Jonathan Wenig, who leads ABL’s Corporate and M&A team, moderated both discussions, which featured the following expert panellists:
- Peter Gray, co-founder, zipMoney
- Dave Sharma, former Australian Ambassador to Israel
- Adir Shiffman, “serial entrepreneur” and Executive Chairman of Catapult Sports
- Amanda Hjorring, Chief Operating Officer of Square Peg Capital
- Nimrod Vromen, Partner at Israeli law firm Yigal Arnon.
ABL Partner
Jeremy Leibler opened both discussions, with
Paul Rubenstein wrapping up in Sydney and
Michael Dodge in Melbourne. Special guest Barry Levenfeld, Partner at Israeli law firm Yigal Arnon, also contributed to the discussions.
Each speaker brought a unique perspective to the two lively panel discussions, which covered a range of topics including the factors that determine start-up success, common pitfalls, current capital raising trends and of course, lessons from the successful Israeli start-up sector.
What makes a successful start-up? An A+ team
The panels were in agreement that an elite team is collaborative, has complimentary skillsets and is incredibly resilient.
In Melbourne, Amanda Hjorring told attendees that when Square Peg Capital allocates capital, its most important criteria is that the start-up has an elite team of two or three founders. Adir Shiffman added that an “A+ team” for a start-up’s first 10 employees and $5 million of revenue might not be the right team for the next 150 employees and $20 million of revenue.
Peter Gray added that a lot is dependent on the chemistry between founders as much as timing and luck. He also offered this advice: “Don’t let ‘perfect’ be the enemy of ‘good’”. Peter told the audience in Sydney that zipMoney made mistakes in the early days by not being able to swiftly get products on the market: “You need to be able to deliver a product. If you’re going to fail, fail fast”.
Finally, as much as a great team will maximise the odds of success, Adir Shiffman pointed out that chance plays a huge role and “any successful entrepreneur who can’t acknowledge their luck is delusional”.
Developing Australia’s start-up culture
All participants were in agreement that Israel is ahead of Australia when it comes to the start-up environment . Dave Sharma in Sydney said “the Israeli space is phenomenal”. He said start-ups are key drivers of the economy, with 80 Israeli companies listed on NASDAQ.
Barry Levenfeld and Nimrod Vromen from Yigal Arnon spoke about Israel’s culture, “where everyone strives for self-reliance”. As well as being home to a world class university system, all of Israel’s 18-20 year olds receive military training in both high technology and goal-oriented group activity.
Even with this high performance culture, Israeli start-up culture is tolerant of failure. Rather than putting the founders of failed start-ups on a funding black-list, Israeli funders see these failed ventures as an opportunity for entrepreneurs to build resilience and experience.
Adir Shiffman commented that Australian start-up funding is still in its infancy, although has come a long way since 2013, when he couldn’t raise a dollar for Catapult from investors at a $10 million valuation. (No doubt most of those investors feel a tinge of regret given that Catapult’s current market capitalisation is $260 million).
In Sydney, Dave Sharma answered an audience question about how Australia can overcome the barrier of our culture towards innovation: “We have to accept it is happening with or without us. Australia’s challenge is to stay at the forefront of these technologies”.
The panellists all agreed that in one respect Australia is getting it right by providing incentives that are conducive to encouraging investment in start-up companies.
Deal terms? Trends and tactics from ABL and Yigal Arnon
Jonathan Wenig commented that although tax considerations are obviously relevant when structuring a business and raising capital, the key commercial deal terms must be the priority.
Nimrod Vromen shared two pieces of advice to founders raising capital for the first time:
- the “cookie-cutter approach” works: it’s cheaper, and standard-form documents have been developed and refined over time
- don’t bring your start-up’s creativity to the negotiation table. The founders’ energy is better focused elsewhere. Founders should ensure that they have a basic understanding of the legal terms of the funding documents, and then get on with running their business.
Common pitfalls - when it doesn’t work out with co-founders
Founders must have the hard conversations early and often. When first advising founders, Nimrod Vromen strongly urges founders to agree that a majority of founders can remove any other founder at any time, for any reason. The aim is to give the company the greatest chance of success, and prevent a disintegrating relationship between co-founders destroying the venture.
Adir Shiffman gave a personal example of a start-up that failed as a result of not having a mechanism in place to deal with founders falling out. He learned from this experience, and advised that founders need to be ready to have the hard conversations with a co-founder when things aren’t working out. Although these conversations will always be gut-wrenching, if a founder is certain that a co-founder must leave the business, there has to be a firm conversation focussed on the practical steps for a co-founder’s exit.
To help prevent valuable equity being locked up when a founder departs, the panellists discussed that ‘reverse vesting’ agreements are very common overseas and are starting to gain traction in Australia, such as in the form of the agreements that Arnold Bloch Leibler prepared for Qualie, a business in which Adir Shiffman was a co-founder (read more
here). These agreements delay the vesting of a founder’s equity until they have worked in the company for an agreed period, say 3 years. This avoids the inevitable difficulties that stifle a start-up business if a founder leaves.