Start-up outlook: A national disgrace

It's been a quiet month in Silicon Valley for Aussie tech start-ups.

No Australian companies were selected to be a part of this year's TechCrunch 50, and no Australian companies will be participating in the prestigious DemoFall 09 showcase this week.

The fact that Australia won't be represented at either of the globe's pre-eminent showcases for emerging tech companies should be considered a national disgrace. If this was the Olympics, politicians would be offering teary apologies and millions of dollars would be thrown at a new Institute or something.

Actually, millions of dollars have been thrown at a new institute, Senator Kim Carr's $196 million Commonwealth Commercialisation Institute, which was announced in 2009-10 budget. But we are yet to see any concrete plans of what it will offer, and no one seems to be in any rush to put something into play. I wouldn't count on an AIS-scale organisation here.

One of the Aussie DEMO alumni has made the grade, however, with the announcement of the sale of the DemoFall 2008 exhibitor Xumii to the European company Myriad Group.

The sale of Xumii, which makes web-based software for mobile phones, is likely to be typical of the fate of the majority of Australian tech companies for the foreseeable future. With venture capital sluggish and public markets closed to start-ups, trade sales to larger businesses will be the most common exit for weary investors looking for a return on their money.

Serial internet entrepreneur Domenic Carosa, the man behind Destra until the Opes Prime debacle saw it taken away from him, is building his new business around the idea of acquiring small technology start-ups and nurturing them to be sold to larger listed businesses.

If entrepreneurs still have stars in their eyes about one day leading listed businesses, most will need to reset their expectations pretty quickly.

Myriad is a French/Swiss company listed on the Swiss stock exchange, and is a roll-up of a series of different mobile technology companies, working with technologies such as Java, instant messaging, browsers and hash codes, with clients primarily in Europe and emerging markets. The company employs more than 800 people, including 700 engineers.

Xumii's technology uses a cloud-based service to aggregate multiple social media sites and instant messenger services on the handset, based around a hosted contact list. According to CEO Jennifer Zanich, the sale gives Xumii a much louder voice.

"To be part of a public company with such great customer relationships creates an enormous opportunity for Xumii," she says. "One of the challenges of being a start-up is getting large telcos and mobile handset makers to take you seriously. Now that we have the back of Myriad the question of longevity goes away and the focus is on the value of the Xumii Service to the customer."

Xumii has previously been funded by the Australian venture capitalists South Cross Venture Partners and CM Capital. Zanich says that a trade sale was not the only option available to the company, but selling to Myriad presented the best opportunity to get the technology into the market quickly given how rapidly the mobile social networking is moving.

Zanich will stay on to run the Xumii Services division of Myriad, with no changes to its 17 staff, including its Sydney-based engineering team.

Myriad's chief commercial officer Steve Langkamp and his company had been interested in acquiring a social networking technology for some time.

"Facebook recently reported 65 million mobile users," Langkamp says. "This is a massive wave, and the manufacturers and the network operators are eager to ride this wave.

"Our ultimate goal is to push the Xumii application deeper into the phone with our manufacturing partners, rather than just being a download, which enables it to do more," Langkamp says. "The ultimate goal is that we deliver a social phone book that is the core of the phone."

He declined to discuss the revenue that Myriad is likely to make from Xumii, but says the goal is to have the software embedded on phones by Christmas 2010. Commercial terms for the deal have not been disclosed.

"Today it's difficult to imagine a phone without SMS," Langkamp says. "In five years it will be difficult to imagine a phone without social networking, but it is going to take five years."

That Xumii was able to attract the attention of Myriad was no doubt assisted by its appearance at DEMO. Another Australian company which appeared at DemoFall 07, mig33, secured US$13.5 million in a funding round led by Valley investor DCM in January 2008.

No Australian company has made it into the TechCrunch 50, although Tangler, Spellr.us and PeopleBrowsr have exhibited in the so-called DemoPit.

Presenting at DEMO is no guarantee of success, with another DemoFall 07 presenter, kannuu, apparently flaming out about a year ago. But standing on the podium or accepting an Oscar is considered a big enough payout for the money and effort that goes into the Australian Institute of Sport and the performing arts community.

Even a little recognition of the achievements of our entrepreneurs would be nice — especially when the trade sale will generate more money for the Australian economy than a bronze medal in the 100 metres backstroke.