A TECH STARTUP ACCELERATOR FOR THE …Resource...investors, customers, press, and resources industry representatives. The ideal place to host the accelerator is Perth. Perth is a de-facto

From prototype to growing company: delivering innovation into the resources sector.

August 2014

A TECH STARTUP ACCELERATOR FOR THE RESOURCE INDUSTRY

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TABLE OF CONTENTS

Table of Contents .......................................................................................................................... 2

Executive Summary ....................................................................................................................... 3

What is the problem? ..................................................................................................................... 4

Key findings and recommendations ............................................................................................ 5

What is the solution? ..................................................................................................................... 8

Why focus on the resources sector? ......................................................................................... 11

Why Australia, Why Perth? .......................................................................................................... 13

What is the Government’s role? .................................................................................................. 15

How will it work? .......................................................................................................................... 17

What are the alternatives? .......................................................................................................... 20

What can be learned from other accelerators? ......................................................................... 21

What makes the proposed accelerator different?..................................................................... 25

How will it deliver benefits? ........................................................................................................ 28

What are the risks? ...................................................................................................................... 30

Where to from here? .................................................................................................................... 32

What do others think? ................................................................................................................. 35

About RIIT .................................................................................................................................... 36

References and Bibliography ..................................................................................................... 38

Appendix 1: An Accelerator Business Model ............................................................................ 39

Appendix 2: An Innovation Ecosystem ...................................................................................... 40

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3 | A tech startup accelerator for the resource sector

EXECUTIVE SUMMARY

This document explores some key challenges facing the Australian resource industry, and articulates the case for a solution - a resources industry-focussed technology accelerator in Perth.

Innovative technologies are currently improving many industries and completely disrupting others. McKinsey and Company recently identified 12 disruptive technologies with the greatest potential to drive substantial economic impact and disruption by 2025. Of these, fully 11 will have direct and significant impacts on the Australian resources sector. We estimate that these disruptive technologies have the potential to account for over $100 billion of economic impact to the Australian resource sector by 2025. The question for Australia is whether we will simply be consumers of these technology innovations or also their creators.

The Australian resources sector is challenged by declining productivity and international competitiveness. The industry recognises that one way to improve productivity is through the use of new technology. However, the industry has traditionally been slow to adopt and integrate new technology products. We propose that a solution is to run a technology accelerator focussed on the resources sector.

An accelerator is a program for taking promising individuals and ideas and quickly producing successful companies.

We propose running a 12 – 16 week accelerator program once a year. Each program will invest in up to 10 startups that will be co-located in a central location for the duration. They will receive cash investments, administrative support, and education and mentorship. The end of each program will culminate in a "graduation" Demo Day event at which the startups demonstrate their products to investors, customers, press, and resources industry representatives.

The ideal place to host the accelerator is Perth. Perth is a de-facto resources innovation hub of the world, and is home to the customers, supply chain partners, and industry experts needed to make the accelerator a success. Western Australia is home to over 50 mineral types, onshore and offshore oil and gas activity, open pit and underground mining, as well as the innovation centres of three global resources companies.

Worldwide, accelerators are delivering value for stakeholders and local economies. Companies emerging from Y-Combinator, the first tech accelerator, have an estimated market capitalisation of more than US $30 billion. Companies graduating from Surge, a 3-year-old accelerator focussed on energy and water solutions, have already created more than 135 new jobs. Sweden has adopted a national program of supporting innovation, including accelerators, and has seen 8-10x returns on tax dollars invested.

The technology startups coming out of the accelerator will create jobs, Australian export income, and investment returns. They will also assist the local resources sector to operate more efficiently and become more internationally competitive.

...over $100 billion of economic impact to the Australian resource sector by 2025.

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WHAT IS THE PROBLEM?

The Australian resources industry needs to quickly adopt new technologies in order to become more efficient and globally competitive. However, our local technology innovation ecosystem is currently failing to deliver technologies focussed on the sector that can be quickly integrated and deliver the necessary efficiency gains.

RESOURCE INDUSTRY CHALLENGES

The Australian resources sector faces several challenges. Productivity in the sector has dropped by nearly 33% between 2000-01 and 2009-10 according to the government. Several high-profile projects such as BHP’s $30 billion Olympic Dam expansion and $45 billion Woodside Browse LNG Project have been put on hold in part because of rising costs, reductions in global demand and fluctuating commodities prices.

Resources companies have typically been slow to adopt new technologies and in the face of cost pressures, have often cut spending on research and development.

“If we want to fully realise the long-term benefits of the Asian growth opportunity in front of us, we need to seriously address our declining competitiveness. Today increased labour, energy and transport costs, and an overall decline in productivity, mean our costs are two thirds higher than our rivals. Not that long ago our capital project costs were globally competitive. Now they are much higher than global averages.”

David Peever, Managing Director, Rio Tinto Australia; 18 September 2012, The Resources Boom: Prospects and Challenges A View from the Sector

TECHNOLOGY INNOVATION CHALLENGES

There is currently a low acceptance rate for emerging technologies in the resource sector outside of traditional pathways. The industry tends to focus on research-intensive technologies that take 10 to 15 years to develop, rather than on software and IT solutions that can be built and integrated in a matter of months. This makes sales of new technology solutions into resources companies quite challenging.

Australian startups also face significant funding challenges. Per capita investment capital available in Australia is just 5% of that in the United States.

As a result, low-cost, high-productivity technology startups often find the resource sector a very difficult proposition and tend to focus elsewhere, such as on consumer mobile products.

33%

Productivity in the sector has dropped by nearly 33%



KEY FINDINGS AND RECOMMENDATIONS

RIIT has conducted research and worked with its partners in the resources industry, technology innovation community, academic institutions, and government to understand the challenges described in the previous section (for more information on RIIT, see About RIIT). As a result, we’ve been able to articulate four key findings limiting the development and adoption of new information technology by the resource sector. In addition, we believe we have identified four actions, which if implemented, should address these limitations. We summarise these findings and recommended actions below.

1. Early stage funding for startups is insufficient. Provide access to early stage capital to attract and retain top talent to resource industry challenges.

In Australia, only $4.50 per capita in start-up capital is available to startups, compared to $120 in Israel, $85 in the US, $20 in South Korea and $15 in the UK (StartupAUS Crossroads Report).

Start-up costs for B2B companies also tend to be significantly higher than those for consumer web or mobile startups. This is doubly true for startup companies serving the resources sector. Enterprise products tend to be costlier to build, have more support and training requirements, and require integration into existing legacy IT environments. Perhaps partly because of long project lifecycles, resource companies have traditionally been slow to adopt new technology products.

Other industries have incentivised startups to pursue development of products specific to their markets. Consider the following examples:

Finance: FinTech Innovation Lab

Biotechnology: Central New York Biotech Accelerator

Education: Kaplan EdTech Accelerator

Currently, no such targeted funding incentives exist to motivate startups to pursue resource industry challenges.

For these reasons, few Australian startups choose to build technology products for the resources sector, and the few that do face substantial funding hurdles.

We therefore recommend increasing the early stage capital available to tech startups in the resources sector. Specifically, as described in detail below, we advocate raising a capital fund with a mandate of making investments in promising startups that participate in a resources-focussed tech accelerator.

2. STARTUPS THAT SCALE BEFORE FINDING PRODUCT-MARKET FIT FREQUENTLY FAIL. ASSIST PROMISING

STARTUPS TO VALIDATE THEIR PRODUCTS THROUGH A STRUCTURED PROGRAM.

Research from the US tech industry demonstrates that companies which do not quickly validate that their product solves a genuine problem and delivers value fail more quickly and more often than others. Validation of a solution before scaling the business ensures capital, time, and talented personnel are not wasted and that a new venture either grows successfully or fails fast. Validation is the proof that a potential solution delivers value to the market – it is the demonstration of product-market fit.

1. Early stage funding for startups is insufficient. Provide access to early stage capital to attract and retain top talent for resource industry challenges.

2. Startups that scale before finding product-market fit frequently fail. Assist promising startups to validate their products through a structured program.

http://www.fintechinnovationlab.com/

http://www.upstate.edu/accelerator/

http://kaplanedtechaccelerator.com/

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“Based on analysis of about 3200 high growth technology startups, approximately 70% of the startups in the dataset scaled prematurely and 74% of high growth technology startups fail due to premature scaling.”

Compass (Premature Scaling article)

Startups in the resources sector would benefit from a structured program that delivers formal instruction in key concepts as well as connection to industry mentors at a variety of resources companies. Working closely with industry mentors at more than one resource company would ensure that startups are solving a problem faced by many in the industry – that their potential solution has a broad market. Furthermore, startups could pilot early versions of their products with companies represented by mentors. This would ensure that participating startups validate their proposed solutions.

We therefore recommend building a formal program that teaches fundamental startup methodologies and connects participants to a variety of industry mentors. Such a program is described in detail below.

3. INTEGRATION CHALLENGES PREVENT RESOURCES COMPANIES FROM ADOPTING NEW TECHNOLOGIES

QUICKLY. REDUCE INTEGRATION COSTS AND RISKS THROUGH A STRUCTURED PROGRAM AND INDUSTRY

PARTNERSHIPS.

Resources companies have typically made significant investments in software and hardware solutions, and have extensive stores of historic data. Changing or replacing one of these legacy systems often requires a temporary interruption in operations, at great cost. It is also often unclear at the outset whether a new piece of technology will ‘play nice’ with existing systems – will it integrate well with existing systems, or will it cause failures or corruptions of data? Resources companies therefore perceive significant risks and costs associated with the adoption of new technology products, and are slower to benefit from new technologies as a result.

Startups working in the sector must understand these risks and costs and work to reduce them as much as possible.

We therefore recommend a structured program that connects startups to industry mentors that understand the legacy systems and business processes in place at customer companies. Participating startups would be able to build and test integration solutions that reduce the risks and costs associated with their products. These solutions would be informed by minimum requirements and standards communicated by resource companies. Resources companies would thereby have access to a stream of new products with known and minimised integration risks.

Specifically, we recommend that integration risks and mitigation strategies form part of the curriculum of a startup accelerator, as discussed in greater detail below.

3. Integration challenges prevent resources companies from adopting new technologies quickly. Reduce integration costs and risks through a structured program and industry partnerships.



4. WITHOUT SUFFICIENT GROWTH CAPITAL, A STARTUP WILL BE UNABLE TO SUPPORT ITS EARLY CUSTOMERS

AND ACQUIRE NEW ONES. PROVIDE ACCESS TO SOURCES OF FOLLOW-ON FUNDING.

A technology startup may develop a great product that solves a problem for the resources sector, but still fail. To benefit from a new technology, a large resources company may require substantial training and after-sales support. These are services that early stage startup companies often find difficult to provide. If they lack the resources to meet the requirements of contracts with industry customers, they will fail. In addition, startups in the sector will face significant sales costs to acquire new customers even after demonstrating a successful product.

For these reasons, startups in the resources industry require access to additional funding after they have demonstrated product-market fit.

Startups need access to sources of follow-on funding capital. We recommend a formal program to prepare startups to pitch for and secure additional funding. We also recognise the need to build a network of investors interested in funding B2B products, and familiar with the sector.

Specifically, we advocate implementing the following actions via a technology accelerator to address the need to provide startups with access to additional capital:

Prepare startups to attract and receive funding through the curriculum of an accelerator. At a minimum, this should include:

o Pitch preparation and coaching

o Education on deal structuring (term sheets, etc.)

o Assisting startups to build personal networks with investors

Host a “Demo Day” at which startups pitch their products and businesses to investors and strategic customers.

Build and maintain a network of investors interested in B2B products in the resources sector.

Consider expanding access to international funding by hosting “Demo Day” type events in locations such as the Silicon Valley.

4. Without sufficient growth capital, a startup will be unable to support its early customers and acquire new ones. Provide access to sources of follow-on funding.

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WHAT IS THE SOLUTION?

A startup technology accelerator focussed on the resource sector is the best way to address the findings described above and deliver on the above recommendations. An accelerator would attract and assist startups to create fit-for-purpose new technologies that can be quickly adopted by the industry to achieve productivity and efficiency gains.

Innovations and technological progress are key drivers of productivity growth over the long term. A decline in the quality of resource deposits that results from the mining of marginal or deeper resources is associated with a rise in the unit cost of extraction. Growth in innovations, a more skilled workforce, a faster rate of adoption of better off-the-shelf technologies as well as new technological breakthroughs would all likely assist in productivity growth of the Australian mining sector.

Productivity in the Australian Mining Sector, Australian Government Bureau of Resources and Energy Economics (BREE) Discussion Paper Series 13.01, March 2013.

WHAT IS AN ACCELERATOR?

Accelerators are programs for taking teams and ideas and quickly producing successful companies. They are called accelerators because they accelerate the time to:

availability of mature technology

return on investment

productivity and efficiency gains

Accelerators are fixed-term, cohort-based programs, that include mentorship and educational components and culminate in a public pitch event or demo day.

Some key characteristics of accelerators are:

1. The application process is open to anyone, but highly competitive.

2. A seed investment in the startups is usually made, in exchange for equity. Typically, the investment is between US$20,000 and US$50,000.

3. The focus is on small teams, not on individual founders. Accelerators consider that one

person is insufficient to handle all the work associated with a startup.

4. The startups must "graduate" by a given deadline, typically after 3 months. During this time, they receive intensive mentoring and training, and they are expected to iterate rapidly. Virtually all accelerators end their programs with a "Demo Day", where the startups present to investors.

5. Startups are accepted and supported in cohort batches or classes (the accelerator isn't an on-demand resource). The peer support and feedback that the classes provide is an important advantage. If the accelerator doesn't offer a common workspace, the teams will meet periodically.

- Adapted from Wikipedia

would attract and assist startups to create fit-for-purpose new technologies that can be quickly adopted by the industry to achieve productivity and efficiency gains.

An accelerator



CREATING JOBS AND VALUE

Successful accelerators are engines for producing jobs and shareholder value. According to Seed-DB (a database of accelerators), they have resulted in the creation of more than 16,000 jobs and almost $1.9 billion USD in returns on exits (trade sale or IPO of member companies). In fact, these results are more impressive because of the fact that accelerators have only existed since 2005, and most have only been around for 5 years or less.

Y Combinator is considered the first accelerator. It was started in 2005, in Silicon Valley. Y Combinator has so far graduated 634 companies, which are collectively now employing more than 5000 people. Dropbox and Airbnb are two very well-known Y Combinator companies.

METHODOLOGIES

Accelerators frequently adopt and teach several business methodologies shown to accelerate the time to bringing new products to market.

One such methodology is the Customer Development process articulated by Steve Blank. Blank argues that for early stage startups, finding and engaging with customers is more important than building technology products. Essentially, he advocates first developing a clear understanding of what to build, before committing limited

resources to product development.

Blank defines Customer Development as getting out of the building, talking to customers, and using the resulting feedback to discover what customers want. This knowledge should then be used to build and refine a product that solves their problem. (Blank 2005).

Another approach commonly applied in accelerators is that of the Lean Startup. Introduced by Eric Ries in his book of the same name, The Lean Startup methodology is about reducing waste in the process of finding a scalable and viable business by combining the ideas of Customer Development and agile software development. It is based on the iterative build-measure-learn loop where the first step is to figure out the problem that needs to be solved and develop a minimum viable product (MVP).

The Build-Measure-Learn Loop. Eric Ries 2011 (from

http://theleanstartup.com/).

Accelerators have resulted in the

creation of more than 16,000 jobs

and almost $1.9 billion USD in

returns.

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BUILDING VIABLE COMPANIES

A key function of accelerators is to develop the participating teams into viable companies. This is accomplished through a combination of education, mentorship, and network development.

Education in accelerator programs often includes seminars on a wide range of topics, such as search engine optimization, online marketing, approaches to split-testing, and term sheets. Seminars are typically given by the directors of the program or by guest speakers, who often provide one-on-one mentoring after their talks. Seminars are intended to compliment and broaden the often specialised experience of accelerator participants, and to connect them to speakers who are experts in their fields.

This direct interaction with expert mentors assists participating teams to build a network of industry contacts that often provide key assistance in future stages of business growth.

Accelerators also connect participants to the services and advice required to create well-formed companies. These include IP protection, company structuring, and accounting.

Idea / Prototype

IP Protection

Seed Capital

Commercial Product

Demo Day

Company Structuring

Mentoring

Connection to Network

Quickly build value



WHY FOCUS ON THE RESOURCES SECTOR?

WHY SPECIALISE AT ALL?

Specialization allows an accelerator team to build relationships with key individuals that can contribute to the success of participating companies because of their more relevant experience.

For example, without such specialisation, one might be able to pair participants with mentors that have experience in their general area of business:

“Your product is a targeted at companies operating earth moving equipment, we’d like you to work with John, he also runs a B2B software company.”

With a specialised industry focus however, one can pair participants with mentors with more applicable experience, who might also become customers or partners of the participating companies:

“Your product is a targeted at companies operating earth moving equipment, we’d like you to work with Jack and Fred. Jack manages the largest earth moving contract at Rio Tinto, and Fred is the state manager for the largest earth moving equipment manufacturer.”

Specialisation makes it possible to integrate participating companies immediately into a network of the largest mining distribution partners in the world that sit atop the most valuable ecosystem that they can impact. A resources-focussed accelerator would work to engineer winning outcomes from the start by aligning sources of capital, top talent, innovative technology and industry-leading distribution.

WHY THE RESOURCES SECTOR SPECIFICALLY?

The resources sector currently represents incredible opportunity. The sector has had a series of booms that have produced both significant financial resources and significant opportunities for improvement.

Productivity in the Australian mining sector has declined by 33% over the past 10 years according to the Australian Government.

“The mining sector stands out from most other sectors in Australia in that there has been a major decline in measured (unadjusted) productivity.”

Productivity in the Australian Mining Sector, Australian Government report on productivity in the mining sector; March 2013.

Deloitte identified the adoption of new technology as one of the key challenges facing the mining sector in 2013 and a primary way of improving productivity.

“To reduce labour costs and improve operational efficiency, mining companies have been increasing their technology investments. Despite a demonstrated willingness to innovate, however, many mining companies continue to suffer both financial and process inefficiencies by failing to leverage basic back-end technologies.”

Deloitte: Tracking the trends 2013

In fact, many of the software systems relied on by the industry were built 10 years ago, and are showing their age. The sector is aware of these deficiencies and is actively seeking opportunities to improve.

A resources-focussed accelerator would align

sources of capital, top talent, innovative tech,

and distribution channels.


HOW BIG IS THE OPPORTUNITY?

McKinsey’s 2013 report Disruptive Technologies: Advances That Will Transform Life, Business, and the Global Economy identified the top 12 disruptive technologies that have the greatest potential to drive substantial economic impact and disruption by 2025. They estimated the potential economic impact each technology could create in 2025 and concluded that these 12 technologies alone had “the potential to drive direct economic impact on the order of $14 trillion to $33 trillion per year in 2025.”

Of those twelve disruptive technologies, fully 11 will have direct and significant impacts on the Australian resources sector. We estimate that these disruptive technologies have the potential to account for over $100 billion of economic impact by 2025. 21

The question for the Australia is whether we will simply be consumers of these technology innovations or also their creators?

These 11 disruptive technologies are:

1. Mobile Internet

2. Automation of Knowledge Work

3. The Internet of Things

4. Cloud technology

5. Advanced robotics

6. Autonomous and Near-Autonomous Vehicles

7. Energy storage

8. 3-D printing

9. Advanced materials

10. Advanced oil and gas exploration and recovery

11. Renewable energy

(Next-generation genomics is the 12th technology on the list, for which we currently see no direct impact on the resources sector.)



WHY AUSTRALIA, WHY PERTH?

Given the unique opportunity presented by focusing on the resources sector, there’s no better place to host the accelerator than Australia and more specifically Perth. Australia as a world leading resource exporter has a natural advantage of multiple potential customers and technical challenges for any young resource-focussed technology company.

Perth is one of the de-facto resources innovation hubs of the world, and is home to the customers, supply chain partners, and industry experts needed to make the accelerator a success. In addition Western Australia is one of the top resource technology development locations in the world, with over 50 mineral types, onshore and offshore oil and gas activity, open pit and underground mining, and exploration and production activities.

Global resources companies and some of their suppliers have already located the individuals and funding necessary to support innovation in Perth. Consider the following list, all located in Perth:

BHP Billiton’s Global Technology Centre

One of Chevron’s two global innovation hubs

One of Rio Tinto’s Technology & Innovation centres

General Electric (GE) technology and learning centre

IBM Natural Resources Solution Centre

BASF Global Mining Research Centre

Technology startups often commercialise research originating from universities or other academic institutions. They are able to efficiently generate profits from intellectual property resulting from research. Proximity to research institutions and the intellectual property, ideas, and trained individuals they produce could therefore contribute to the success of the accelerator. Perth is home to significant academic research into resource production and extraction:

Energy and Minerals Institute (EMI)

University of Western Australia

Curtin University

CSIRO

Australian Resources Research Centre in Perth including CSIRO, Curtin, & UWA

A significant amount of the world’s natural resources extraction and production takes place in Western Australia. WA is therefore home to a variety of technologies and processes that could be improved upon by startups in the sector. Consider the following facts about the resources industry in WA:

Production and/or extraction of over 50 different mineral resources

22.2% of the world’s iron ore in 2012 (DMP), 14% of alumina, 13.4% of the world’s nickel, 11% of garnet, 7% of zircon, 7% (and growing) LNG seaborne trade, 6% gold

In 2013 WA exported over $113 billion in minerals and petroleum which was equal to ~63% of total Australian resources exports


Additionally, Australia’s resources sector is perhaps most in need of the improvements to efficiency and competitiveness that can come with the adoption of innovative technologies. Consider the following statistics from research conducted for the Minerals Council of Australia by Port Jackson Partners:

Capital costs are rising more rapidly here than in the rest of the world, with iron ore projects now 30% more expensive than the global average and thermal coal 66% more expensive.

By 2020, Australian projects beyond the Pilbara are forecast to have higher delivered costs than benchmark Brazilian producers and will cost up to 75% more to build than projects in West Africa.

Nearly half of Australia’s production is now in the most expensive 25% of mines globally. Even in iron ore we have lost our operating cost advantage for all but established Pilbara producers.

75% of all projects included in the BREE major projects list remain uncommitted.

NATIONAL REACH

Although Perth is the ideal home for the accelerator, the effort to improve the resources sector and build a sustainable innovation ecosystem must be a national one.

The accelerator should accept applicants from all over Australia, as well as overseas. RIIT plans to expand its successful Unearthed innovation event program across Australia. This will create a stream of promising prototypes and individuals ideally suited to the accelerator.

We also recommend considering hosting Demo Day events in multiple locations around the country, to promote both the individual products that come out of the accelerator, and the accelerator itself. Along with national marketing and media coverage of the accelerator, this will also serve to expand the network of industry companies partnering with the accelerator and the range of industry problems solved by participants.



WHAT IS THE GOVERNMENT’S ROLE?

Is there a role for government to play in creating a sustainable tech startup ecosystem?

Governments around the world have taken different approaches to incentivising innovation. In general, Australia’s regulatory environment is favourable for startups. The barriers to registering a new business, in both time and costs, are relatively low. Tax rates are also comparable to other developed economies, and research and development is supported through the R&D tax incentive/credit scheme. However, government support for innovation and research and development has declined significantly in recent years.

RIIT is not a political organisation, and policy advocacy is not a focus of our business. However, we may occasionally articulate views on specific policies that we believe positively or negatively impact the nascent startup ecosystem in Australia. Through our efforts to build a sustainable innovation ecosystem in Australia, and our investigations of ecosystems abroad, we’ve identified several areas in which Australian legislation could be revised to create more competitive conditions for Australian tech startups.

REVISE ESOP LEGISLATION

The current approach to the Employee Share Option Plan (ESOP) in Australia results in options receivers being taxed upfront when options are issued, as opposed to when they are sold. This despite the fact that many options will prove to be worthless over time, as startups frequently fail.

This makes it impractical to incentivise startup employees with an ESOP.

For Australian startups in general, and those in Perth in particular, this creates a barrier to competition for scarce technical talent. Skilled technical individuals often have their choice of relatively high-paying jobs in established companies. In other markets, such as the US and UK, startups with scarce funding can offer share options to attract and retain technical talent. This has allowed them to compete for human resources competitively with more established companies. The same is not true in Australia under the current ESOP scheme, and as a result, Australian startups may be less competitive in terms of remuneration than their peers overseas.

Therefore, one thing the Australian government could do to support the growth of a local tech startup ecosystem and make conditions for Australian startups more competitive with their peers in other markets is to revise the existing ESOP legislation. We understand that a consultative process is currently underway to consider possible revisions to the ESOP legislation.

PROVIDE FINANCIAL SUPPORT FOR COMMERCIALISING NEW TECHNOLOGIES

The Australian government recognises the need to support the commercialisation of new technologies. The discussion paper for the new Entrepreneur’s Infrastructure Programme (EIP) states: “it is well documented that Australian businesses underperform in comparison to their overseas counterparts when it comes to bringing discoveries successfully to market, quickly, and at competitive scale” (p.4).

However, the government recently suspended the Commercialisation Australia (CA) programme, which provided early stage commercialisation support to many Australian innovations.

Under the government’s EIP, commercialisation support in the form of 1-to-1 match funding is available up to $250,000. This is significantly less than was available under the Commercialisation Australia programme, which included match funding of up to $2 million.

Providing more early stage commercialisation match funding under the EIP is another action the government could consider taking to promote a favourable environment for Australian tech startups.

SUPPORT TECHNOLOGY STARTUP ACCELERATORS

According to the government, the EIP services include market and industry information, business management advice and skills from experienced private sector providers, access to innovators,


products and services, connections with potential markets, and commercialisation advice through specialist sector expertise. These are in fact, some of the central services provided by tech accelerators. As argued in detail earlier, a tech accelerator specialising in a sector such as resources should be able to out-compete any general provision of such services. Furthermore, providing such specialised services is the core business of an accelerator; it is arguably not the core business of government.

The government could, therefore, improve the effectiveness of the EIP by directly supporting tech accelerators.

Other developed economies have recognised the ability of startup accelerators to quickly build scalable technology businesses and are providing financial support to help them do just that.

Most recently, in 2013, Canada established the Canada Accelerator and Incubator Program (CAIP) to help accelerators and incubators deliver their services to promising Canadian firms. CAIP provides up to C $5 million per year to each eligible accelerator program.

“It is critical for Canada’s small- and medium-sized businesses to harness innovation and get their ideas to the marketplace so that they can grow, create jobs and contribute to the economy... Accelerators and incubators have the experience, tools and know-how to help get small Canadian start-up businesses up and running. Our Government is pleased to be supporting private sector-led initiatives that further strengthen our venture capital market.”

Canadian Prime Minister Stephen Harper; June 14, 2014 (emphasis ours)

The founders of AngelCube, Australia’s first tech accelerator, have recently proposed the following policy amendments which would help the EIP support tech startup accelerators:

1. Venture accelerators are recognised as a new category to apply for Business Management grants.

2. Venture accelerators can apply directly under the three year rule for Business Management grants

3. Venture accelerators are recognised as an ‘expert network’ for the nomination of Commercialising Ideas grant

4. Allow ‘Business Management’ grants up to $100,000 for venture accelerators to support between 6-10 companies.

5. Business Management Grant: Pre-approval of grant based on the Venture Accelerators initial commitment to provide minimum of $20,000 to each accepted company, indicating an initial investment from the accelerator of $120,000-$200,000.

6. Commercialising Ideas Grant: Allow rapid process approval in recognition of the due diligence conducted by the Venture Accelerator and co-investors

Australia needs to continue to build a culture of innovation. Serial entrepreneurship is alive in the Australian technology sector and the knowledge transfer to venture accelerators is self-evident. Government can contribute directly by recognising Venture Accelerators in its programs and the impact they can have.

“Proposal of policy amendments to the Enterprise Infrastructure Program to support the activity of technology venture accelerators,” Adrian Stone and Nathan Sampimon, June 18, 2014



HOW WILL IT WORK?

Based on successful models in the US, we believe the ideal approach is launching a new startup accelerator in Perth that will run a 12 – 16 week program once a year. Each program will invest in up to 10 startups that will be co-located in a central location for the duration. They will receive cash investments, administrative support, and a great deal of education and mentorship. The end of each program will culminate in a "graduation" Demo Day event at which the startups demonstrate their products to investors, customers, press, and resources industry representatives.

DURATION, TIMEFRAME, AND LOCATION

The ideal accelerator is a 12 – 16 week program. Participants should be provided working space in a central location. Spacecubed is the leading co-working space in Perth, and a hub of the tech startup community. Spacecubed is therefore likely to make the best location for an accelerator program. Co-location of accelerator participants will encourage the cross-pollination of ideas, and will ensure the best access to mentors and others in the extended network.

Following is a rough schedule for how the first accelerator class could run:

Applications Accepted Beginning Q1 2015

Participants Selected and Notified End Q1 2015

Program Begins End Q2 2015

Demo Day (program ends) Beginning Q4 2015

ACCELERATOR PROCESS

1. Select the best ideas and teams.

(Selection process.)

A selection process must be developed to ensure that the most promising teams and ideas are selected for participation. The selection process should evaluate both the individuals and the ideas / prototypes they propose to work on.

The selection process is likely to include questions that assess the maturity of the applicant’s technology, the size of their potential market, the efforts made to assess product-market fit, the qualifications of the individual applicants, and the length of time individuals have worked together if applying as a team.

In addition, we recommend convening a group of industry and technology experts to assist with assessing applications. The consensus of a group of individuals with the right background and experience will help select the best individuals, teams, and technologies for each accelerator cohort. This group of individuals may constitute an advisory panel that is consulted for other input in addition to the selection of participants. RIIT took a similar approach for the first Unearthed event, at which we assembled a distinguished panel of judges from Rio Tinto, BHP, Landgate, Yuuwa Capital. Not only did this ensure a well-rounded assessment of the prototypes presented, but it also allowed us to build critical relationships with representatives of industry, government, and the investment community.

AngelList (or another platform) should be used to facilitate the application process. AngelList provides the necessary tools to streamline the application process and reduce the associated administrative overheads. In addition, AngelList is perhaps the best web tool for connecting startups to funding. Use of this tool by accelerator applicants will have the additional benefit of extending their networks in preparation for follow-on funding.


2. Get the fundamentals right.

(Company structuring, IP protection, Mentorship)

The accelerator should work with local service providers to ensure that teams form properly structured companies, protect their intellectual property, and have appropriate accounting advice.

Local service providers may offer discounted or bulk rates to accelerator participants. In doing so, they are showcasing their work to future clients and quickly expanding their professional networks. Perhaps these services could even be included with the accelerator program at no cost to participants.

Local service providers will also deliver seminars on topics such as intellectual property protection, R&D tax incentives, and shareholders agreements. Participants can then work with these providers as mentors to apply lessons directly to their startups.

3. Quickly find a fit between products and markets.

(Build-Learn-Iterate)

The accelerator program should rely heavily on methodologies proven to deliver results for startups. These should include the Customer Development and Lean Startup approaches introduced earlier. Another recommended tool is the Lean Canvas (see http://leanstack.com/ for example) as a means of documenting and focusing on these approaches.

The accelerator team must build an education program around these methodologies that delivers instruction on topics such as business practices, software engineering best practices, working with employees and contractors, performing market research, marketing, and understanding and fitting into the resources industry supply chain.

Many of these topics should be delivered by mentors from partner companies in the resources industry. Participants will be required to ‘learn by doing’ by applying the lessons directly to their startups during the program.

4. Build the channel to market.

(Connection to industry networks, VAR agreements, integration assistance, etc.)

Easing the path to market via established industry networks is a defining advantage of the proposed accelerator. Participating companies will be able to demo their products to companies at various levels of the resources industry supply chain. The primary opportunity to reach a large audience of industry representatives will come at Demo Day – a kind of graduation event at which participants will present their products.

In addition to Demo Day, participants will be introduced to a network of industry mentors via the education program. We expect that this opportunity to build relationships and introduce their products to others will result in many valuable connections for participants.

A partial list of some likely partners follows:

Industry Partners

Government Departments

Resource Service Providers

Industry Bodies

Universities

Many organisations have already demonstrated their eagerness to participate in efforts to drive technology innovation in the resources sector by participating in the first Unearthed event.


http://leanstack.com/


5. Add fuel to accelerate growth, as needed.

(Demo days, connection to investors.)

The formal program will end with a Demo Day at which participating companies will showcase their novel products to investors, customers, and industry representatives. Participants will be given a limited amount of time in which to demonstrate and explain their products. They will then take questions from the audience. Following the demonstrations, there will be an opportunity to network so that industry representatives and investors can meet program graduates.

This is a primary opportunity for participants to secure follow-up funding, partnerships, or key customers required to continue the growth of their ventures. Demo Days must be well attended by press and investors. Participation from industry partners is also critical.

The accelerator team must also assist participants with advice on funding (term sheets), industry partnerships, and connections to sources of additional capital.

INITIAL INVESTMENT OF FUNDS

The accelerator will make an initial investment into each of the participating teams.

Teams must form companies in order to receive this investment. Participating companies will give up a percentage of their equity (10%, for example), in exchange for the investment. This initial investment is intended primarily to cover the costs of the team during the program. As Perth has a relatively high cost of living, the investment size must take this into account.


WHAT ARE THE ALTERNATIVES?

For individuals starting technology companies focussed on opportunities in the resources sector, there currently exist a few sources of assistance. These mainly include other general purpose accelerators, and other sources of funding. However, these are not tailored to the resources sector, and as a result their assistance is unlikely to be as focussed or effective. Industry would benefit from a body able to provide access to funding, mentorship, and supply chain connections specific to the resources sector.

OTHER ACCELERATORS

Perth hosts one established accelerator: Founder Institute (FI). FI has run two ‘semesters’ in Perth.

FI also provides education and mentoring opportunities for participants. This part of the FI program is similar to that proposed in this document. Key topics are delivered by mentors, and participants are expected to apply the lessons directly to their startups.

However, the FI funding model is different to the typical accelerator model, and to that we propose. FI applicants give up 3.5% of their equity, but do not receive an initial investment in return. In fact, FI is a paid program in which participants are required to pay a USD $1250 course fee. Participants also pay a USD $4500 tuition fee if they receive any external funding. We believe this to be a factor that will positively differentiate the proposed accelerator from FI in the Perth market.

Participants could also travel to other Australian cities, or overseas, to attend an accelerator. Some of these offer very compelling advantages for startups focused on consumer technology. However, they are unlikely to be able to offer benefits competitive with those of a resource-focussed accelerator.

There is one accelerator focussed on business products in related industries. The Surge accelerator in Houston, Texas, assists startups in the clean technology, water, or energy industries. We believe our specific focus on the resources industry, and access to the local supply chain is enough to distinguish the proposed accelerator from Surge.

OTHER SOURCES OF FUNDING

As described earlier, Australian startups have access to far fewer early stage investment dollars than is available to startups in other countries. Per capita investment capital available in Australia is just 5% of that in the United States ($4.50 per capita compared to $85 in the US). Reasonable sources of funding such as the proposed accelerator are therefore likely to attract significant interest from the startup community.

Nationally there are several venture capital firms, angel groups, and grants available in Australia. Pollenizer has published a comprehensive list.


http://pollenizer.com/funding-options-available-for-start-ups-in-australia


WHAT CAN BE LEARNED FROM OTHER ACCELERATORS?

SURGE ACCELERATOR (HOUSTON, TEXAS, USA)

Surge is an accelerator focussed on startups in the following sectors: oil & gas, energy, clean tech, and water. Surge has completed three programs to date and is currently processing applicants to their fourth program.

Surge offers participants $30,000 USD in seed investment.

Participants in the first three Surge programs have so far raised over $150 million in follow-up funding, have secured contracts with over 75 different enterprise customers, and have created more than 150 jobs.

STARTUPBOOTCAMP: SMART TRANSPORTATION & ENERGY ACCELERATOR (BERLIN, GERMANY)

Startupbootcamp started in 2010 and now operates globally with eight accelerator programs and seven branches in Amsterdam, Berlin, Copenhagen, Eindhoven, Israel, Istanbul, and London.

In July, 2014, Justin Strharsky of RIIT travelled to Berlin and met with Alex Farcet, Co-Founder of Startupbootcamp and Managing Director of the Berlin program, and Luisa Maier, COO of the Berlin program. Farcet and Maier generously shared much of what they’ve learned running Startupbootcamp programs.

Globally, Startupbootcamp has accelerated 139 startups, of which 77 have raised follow on funding of more than 36 million Euros. Startupbootcamp companies have created almost 600 jobs.

The Berlin branch has completed two 3-month programs, one each in 2012 and 2013. The applicants have just been selected for the 2014 program.

This year, the Berlin program has shifted from a general technology focus to a specialisation in smart transportation and energy. This shift in focus mirrors changes happening across the global network, as the board of directors has recognised distinct advantages to be gained with focusing their accelerators on specific industry verticals. Other Startupbootcamp programs now have industry focuses that include financial technology, mobile, and contactless technology (NFC, etc.). The choice to focus on energy and smart transportation in Berlin reflects the strengths of the local economy in automotive technology and alternative energy.

The Berlin program’s industry focus has resulted in partnerships with Bosch, Mercedes-Benz, Cisco, and Castrol. Program participants will build relationships with industry contacts, and the industry partners will benefit from access to the local innovation ecosystem.

Startupbootcamp has involved its industry partners in the process of selecting the latest round of program participants. This has supplemented the technical and startup-related experience of the existing team with critical industry experience. It has also created a deeper commitment and sense of shared goals on the part of the industry partners.

Startupbootcamp also strives to maintain an active relationship with its industry partners by holding weekly update sessions and involving partners in events held at the accelerator’s co-working space.

All of the Startupbootcamp

accelerator programs are shifting to focus on

specific industry verticals.


This year, when shifting to a focus on energy and transportation, Startupbootcamp Berlin saw its annual applications drop by half, from around 400 to 200. This was expected, as the narrow focus eliminated any startups not focussing on these sectors. However, one might have expected an even sharper drop in applications. It turns out that the fact that 200 applications were received is due to a concerted effort to recruit applicants. The management team expected that an industry focus would result in fewer applications, and therefore started a program of identifying potential applicants and encouraging them to apply. They worked with several “startup liaisons” around the world that used tools like LinkedIn to identify and reach out to potential candidates. Despite the increased effort on identifying and recruiting applicants, only eight applicants met the selection criteria and were accepted into the 2014 program. In summary, the program identified a hotlist of 500 candidates from around the world, of these, 200 applied, and eight were accepted.

Startupbootcamp has also been making changes to its formal instruction program. Feedback from participants showed that some elements of the formal program weren’t applicable or useful for some participants. In addition, the management team wanted each participant to be able to dedicate as much time and effort to their startup businesses as possible. For this reason, the program has reduced the time spent on formal training sessions, and increased the time available with industry mentors. Alex Farcet characterised this as the program “becoming more adaptive over time”. As the accelerator management team learns how best to assist participants, it adapts the program accordingly.

Summary of recommendations:

Involve industry partners in the applicant selection process.

Keep industry partners informed and involved through regular updates and participation in events.

Actively recruit applicants globally.

Don’t over-burden participants with formal instruction if it isn’t suited to their individual requirements.

ANGELCUBE (MELBOURNE)

AngelCube is an accelerator program for consumer tech startups in Melbourne. Adrian Stone is the founder, CEO, and lead investor at AngelCube. He shared some of what he’s learned in running the program during an interview with Justin Strharsky of RIIT.

AngelCube started in 2011 and has had four cohorts graduate from the program. They are currently selecting participants for their 2014 program. Initially they began by holding two programs a year for about 5 startups in each program. They quickly learned that the logistics and organising effort required to conduct two programs a year was unsustainable. In their 2nd year (2012) they switched to one program for up to 10 participants, and have followed this approach since.

AngelCube has made minor changes to its selection process each year. The most significant change has come this year, as they have moved to using AngelList to streamline their application and selection process. AngelList gives AngelCube a single tool for collecting applicant information, customising an application questionnaire, and assisting applicants to communicate with investors. AngelCube believes that this change will cut the time spent selecting participants in half with no loss in quality. The selection process involves picking a shortlist of 20 or so applicants based on initial criteria (facilitated now by AngelList) and then assessing the pitches of the shortlisted candidates in person. AngelCube has experienced a gradual decline in the number of applicants over the past three years, but has seen the quality of applicants increase.

AngelCube offers $20,000 initial investments for 10% equity in participating companies. They have had two companies decline offers to participate in AngelCube on the basis of the investment offer. Despite this, AngelCube believes that they have been able to attract sufficient quality applicants with these investment terms. They believe that the initial investment isn’t the most important factor to applicants, but rather the value of additional connections and mentorship is more important. However, given that another Melbourne-based program is now offering $50,000 investments for 7% equity, AngelCube may consider re-evaluating its investment terms.


https://angel.co/


AngelCube is in its fourth year, and has had no participant companies successfully exit yet. However, this is in line with the expectations of Adrian Stone and other AngelCube founders, who believe that accelerators can generate significant returns in the long term, but are not likely to in the very short term. On the other hand, AngelCube companies have had significant fundraising success, which may be a positive indication of the potential for larger future exits. AngelCube companies typically raise about $250,000 within 6 months of finishing the program. Two AngelCube companies have already had fundraising rounds of more than $1 million.

Summary of recommendations:

Hold one program per year.

Use existing tools like Angel List to streamline the application and selection process.

Don’t expect quick returns.

RESULTS OF ACCELERATORS AROUND THE WORLD

Countries around the world that have supported technology accelerators are already reaping significant benefits.

The United States was home to the first technology accelerators with programs such as Y Combinator and Techstars. With long track records, these programs have the most mature financial results. Nine accelerators with 266 identified graduating companies before 2009 and have generated the following results:

Realised gains/losses

21% of companies realized an exit and 25% went out of business

Companies raised $162 million in funding with $831 million in exits with a 5.1x return multiple

Unrealised gains/losses

11% expected exits and 43% expected out of business

$1.1 billion in funding with $13.4 billion in expected value with a 12.5x expected return multiple

Sweden (population 9M) has a national network of 43 startup incubators, 12 seed investment funds and 33 science parks supported by the government and regional economic development agencies for the last twenty years. Unlike in the USA, in Sweden, the government is the major supporter of the technology accelerators. Some of the impressive results achieved by Sweden’s government-supported accelerators are as follows:

Annually over 4500 business ideas are evaluated. These typically include 1/3 from academia, 1/3 from individual inventors, and 1/3 from established companies.

950 new high-growth technology companies are started per year.

150 of the companies participating in accelerators attract venture capital investment each year.

The return on investment for tax payers is estimated at 8-10x annually.


The Singapore (population 5.3M) government has rolled out several initiatives under its SPRING enterprise development agency to enable startups to gain access to funding. These funding initiatives include cash grants, government-backed equity financing schemes, business incubator schemes, debt financing schemes, and tax incentives. Below are some of the results of the SPRING Singapore scheme:

The Singapore Government has committed over A$14 billion to the National Framework for Innovation and Enterprise including:

o Technology Incubation Scheme – A network of 14 government, co-funded tech startup incubators

o Early Stage Venture Fund – invests on a 1:1 matching basis to catalyse formation of venture capital funds that invest in Singapore-based technology companies

Through the scheme, the Singapore government hopes to catalyse A$550 million of angel investments over the next five years.

The SPRING program supported over 193 innovative startups in 2012 alone, with over $7M co-invested into 12 of these startups.

Singapore has emerged as a hub for first-time entrepreneurs and the city has witnessed the mushrooming of several startups over the past few years. Startups have increased from 27,000 in 2002 to more than 36,000 in 2009 in Singapore. These startups have employed more than 300,000 workers and are generating more than S$166 billion in turnover.

Chile (population 17.5M) developed the Startup Chile program in 2010 to entice international entrepreneurs to start their businesses in Chile. The program provides companies with US$40,000 of equity-free seed capital, and measures them by various indicators including participation in local events, presenting workshops on their particular expertise, raising local or international capital, and contracting talent. The results so far are impressive:

More than 12,500 applicants since starting in 2010

More than 750 new companies started

More than $ 94M capital raised

1,269 jobs created as of 2013



WHAT MAKES THE PROPOSED ACCELERATOR DIFFERENT? The accelerator proposed in this document has several distinct advantages over other accelerators.

SPECIALISATION IN THE RESOURCES INDUSTRY

As discussed in detail above, specialisation enables an accelerator to provide much more focused advice, mentoring, and connections to participating companies, thus increasing the likelihood and speed of their success.

The resources sector in particular is one in great need of technological innovation. It is considerably less efficient and globally competitive than it was 10 years ago. The industry is aware of these challenges, and is actively seeking change. This means that the customers for the accelerators participating companies are eager to purchase innovative new products.

In addition, many companies in the resources industry have operations outside of those in WA. This provides considerable opportunities for expansion to the wider Australian market, and the world.

AT THE CENTRE OF THE RESOURCES INNOVATION HUB OF THE WORLD

As discussed above, Perth holds a unique position in the resources industry. As home to the innovation centres of some of the world’s largest mining companies, as well as top research institutions, Perth is the right environment in which to develop and integrate new technology for the sector.

PART OF A COMPLETE ECOSYSTEM PLAN

Accelerators, like any business, must be concerned about the supply and demand for their product – in this case growth-ready startup technology companies.

Accelerators typically influence the supply of applicant companies by marketing their accelerator. They have a broad approach to reaching out to convince potential candidates to apply. Likewise, they attempt to cultivate demand for the products or companies graduating from the accelerator by marketing their demo days to potential investors or customers.

The proposed accelerator will use these broad approaches as well, but it will differentiate itself by being a part of a complete plan for an ecosystem – one that attempts to create the supply of applicant companies and connect them directly to the demand for their products.

RIIT has articulated a plan for this resource industry-focussed tech ecosystem on our website. The ecosystem plan consists of the following five critical elements:

http://riit.com.au/


Ideation Goal: Identify key industry problems and potential solutions. Ideation is a step in a complete ecosystem that typically should happen before the accelerator stage. Great ideas, and the individuals behind them, should participate in the accelerator to move through the following stages. However, it is critical that we understand where the ideas and individuals for the accelerator will come from. We must understand, and if possible, positively ensure the supply of applicants into the accelerator. The Unearthed event held in May, 2014 created an initial supply of 18 potential applicants to the Refined accelerator. RIIT plans to expand the Unearthed events nationally, and hold four events per year. Four events would generate about 70 potential applicants for the proposed accelerator a year. Furthermore, participants in Unearthed events will be building prototypes to problems industry has already identified – they will be building prototype products for which there is already an expressed demand. Additional sources of ideas and intellectual property that could become the basis for companies in the proposed accelerator include:

The broader startup community: Individuals with experience in mining or oil and gas may of their own initiative start technology companies to solve industry problems. In fact, this is the background of two of the directors of RIIT.

Parnterships with Universities and other research institutions: Research institutions often produce intellectual property that they struggle to commercialise. The proposed accelerator may offer a streamlined path to commercialise IP originating from Australian research.

Validation Goal: Validation. Does the potential solution address the problem? Is it feasible? As described in detail above, validation of a solution before scaling the business ensures capital, time, and talented personnel are not wasted and that a new venture either grows successfully or fails fast. Validation is the proof that a potential solution delivers value to the market – it is the demonstration of product-market fit. The accelerator should include a formal program designed to validate potential solutions through testing and trial installations at partner resource industry companies.



Development Goal: Build a viable company that can commercialise the solution. As described in detail above, the accelerator should include a formal program for ensuring that participants utilise best practice approaches to running a startup, such as the Lean methodology. The program should also connect participants to mentors from technology and resource industry companies. Participating companies should also be assisted to reduce any integration risks and costs associated with their products as much as practical.

Company Building Goal: Develop channels to market and secure funding. The RIIT plan for a sustainable tech startup ecosystem focused on the resources sector also calls for building relationships with industry partners (customers) and the investment community (sources of expansion capital). Through the personal networks of its directors, and the successful first Unearthed event, RIIT has already established relationships with key resources companies and members of the investment community in Perth. RIIT will now seek to expand this network nationally. The proposed accelerator should connect participants to such networks to build relationships that could result in additional investment, mentorship, and product trial opportunities. As described in detail above, the accelerator should also include a “Demo Day” event at which participants can showcase their new products to members of the investment community and customers.

Giving Back Goal: Provide leadership and guidance. The accelerator should include a formal mentoring program. This program will provide successful technology company founders and resource industry executives a structured opportunity to contribute to the development of local industry, and to assist new generation of entrepreneurs. Successful participants in the accelerator will also be welcomed back as mentors in future years.


HOW WILL IT DELIVER BENEFITS?

The proposed accelerator will not only deliver returns to its investors, but will benefit many stakeholders in the program as well as contributing to a sustainable innovation ecosystem in Australia.

BENEFITS TO PARTICIPANTS

In a study of the most important selection factors when startups are seeking an accelerator, Jed Christiansen discovered that immediate items such as the level of funding and the post-money valuation ranked significantly less important than those that provide lasting long-term benefit, such as product support, business support, and connections to capital.

This is very well aligned with what RIIT considers to be the unique advantage of the proposed accelerator – focussed connections to resources industry supply chain contacts for ongoing product development, business support, and access to growth capital. RIIT must therefore focus clearly on communicating the value of this advantage to prospective applicants.

The proposed accelerator also connects early stage startup companies to customers. This is of great value to enterprise startup companies, as the sales cycle can be long, and it can be difficult to get early adopters to purchase products. The accelerator de-risks the adoption of new technology for enterprises, and introduces potential customers to participants, thus reducing the time it takes startups to secure critical first sales.

BENEFITS TO THE VENTURE CAPITAL COMMUNITY

A common refrain heard from those interested in making investments in early stage technology companies in Perth is that there is “not enough high-quality deal flow”. Investors don’t see enough startups with proven traction and large market opportunities. An accelerator will address this problem by producing a regular stream of de-risked investment opportunities. Startups will emerge from a rigorous and intensive program with solid products, well-structured companies, and connections to customers and partners.

BENEFITS TO THE RESOURCES INDUSTRY

Resources industry companies recognise the need to become more efficient and globally competitive.

“We need to innovate and be encouraged to do so. As a nation, we can’t afford complacency. In the 2012 INSEAD innovation ranking Australia appeared 23rd on the overall table and fifth in our region. That’s simply not good enough.”

David Peever, Managing Director, Rio Tinto Australia; 18 September 2012; The Resources Boom: Prospects and Challenges A View from the Sector

Analysis by Deloitte and others indicates that faster adoption of technology is one way that resource companies can improve their productivity.

“An embrace of technology can help companies deliver productivity improvements and recover their long-term financial performance.”

Productivity, not Austerity, PwC mining productivity report; June 2013.

One factor preventing resources companies from more quickly adopting new technology is the cost and challenge of integrating new products into existing systems. A significant part of the accelerator’s rigorous program will be assisting startup companies to address this integration



challenge. Resource industry mentors will help startups understand the existing technology environment so that they can reduce the barriers to integration of their products. The accelerator will also connect its participants to early adopters where technology integration can be tested and proven. This will reduce the risk, cost, and time of adopting new technologies by resources companies.

Another factor that makes it difficult for companies to adopt new technology is the risk that a new startup will fail and not being around to support their technology for the long term. Large companies typically want to adopt promising technology across many sites and plan a long operational life for new technology products. For this reason it is critical that companies have faith that their suppliers will be around to support their products for years. The accelerator reduces this risk by producing stronger startup companies, connecting them to early adopter companies who can field test their new technologies, and preparing the startups to receive significant funding which can ensure their longevity.

By reducing the risks and time associated with the adoption of new technologies, the accelerator will help resources companies to become more efficient and competitive.

BENEFITS TO THE AUSTRALIAN ECONOMY

The potential long term economic contribution stemming from accelerators is significant. Technology startups with the right support, networks, and funding have the potential to become a major source of growth in Australia. A recent PwC report suggests that technology startups can contribute up to 540,000 new jobs, fully 4% of Australian GDP by 2033.

Furthermore, technology startups tend to create jobs which are knowledge-based, requiring programming, design, and business skills. Over time, this can contribute to diversifying the economy away from resources dependent jobs, especially in locations such as WA and QLD.

Information products such as those created by technology startups are often easy to export. In fact, RIIT sees incredible opportunity for export growth for participating companies. After all, many of the large companies in the resources industry are global, with operations around the world. After successfully deploying new technologies in their Australian operations, they are likely to bring these technologies into their overseas operations.

“Innovative industries bring good jobs and high salaries to communities where they cluster and their impact on the local economy is much deeper than their direct effect. Attracting a scientist or software engineer triggers a multiplier effect, increasing employment and salaries for those that provide local services. In essence, a high tech job is more than a job ... research shows for each high tech job, five additional jobs are created outside the high tech sector.”

The New Geography of Jobs, Enrico Moretti, 2012


WHAT ARE THE RISKS?

NOT ENOUGH QUALITY APPLICANTS

Without sufficient applications from individuals who meet the selection criteria, the accelerator will have to either take in fewer participants or accept those with fewer chances of success, both of which carry significant threat to the revenue model.

The accelerator should not reduce its standards of acceptance. Accepting (and graduating) participants that do not meet the standards will lead to less likelihood of returns on capital investment and reduced reputation with investors and industry partners. If there is a shortfall in the number of qualified applicants the accelerator should consider the following options:

If a shortfall is discovered during the active year, after investment funds have been raised, investors should be given the options of a proportional refund or to have their investment transferred to the following year, reducing the amount of funding required for that cohort.

If there is an overall reduction in the number of high quality potential applicants, the accelerator can reduce the planned size of the cohort in the following year and the amount of investment funding to be raised. The operational expenses do not vary with the size of the cohort, so a reduction in the number of participants is likely to result in a reduction in the rate of return for that year's fund. The accelerator will only be able to reduce the number of participants as long as investors are still satisfied with a lower expected rate of return.

If overall applicant numbers are not sufficient, one solution is to expand the reach of Unearthed events and other marketing activities internationally. English-speaking markets with established resources industries and established startup cultures, such as Canada and the United States, would be the first targets for expansion. This may allow the accelerator to attract sufficient high quality applicants. However, it might also be necessary to consider increasing the seed capital investments made into participants in order to account for an expensive international move on the part of some. Note that expanding internationally would also allow the accelerator to broaden its base of industry and investment contacts. This could potentially sustain a larger program and deliver corresponding larger returns.

It is also possible that the accelerator would have the opportunity to accept more promising applicants than expected. If there are more than ten exceptional teams applying to a given year’s program, the accelerator should consider shifting some of them to the following program, reducing the amount of recruiting needed to perform for the following year. Another option is to accept a higher number in one program and reduce the number in the following year. We believe a single year’s program can accommodate as many as 15 teams, as currently planned.

FAILING TO DELIVER REQUIRED SERVICES AND CONNECTIONS

The accelerator must build well-formed companies with access to mentors and industry connections that can help them grow. The accelerator could fail at this, or underperform in several ways. In order to assess whether it is delivering mentorship and connections that are valued by the participants, we recommend conducting regular anonymous surveys. Surveys should ask participants for feedback on the quality of the educational program, mentorship, connections to industry representatives, and the directors of the program. If feedback is below expectations, the directors should take appropriate measures to improve that part of the program (for example, by replacing a particular mentor in the following year’s program, or by extending the network of industry contacts in a specific niche).

In addition, each team should have specific and measurable goals to be achieved during the program. Progress towards these goals should be tracked on a regular basis, and participants should be assisted to adapt as quickly as possible in order to achieve them.



FAILING TO DELIVER SUFFICIENT RETURNS ON INVESTMENT

Should the accelerator manage the risks described above, and otherwise successfully deliver on its objectives, it will have significantly reduced the risk to achieving returns on capital investment. However, there will always remain some risks beyond its sphere of influence, such as geo-political and macro-economic risks. For example, if the capitalization or risk-tolerance of larger acquiring companies is drastically reduced, fewer of the participating startups will be acquired in the timeframes expected. In this event, graduating companies should be able to survive and grow independent of follow-on investment or acquisition, by virtue of having built solid revenue models and product-market fit through the program. This would mean that returns to investors will be delayed. This may result in returns close to our forecasts but with lower IRR due to longer timeframes.


WHERE TO FROM HERE?

What is required to launch a resources-focussed tech accelerator in Perth? RIIT is currently assessing the interest of resources industry companies and private investors to participate in an accelerator.

These discussions will need to mature into detailed agreements about participation, including funding. Then funding must be secured to put together the seed investment pool for the first round of participants in the accelerator.

After minimum funding targets are achieved, the accelerator can be announced publicly. The next steps are to accept applications to the first program, finalise development of the accelerator curriculum, and secure the participation of mentors. After closing the funding round, participants can be notified, and the first program can begin. The first program can be concluded with an official Demo Day 4 to 6 months later.

A summary of these key next steps is as follows:

Achieve minimum funding target

Announce launch of accelerator

Open acceptance of applications

Finalise program content

Conclude agreements with mentors

Select and notify participants

Close funding round

Begin first program

Run Demo Day and close first program

With one accelerator program a year, we would expect to see the first financial returns during the third year of the accelerator (about four years from project start). We would also expect to see significant export income generated by participant companies during this period.

In about five years we would see successful participants returning to serve as mentors, alongside other industry representatives.

In seven years, we would see a significant number of innovations in continual use, where they would contribute to the improved efficiency of Australian industry. In 10 years time, we would celebrate the creation of large numbers of skilled knowledge-based jobs, a robust and sustainable technology ecosystem, and a more globally competitive Australian resources sector.

RECOMMENDED STAKEHOLDER ACTIONS

1

st Class

Graduates

1st

Returns to

Accelerator

Accelerator Graduates Return as Mentors

50 Innovations

Improving Industry

Efficiency

700+ Jobs Created

2 Years 4 Years 5 Years 7 Years 10 Years

Articulate the Case for an Accelerator

Build

Industry Support

Raise Funds

Select Mentors

Open Applications

1

st

Accelerator Class Begins

Now 3 Months 12 Months 14 Months 18 Months



A startup accelerator focussed on the Australian resources industry will not achieve these outcomes without the committed support of many stakeholders. What must industry, government, and the investment community do to support innovation in the sector?

Industry must welcome change if it is to benefit from the improvements in efficiency and global competitiveness that can come with the adoption of new technologies. Rio Tinto and BHP Billiton recently set a wonderful precedent by actively supporting the first Unearthed event. Although competitors, both companies supported the event financially and sent delegates to participate actively as judges, mentors, and keynote speakers. In publicly demonstrating their support, they sent a clear message to the entire industry supply chain that technology innovation is to be valued and encouraged.

Furthermore, Rio Tinto and Gold Fields demonstrated leadership and willingness to take risk to promote innovation by making available internal operational data for the event. Industry more broadly must follow this example, as many innovations currently transforming other industries are based on the analysis of large sets of data.

Recommendations for industry:

1. Continue to support innovation events such as Unearthed.

2. Support a resources-focussed tech accelerator through partnership, mentoring, and financial support.

3. Prepare for technology innovation by drafting company policies on data privacy, security, and sharing.

4. Task key employees with engaging with the startup community and promoting technology innovation.

Government is aware that the Australian resources sector has declined significantly in efficiency and global competitiveness. It must recognise that technology innovation is changing many industries around the world, and that Australia is uniquely positioned to lead the transformation of the resources sector into one that operates efficiently and sustainably by embracing emerging technologies. Government’s role should be to assist the private sector in bringing about this transformation – not to replace the private sector. As such, it should remove barriers to the competitiveness of the local startup ecosystem, incentivise entrepreneurship, match private funding sources to increase their impact, and support local technology accelerators.

Recommendations for government have been detailed above, and in summary include:

1. Revise ESOP legislation

2. Provide financial support for commercialising new technologies

3. Support technology startup accelerators

The investment community must recognise the competitive advantage of startups participating in an industry-specialised accelerator. Investors should engage with the accelerator to ensure that graduating companies are investment ready, and understand the details of term sheets and other requirements of accepting funding. Individual investors (angels) should consider increasing the impact of their investments and the potential for returns by pooling resources with others in investment syndicates. The investment community may find considerable value in creating a specialised sidecar fund that invests in the de-risked opportunities arising from the proposed accelerator.


Recommendations for the investment community:

1. Attend accelerator demo days and engage with industry focussed tech startups.

2. Via mentorship and participating in accelerators, contribute to ensuring startups are investment ready.

3. Pool individual investments in syndicates to maximise impact and reduce risk.

4. Diversify from resource exploration investments into technology and other emerging opportunities.

5. Create a sidecar fund to invest in startups graduating from the resource industry tech accelerator.



WHAT DO OTHERS THINK?

MATTHEW MACFARLANE

CO-FOUNDER AND GENERAL

PARTNER, YUUWA CAPITAL LP

“I have been operating Perth's only early stage VC over the last 5 years. The innovation coming from startups and entrepreneurs in mining sector in the past couple of years has been outstanding. Perth mining tech is leading the world and what these entrepreneurs really need is support in commercialisation and scaling their innovations, this is what accelerators do best. There is no more committed team in the mining innovation space than the folks from RIIT and I am excited by this project.”

LARRY LOPEZ

PARTNER, AUSTRALIAN

VENTURE CONSULTANTS

“I believe the social and economic benefits of starting an accelerator program, such as you propose, will be immeasurable and make a long lasting contribution to the local and national economy. In order to remain competitive, Western Australian mining and petroleum operators will continue to be huge buyers and users of cutting edge technology for many years into the future. In order to take advantage of this trend, enabling local inventors and entrepreneurs to develop and commercialise their technology is a critical component of economic growth. Many other regions have been able to successfully leverage growth in local industries by originating and implementing locally developed technology for local applications. My ongoing discussions with industry leaders in WA validate industry’s desire to encourage local technology development that is specifically targeted at the resources sector.”

GOVERNMENT SUPPORT

“The Department recognises the importance of working with Australian business to build areas of competitive strength and innovation. The Resource Technology Accelerator is an example of how industry can encourage the development and adoption of innovative, productivity enhancing solutions for the mining sector while identifying talented individuals and new start-ups capable of building them”

The Department of Industry


ABOUT RIIT

RIIT is a not-for-profit company working to build a sustainable startup ecosystem focussed on the challenges and opportunities of the mining sector.

THE RIIT TEAM

RIIT’s board of directors consists of three individuals who run tech companies that are introducing new technologies to the resources sector, and one individual in senior leadership at a global mining company. We have experienced from both sides of the fence the challenges and opportunities associated with driving innovation in the sector.

Zane Prickett has over 10 years experience in the Oil and Gas Industry in a variety of international positions. He currently works in Perth on a resource technology startup building the next generation of data distribution services for all forms of resource industry data. In addition he is an active member of the Australian technology startup community, including Lead GovHack Perth Organizer, Startup Weekend co-organizer, and co-organizer of the Ruby on Rails Oceania group.

Justin Strharsky is Managing Director of Synaptor, a company building new tools to keep people safe at work. As a consultant to oil & gas companies in Russia and Australia, Justin has led communications, training, and technology projects to improve safety outcomes. Justin previously worked in the Silicon Valley, where he wrote documents on enterprise software solutions. Justin is considered a leader in Perth’s growing startup community. He hosts Morning Startup, Perth’s premier meetup group for tech entrepreneurs, and mentors with Startup Weekend and Founder Institute.

Paul Lucey is Head of Engineering and Projects at Gold Fields mining company. He has twenty three years of experience in the resources sector working mainly in the process control, engineering and technology & innovation space. Paul previously headed up Technology and Innovation globally for Gold Fields. Paul has a sound knowledge of fix automation, field robotics & visualisation, idea adoption techniques and innovation in conservative organisations.



Previous Successes

In May, 2014, RIIT organised Unearthed, the first open innovation event for the resources industry. The event connected Australian mining challenges with top Australian technical talent to produce software proof of concept prototypes in just a weekend.

The event boasted 98 top developers, designers, and data scientists. In fact, although RIIT did not actively promote the event outside of Perth, a team from Adelaide flew in to participate. The participants represented diverse experiences and skill sets. Some were PhD candidates or doctorates at local universities, others were programmers from local companies, and many were independent software developers and designers.

RIIT succeeded in attracting support and participation for Unearthed from three global mining companies, and companies in their supply chain. Rio Tinto contributed funds, several data sets and problems, a keynote speaker, a judge, and several mentors. BHP Billiton contributed funds and a judge. Gold Fields contributed funds, a significant data set, and data mentors. RIIT considers it a notable success that two companies typically in competition, Rio Tinto and BHP Billiton, were brought together for the Unearthed event.

For more information see coverage in

Business News

The West Australian

Startup Smart

Kellie Parker, GM Operations Centre, Rio

Tinto delivers the keynote address at Unearthed.

http://unearthed.riit.com.au/

http://www.businessnews.com.au/article/VIDEO-Hackers-mine-data-for-miners

https://au.news.yahoo.com/thewest/business/wa/a/23292129/thinking-big-to-unearth-ideas/

http://www.startupsmart.com.au/financing-a-business/resources-based-technology-accelerator-in-the-works/2014051512306.html


REFERENCES AND BIBLIOGRAPHY

1. “Productivity in the Australian Mining Sector, Australian Government Bureau of Resources

and Energy Economics (BREE)Discussion Paper Series” 13.01, March 2013 2. “The Startup Economy: How to support tech startups and accelerate Australian innovation”,

PwC, 2013 3. Compass, Premature Scaling 4. “Copying Y Combinator”, Jed D. Christiansen, 2009 5. Seed-DB; list of seed accelerators 6. “ Origin Labs: A Startup Accelerator Business Plan”. Jeff Magnusson, 2010

7. “Productivity in the Australian Mining Sector”, March 2013, Arif Syed, Quentin Grafton and Kaliappa Kalirajan; bree.gov.au.

8. “Perth as a Global Energy and Resource Hub”, Committee for Perth and UWA, November 2012

9. “Perth can be petroleum tech centre”, The West Australian, May 23, 2013 10. Conversation between Justin Strharsky and Adrian Stone, CEO of AngelCube; 8 June 2014 11. Meetings between Justin Strharsky, Luisa Maier, and Alex Farcet; Startupbootcamp Berlin, 10

and 11 July, 2014. 12. “The Lean Startup”, Eric Ries, 2011 13. “Crossroads Report”, StartupAUS 14. “The Startup Economy”, PwC, April 2013 15. “Proposal of policy amendments to the Enterprise Infrastructure Program to support the

activity of technology venture accelerators”, Adrian Stone and Nathan Sampimon, June 18, 2014

16. “Opportunity at risk; Regaining our competitive edge in minerals resources”, Port Jackson Partners, for Minerals Council of Australia, September, 2012

17. “Do accelerators help startups?”, Shalin Sheth, Second Century Ventures, February 24, 2014 18. “Swedish incubators and science parks”, Magnus Lundin, Polish Ministry of Economy, 2013. 19. Reserve Bank of Australia Statement on Monetary Policy, November, 2013. 20. “Economic reach of the Western Australian resources sector”, KPMG, July 2013 21. $31 Trillion (estimated value of the 11 disruptive technologies according to McKinsey 2013)

x 1.7% (Australian share of world GDP in 2012 according to Reserve Bank of Australia) x 19% (Resources sector share of Australian GDP according to March 13, 2012 Tim Colebatch SMH article) =~ $100 billion.

22. “Our economic irrationalism”, Tim Colebatch, SMH, March 13, 2012.

23. “Disruptive Technologies: Advances That Will Transform Life, Business, and the Global Economy”, McKinsey, 2013.

24. “Western Australian Policy Platform 2013”, Association of Mining and Exploration Companies (AMEC), January 31, 2013.


http://blog.startupcompass.co/

http://www.seed-db.com/accelerators

http://www.scribd.com/doc/41924772/Startup-Accelerator-Business-Plan

https://au.news.yahoo.com/thewest/a/17299146/perth-can-be-petroleum-tech-centre/

http://startupaus.org/crossroads/

http://venturebeat.com/2014/02/24/do-accelerators-help-startups-heres-what-we-found/

http://www.slideshare.net/OECDLEED/lundin-swedish-incubators-and-science-parkspolish-ministry-of-econom

http://www.rba.gov.au/publications/smp/2013/nov/html/index.html

http://www.cmewa.com/UserDir/CMEPublications/130718-ET-Economic%20Reach%20study%20Lowres557.pdf

http://www.smh.com.au/federal-politics/political-opinion/our-economic-irrationalism-20120312-1uwde.html

http://www.amec.org.au/download/AMEC-WA-Policy-Platform-31-January-2013.pdf


APPENDIX 1: AN ACCELERATOR BUSINESS MODEL

Startup tech accelerators such as those in the USA operate on a business model similar to that of an investment fund. Capital is raised from private investors. A portion is used for operating costs, and the majority is used to make seed investments into companies participating in the accelerator. As the accelerator companies mature and have exits (are bought, IPO, etc.), the equity stake held by the accelerator generates returns for the investors.

REVENUE MODEL

Startup accelerators must expect a high degree of failure in their portfolio companies. Research by Jed Christiansen shows that approximately 50% of accelerator portfolio companies will fail. Another 25% will break even, achieving either a small exit or an ongoing business that results in the repayment of initial investments. Of the remaining 25% of startups, 20% will achieve a "good" exit, and 5% will achieve a large exit. An accelerator makes its returns from that final 25% of startups (good and large exits).

However, revenues in an accelerator will not be predictable from year to year. Participating companies may not have an exit that generates income for the accelerator for several years. In fact, an accelerator will likely have no substantial revenue for the first two or three years.

Over time however, as companies in the early cohorts begin to have more successful exits, an accelerator is expected to cover its costs and produce substantial returns for its investors.

RIIT has prepared a detailed business model for the proposed startup accelerator. Please contact us for details.

mailto:[email protected]


APPENDIX 2: AN INNOVATION ECOSYSTEM

Bridging the gap from great idea to implementation

The Refined accelerator described in this roadmap addresses a key pillar of a complete innovation ecosystem. RIIT is working to build a sustainable startup ecosystem focussed on the challenges and opportunities of the mining sector. More information on RIIT is available on our website.


http://riit.com.au/


Documents

A TECH STARTUP ACCELERATOR FOR THE …Resource...investors, customers, press, and resources industry representatives. The ideal place to host the accelerator is Perth. Perth is a de-facto