five startups?
Chris: Yes so I think I assessed about 100 different startup applications. They are really looking for disruptors in this basic group really changing the industry in a big way. So there is no real specific criterion for the application. We have got people in our start up space at the moment building mobile applications to make investment for Jen Y much easier. We have got guys doing complex sort of algorithm to overlap different trends in the financial services space with different sectors such as the property market to analyze their own investment requirements and obviously we are doing equity crowd funding so there is a very big diversification in the actual businesses in the startup program which they have going on.
Mathew: That is great, I think there, this is my personal opinion and Johnathon I would like to hear your view on this. What do you think the future of Fin-Tech could be like in Australia do you think that we could be world leaders?
Jonny: Most definitely, Australia particular Sydney is something of a hub originally for finance and I think it has the potential with the right assistance from government and the right investment from the private sector for us to be able to grow and to come up with some very innovative and disruptive technologies that can be world leaders.
Mathew: Is there any kind of start-ups I guess that stand out for you that are already doing that and have global customer bases that based here in either their Australian or New Zealand market?
Jonny: So Xero is probably one of the most famous ones that has had the greatest success of late it is in New Zealand book keeping and accounting service that has replaced MYOB and other sorts of dated services that are quite difficult for small enterprises to use. It is all online it is all integrated with your bank accounts and those sorts of things. So there are definitely things happening in Australia and New Zealand that are world leading and they are currently focusing on the US and expanding even further afield so definitely.
Mathew: So I suppose one of the biggest entrepreneurs that is vocal about the lack of investments and I believe that they actually said their markets, it was Matt Barrie that VC’s in Australia have been stillborn for the last 25 years. Chris how much investment is it going to take for us to get there in the Fin-Tech space to actually be world leaders?
Chris: It is a very difficult question to answer I think the amount of money needed it’s going to be a lot of money but I think it’s going to be a very worthwhile investment especially with the likes of the (inaudible 05:18) guys founding their business and have you have big commerce and some of the other really big tech business coming out of Australia. There is obviously a good talent here to build that strength and financial tech disruption in Australia. I think that Matt Barrie hit the nail on the head when he was saying this and I think he was actually sitting down with (inaudible 05:37) a few weeks ago to go through those issues. So the amount of money needed is a lot and obviously programs like commercialization Australia which has been now dismantled and taken down which were there to help the tech industry it’s obviously not helping the problem.
Mathew: So tell me a little bit about some of the Australian Fin-Tech startups that you think that are solving some very real problems out there guys.
Jonny: So Society One is probably one of the biggest ones that is happening in Australia and they just got backing by Westpac and a few other big names in the industry, so they are operating a peer-to-peer lending space and.
Mathew: Do think that the fact that Stokes, Packer, Murdoch, people like that showing interest in, it’s been all through the press in the last couple of weeks is really starting to make people at a government level wake up and be a little bit more aware of; hey Fin-Tech is a big thing for Australia.
Jonny: Most definitely these are very you know experienced and intelligent investors that have deep pockets and have been very successful in their portfolios of investments over time. So if you have those big names that have a lot of influence getting into the scene then obviously that will add weight and help the government try and push the cause forward I hope but it does validate you know that Australia has some great potential and these people understand worthwhile investment who are willing to tip a lot of money into it.
Mathew: So tell me a little bit about your background, so Johnathon where are you from?
Jonny: So I have spent most of my time at City Group working in equity markets. So I’ve got a ground-up foundation from operations and settlements all the way through to sales and trading. So I have come to learn how equity markets operate over time and you know how companies go about accessing funds and things that are essential in helping the Aussie capital market function and how it can be more efficient.
Mathew: And Chris you are you are ex Deloitte correct?
Chris: Yes that is correct. I have spent about five years at Deloitte in corporate finance specifically mergers in acquisitions. So I was fortunate enough to work with some of the bigger deals in Australia in the tech space so really I became fond of that space when I was working in that team and then from there I could really say that there was a massive lack of funding in this space for capital raising at the tech startups at the smaller end and the unfortunate thing is the company like Deloitte and the McCrory Banks and the Bo Tech advisories I don’t really have the capacity to help their smaller companies raise money because the fee structure just isn’t there and then the access to capital with Angels and VC’s is just so disjointed in the Australian market it is very hard access those funds so through working at delight I was able to see this problem and it is a really big problem.
Mathew: Maybe a controversial question the banks in Australia particularly the major four are they a help or hindrance to this space?
Chris: I think it is both obviously they are some of the profitable banks in the world and the protection the government has given them and how they have been regulated over time has helped Australia’s economic tremendously it has helped us get through the JFC and I believe they are aware that they need to invest in these spaces, Westpac proven this but big organizations like the Aussie four aren’t nimble enough to turn around and make some of these things happen. So obviously we need the full spectrum, we need them recognizing that they need to invest in the bottom end to help with the disruption in the space and for Australian banks to continue to be the world’s best and continue to be innovative.
Mathew: Can you maybe give us a bit of comparison as to our banking system here compared to I don’t know say that of like a Singapore or somewhere where it seems that the government and banking sector are really driving a lot of cash into these you know, new innovations.
Jonny: So Australia and its banking sector has being quite heavily regulated and protected in the four pillars system is something that the government kept over time. Countries like Singapore obviously an island that was you know founded and built up from almost nothing. So they have got the history of allowing funding and financing to their countries and you know I think they are relying on the international flow of capital. So from their experience they are obviously very pragmatic that they recognize that this flow of capital and attracting capital to the island is how they have been successful over time and how they will continue to be successful; whereas we are a massive island that sort close our borders somewhat and we need to recognize that we need the International flow of capital to help us as well as providing the support and structures that do keep us safe in Australia.
Mathew: Chris tell me about when you are at Deloitte, what was some of the biggest hindrances maybe not Just in Fin-tech but just in tech in general when it came to raising capital in this country?
Chris: The biggest hindrances I suppose are the access to strategic investors to actually you know potentially be interested in investing in these businesses because we have got such a small population I am actually finding strategic angels to invest in these businesses. They are few and far between and potential tried investors mainly are looking for some majority stake in these companies rising and to potentially take over these businesses later down the line; so getting the strategic alliance between these companies and the smaller startups and the bigger businesses like APM when they took over (inaudible 11:41). It is hard to find those synergies and the strategies to actually connect those businesses up I think that is what the problem is.
Mathew: We have payment system, so we have got like (Inaudible 11:54) and then there is another one called Pin Payment who has been doing a little bit of work as well. What are your views on that sector, because I think that that is a very interesting sector? I like the way that it is breaking down barriers making it easier for people getting a merchant account is a nightmare for a small businesses usually. What kind of things do you think that we can start expecting to see in that space?
Jonny: Well obviously mobile wallets and other forms of tap and go and ability for people to have access to their funds digitally, anywhere at any time is obviously going to help to grow the economy in the flow of funds and help small vendors and merchants access these sorts of systems so that you can pay anywhere with anything almost and these innovative companies that are helping to breakdown the bank’s monopoly and Visa and MasterCard. It is obviously going to help and it is going to drive small business and allow them access to more efficient ways of doing business.
Chris: I suppose what they do as well is they wait to see the smaller businesses drive innovation and as soon as they see them getting traction obviously they get swallowed up by the big bank so eventually they become part of them anyway, Classic example is Braintree with PayPal. So I’m sure some of the smaller innovative companies like Stripe they will be acquired by the bigger guys at one point or another.
Mathew: Do you think that I mean obviously you’re the founder and you’re getting off $800 million for somebody to buy your company, you’re probably going to say no but do you think that is a good thing or bad thing for this space?
Chris: It’s tough because, I mean obviously disrupting the financial space is really difficult, so you need a lot of capital behind you to do it so it is not an easy task and selling out after two or three years for a big price tag or ensure it is attractive and at the end of the day it would be better I think in a way if those companies return their private image and were able flourish by themselves but I think for them to really take off and be more successful you probably do need those takeovers from the big guys, who are bigger end of town so it is a tough one it is bit of a catch 22 for me too I think.
Mathew: Do you think that there is any Fin-Tech starts ups that are heading towards an IPR over the next few years? (pause) no?
Chris: Essentially, it’s a tough one.
Mathew: You don’t want to make any predictions?
Chris: Well yes it is a tough one you never know when those businesses will be IPRing you just need a market cut from more than 10 million in Australia so potentially many Fin-Techs could be IPR in the next few years.
Mathew: I don’t know how IPR run on Bitcoin I personally really have trouble understanding it but it obviously is disrupting currency in general. Digital BTC (zenya) over in Perth did a back door listing and raised $9 million capital. What do you think Bitcoin is going to do like do you think it’s going to play a critical role in financial technologies?
Jonny: I think maybe not Bitcoin, Bitcoin might be the foundation for more disruption and other forms of currencies going forward. Obviously you know it has had tremendous success and it has reached a sky high valuation and come off-again. I think it is obviously something of a fad but it might be quite representative of how the world moves forward and how we approach currencies and you know crypto currencies and currency unions and things like that are obviously how we allow funds to flow more freely it is just how we come about and how we set that as to a proper regulated global standard that people are happy to accept. So Bitcoin has done some amazing things, it might fizzle out and die as my tip.
Chris: It is just tough if it is not regulated and if you can’t regulate it how it is currently, how can it ever be taken that seriously.
Mathew: It seems to be hipster to me, like there is Nicole Kersh( is the founder for 4cabling and she is also a columnist on startupdaily.com.au) kind of wrote that she was at a party the other day and all these hipsters were talking about how their coffee shop has to the first Bitcoin ATM and stuff like that do you think that it is just a bit of a trend?
Jonny: I think it is. Obviously it started off initially with your very tech savvy maybe Aluminum hat crowd that wanted to have some other ways of storing their value and their funds and obviously how it was created and how Bitcoin of mind indicated it is very much with the tech sector but obviously yeah hipsters will pick out something they find cool or trendy for a period of time and it might get a bit of a following and then as I said fizzle out.
Chris: Until the masses take it off and the hipsters aren’t interested anymore.
Mathew: So guys final say what do we immediately need to help our Fin-Tech flourish in the next six months?
Chris: I think that the federal government needs to really start supporting the start up space. I was reading a report from PWC yesterday and they are predicting that by 2033 which given is a long time out the tech space will be contributing about 5% of GDP so we can only get to that stage if the federal government actually supports the industry and makes that happen and so I think that is going to be really, really important factor in getting to that success level six months’ time.
Jonny: Yeah, no I agree with Chris completely. We obviously need a lot of support from the government and we need some changes to happen in legislation so that we do get a more efficient allocation of capital in the market and we can have companies get funded and you know lead the way and continue to be innovative and make changes going forward.
Mathew: Awesome thank you so much guys for coming in and having a chat today. Guys you have been listening to start up cast brought to you by startupdaily.com.au. Make sure that you tune in next week we will be chatting to Murray Hurps from Admuncher about why he completely changed his model and let it go free and also all of the piracies stuff that was surrounding it. It is going to be a very, very interesting conversation. I am Mat Beeche publisher and founder of startupdaily.com.au see you next week.