Angels nurture local ecosystem
The Australian Financial Review
19 March 2012
by Brian Corrigan
When internet service provider TPG Telecom paid $373 million for PIPE Networks two years ago, Stephen Baxter became a wealthy man.
He had co-founded the wholesale telco services provider with school friend Bevan Slattery in 2001.
Since its sale, he has bought a couple of planes, as well as a boat, and likes nothing better than flying a few friends up to the Gulf of Carpentaria for a week of sports fishing.
He also has a house in the Whitsundays built on an airfield.
Yet, like so many before him who have made their millions as technology entrepreneurs, Baxter is ploughing some of his fortune back into the industry.
This week, he is opening River City Labs, a non-profit organisation in Queensland’s Fortitude Valley providing subsidised desk space and internet access where telecoms and technology start-ups can test their ideas.
“I haven’t done too bad over the years so this is half philanthropy on my part, but I’m also an active investor in the community,” Baxter tells The Australian Financial Review.
“In travelling to Sydney and Melbourne, they have similar facilities [such as Fishburners and Hub Melbourne] but we didn’t have one in Brisbane. I’m a Queensland tragic, so thought I’d give it a crack.”
He also set aside a pot of $10 million to play the field as an angel investor and has already backed about half a dozen companies in the past year.
Worth between $70,000 and $300,000, these investments include mobile payment service txt4coffee, taxi locator app goCatch, and a location-based service called TrekTraka that lets people follow the progress of friends on the Kokoda Trail or other hikes through social media.
Baxter, who spent the first nine years of his working life in the regular army, is also in discussions with a bunch of ex-commandos about an investment of up to $2 million in a virtual wind tunnel they are planning to build in the western Sydney suburb of Penrith, which would be used for indoor skydiving.
“It’s nice to be involved with people from the army again because they have a certain brutal honesty that I’ve missed in business life over the years,” he says.
River City Labs will open its doors on Thursday with enough room for up to 70 entrepreneurs to work shoulder-to-shoulder and collaborate.
It has had applications for 24 seats already and expects to accommodate 30-40 businesses once fully operational.
One of its first tenants will be Cloudsafe365, which provides security and content protection services for other small internet businesses.
Cloudsafe365’s chief executive and co-founder Craig Deveson sold his previous business, Google application developer Devnet, to US-based service provider Cloud Sherpas last year for an undisclosed sum.
He has made a “low six-figure” investment in Cloudsafe365 in partnership with John Mactaggart and Brett Raight.
Deveson is new to angel investment but is keen to impart some of his knowledge locally and help the ecosystem grow.
“Silicon Valley has a great ecosystem so it’s very easy for an entrepreneur or investor to find the other party,” he says.
“It’s well known where different groups are, how to find people and how to get introductions. In Australia it’s been difficult until the last year or so because we haven’t had that ecosystem.”
Mactaggart has a much longer history of angel investment: his family put $800,000 into enterprise software company Technology One when Adrian Di Marco was trying to get that business up and running in the mid-1980s.
Today it is listed on the Australian Securities Exchange with a market value of about $325 million and JL Mactaggart Holdings retains a 20 per cent stake.
Although success stories like this make angel investment look like an attractive proposition, the potential for high gains go hand in hand with the risks.
Having enjoyed an early win with Technology One, Mactaggart tried to repeat the trick with another software company in the travel industry.
It was close to launching in September 2001 when the 9/11 terrorist attacks happened and his investment “fell flat on its face”. Mactaggart has 19 investments today in a very diverse portfolio that includes biotechnology, clean technology, digital signage, instrumentation and software companies. He advises anybody thinking about getting involved as an angel investor to find a group.
Like Baxter and Deveson, he is a member of the Australian Association of Angel Investors.
“You can make very expensive mistakes and joining a group offers a cheap education,” Mactaggart says.
A technology background is not essential, with Deveson saying the AAAI is keen to attract members from other professional backgrounds like doctors and lawyers, but a genuine interest is an advantage.
“You don’t need to be from a technology background but you’ll probably make the best investments in the areas you know most about,” Baxter says.
“You have to ask yourself how much you’re prepared to lose. If you stick to what you know best, you’ll probably lose the least.”
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