Interview with Matt Macfarlane

Matt Macfarlane


Nick Markham from Boundlss chats to Matt Macfarlane, co-founder of Perth venture capital fund, Yuuwa Capital, about Perth's tech ecosystem.




So Matt, how long  have you been involved in the tech industry?

I've been in the tech industry, globally, since the mid-90s, I was involved in Telecom's company in Europe. They were investing in startups in the Silicon Valley and in Europe, and then in Perth, that was about twelve years ago, and I've been involved in startups in Perth ever since.

Fantastic, how long has Yuuwa Capital been going for?

Almost six years now.

Let's touch on some of the critical factors for tech companies. First up, what do you think the critical factors are for the growth of WA Startup's ecosystem?

I believe we need some really shining success stories from the existing startup ecosystem and to celebrate those, so that investors and other mentors and entrepreneurs can be inspired by the potential of what comes out of, and hopefully stays within, Perth. Secondly, I think more talented people, which will attract more money into this space, and then naturally that creates a virtuous cycle, which turns into more successful startups and more people wanting to get into the startup game.

We talk a lot about the self-sustaining ecosystem, and how do you get it to that point where it starts feeding itself? It's what you see with some of the established hubs around the world like Tel Aviv and San Francisco.

Both of those markets had a massive leg-up from the government by providing extremely substantial financial support to get people to invest into the space, so although many people around town and internationally will just tell the government to get out of the way, they didn't get out of the way in Israel and they didn't get out of the way in Silicon Valley.

Silicon Valley was driven by the defence department spending, and Israel was driven by a massive fund-of-funds that was put together by the government, which invested in a whole bunch of venture capital companies who created an extremely successful ecosystem through substantial generous funding. So, I'm not sure that it is such a great idea for government to get out of the way.

I think that a really aggressive policy initiative, which involved government creating something similar to what New Zealand had done and the UK have done, where they match funding or create a fund-of-funds investment vehicle that will back organizations such as accelerators or new VCs in Western Australia getting set up by providing funding side-by-side with private investors. It would be really, really useful.


" There's heaps of higher-risk investors in Perth. They just happen to have invested in mining and engineering and propertY"


Very interesting, isn't it! Do you think that from an angel investment perspective, especially here in WA, there's a lack of education in the market?

Yeah, there's a lack of experience, that's the problem, right? You only get that experience by making people feel like there's less risk, and then taking a punt and then they have the experience, which is often negative but sometimes positive, and then they'll talk about the positives, and more people will want to get involved.

There's heaps of higher-risk investors in Perth. They just happen to have invested in mining and engineering and property, historically, instead of in software or biotech or other kinds of technology or startups.

There's plenty of risk capital around. There's plenty of people who know how to do capital investing. It's just not something that historically has made particularly much money or has gotten much attention, so they need a bit of a shove to get in there, I think.

That's great to say but is there any kind of way you'd see for a greater education onto potential angel investors on the benefits of startup investing rather than moving them away from that traditional model of construction and property investments?

As I said, they believe it when they see the returns, so the best form of education is to show them people who are making money on the back of this.

That's why we need some stars out of Perth who have done well and people get very nice returns and then they can start bragging about it. There's this glorious thing called the casino effect, where if you have lots of people investing at the casino, those who slink away quietly are the ones who've lost money, but those who come out screaming and shouting at the top of their voice have won money, right?

It's the same in angel investing. When you've got fifty angels who've all invested, the ones who get good returns are going to come out screaming and shouting about how wonderful it is, and more people will want to get involved. Not that angel investing should be considered like going to the casino. But it can be that.

You say celebrating success stories is very important but we end up getting organisations that have been mildly successful. Let's take Canva for example. Initially very successful in Perth, but now, almost no local presence whatsoever.

Canva was never in Perth. It was a different business in Perth. The founders are from Perth but by the time they founded Canva, which was an angel-backed business, and their previous business, Fusion Books, was not backed by any investors. It was founder cash, something they borrowed to grow. By the time they wanted to raise money, they actually went to Silicon Valley to raise money, not even Sydney, and they only came back to Sydney after raising the money over in the valley.

Yes, they're West Australian, and the success story is a West Australian one, but very few people are going to make much money on that within this State.

It's very interesting - yes, they are WA people, but what benefits are they bringing into the local ecosystem at the moment, and in terms of employee talent, attracting good capital?

I'm sure there's some WA people in their team, right? And they're a great role model and they come back and support WA really well, so I give them lots of marks for that. But WA's not a great place to base a fast growth consumer-oriented business like what Canva. They need a bigger talent pool and in terms of technology, people they can tap into and their CTO is part of the growth of that business. The talent pool and the CTO are in Sydney.

Do you think this means we should talk about this idea of becoming a tech cluster of a certain type of technology, such as Israel having a rather strong defence sector?Do you think Perth really needs to specialise to establish itself as a robust ecosystem?

No, I don't think you should constrain entrepreneurs to try to get them oriented around one vertical. The demand side will drive them towards that, so mining-oriented software companies are always going to be more successful more quickly in Perth than consumer-oriented offerings, but if there's an entrepreneur who wants to launch a consumer business in Perth and they can make the best of it, you shouldn't in any way discriminate against those people. I think we'll let the market decide.

Who do you think is making a very important contribution to the WA ecosystem at the moment? The key people or the key organisations.

Brodie [McCulloch] of SpaceCubed is top of my list. Spacecubed is a hub for all the startup stuff that's going on. Brodie knows all the people and all the things that are going on in the startup world and he's a huge supporter of accelerators and incubators, which is where it often starts.

All the directors of Startup WA. That's a great selection of influential people, so Sam [Birmingham] and Justin [Strharsky] and so on. Andy Lamb's having a pretty good run at Atomic Sky. Chris Farquhar is a successful entrepreneur, who has helped out a lot of startups, and is trying to get some funding together as well. And then the Founders Institute folks. Andrew Hall and Kirstin Rose are big contributors. And then there's people who are actually within the startups, so people like Stu Hall and Claire McGregor, who are running Appbot, and are really actively trying to help the community at the same time.

Also, in terms of organisations, it would be SpaceCubed, Founders Institute, Amcom Upstart, and I should mention Rob Nathan in that bracket as well as somebody who's helped a lot with startups in WA. The RAC is an organisation that's been very supportive with startups. LandGate's been doing quite a lot as well, although I haven't had much overlap with them. 

Rohan MacDougal at Curtin University who organised Oz Apps and Larry Lopez as well. They're both guys who have been doing a hell of a lot also with the links between Universities and startups.  

In terms of a big influence and also a bit of a role model for success in WA startups is Marcus Tan from Health Engine. Marcus is always very giving towards helping startups succeed everywhere.

Do you see an opportunity for greater collaboration? You see all these co working spaces pop up across Perth, which is brilliant for an ecosystem, but very few of them are collaborating on a grander scale.

In terms of working together, a lot of these co-working spaces are now moving towards being managed by the SpaceCubed organisation so there's some consistency there. I'm not aware of too many competing or conflicting situations. There's probably three or four organisations running co-working spaces. That's not too bad, given we've got a population of 2,000,000 people. There's a hell of a lot more in places like Boulder, CO and Amsterdam so I don't think it's a negative. I think that people have different processes that happen and the startups will go where they will.

Have there been any major events that have had a positive impact on the ecosystem? Kick starting it over the last five or ten years?

OzApps is a great one, because it brings in people from overseas to  Perth, allows us to see an international context and takes advantage of our glorious wind conditions for Kiting. Naturally, I don't really care what brings in talented individuals, we need to take advantage of our skills and our natural resources (wind as an example).

The Founders Institute is in its third year now has been really quite a driving factor in terms of the ecosystem. I think Upstart has been very good, RAC’s SeedSpark program as well. That's been good. In terms of other events, the West Tech Fest. It is worth noting that they have an extremely hard time getting any kind of support from the State Government. The City of Perth on the other hand has been really quite positive and useful, but the State Government has just been pretty much useless as far as I can tell, and that's about it.

Other events I should probably mention are at SyncLabs. They have Silicon Beach Drinks every few weeks, and also Morning Startup on Wednesday mornings at Spacecubed and Startup Weekends that run every few months.  Those events are two networking opportunities I always refer people to. Quite often, people get in touch with me when they first arrive in Perth and say, "Look, I want to tap into the Perth startup system. How do I do that?" I just refer them to those kinds of events, so they can get involved in it as best as possible.

There's not really any other events that I would say stand out. There's a number over in Sydney now. SunRise and SydStart conferences as well as Tech23, which has been going for six years now. So, there's quite a lot of good ones in Sydney.

What role do some of the other cities play in the WA community? What impact are they having on WA? Are they drawing our talent out?

There's a few examples of people moving to Singapore or to Melbourne or Sydney to pursue their startup dreams because they feel they'll get a better ear over there, so yes, a little bit of that has happened.

On the topic of Singapore, do you see international networks playing a role in our community or WA's obvious proximity to Asia? 

Yeah, lot of people talk about it. I haven't seen it implemented very well. So, it's very seldom that I see companies that have successfully shifted from a Perth-focus to an Asian-focus. They tend to usually tend to go the US or Europe before they head to Asia. An exception to that is That's a Perth-based business that's done very well and has a huge market cap now and the founder now lives in Singapore and is a Perth boy. So, that's an interesting success story.  Steven Goh is the founder and CEO. He's also a very giving guy and wants to help the startup community.

It's interesting, I just got back from Singapore about two weeks ago. Spent a bit of time there just exploring their startup community, and the one thing they talk about is, yes, they are in Asia, but they still have huge troubles from that startup perspective exporting to other Asian- Just the language, and the markets are also vastly different. Even though people view them as such huge potential based on population sizes, it's just that there are differences in cultures and such doesn't it make it as easy as everyone paints it out to be. 

 I have yet to meet anybody who's made any money in China (not selling resources to them). 

 Going back to something we touched on earlier, can you think of any Perth success stories? 

Well, a true success story happens when you get a exit, right? There haven't been many of those, at least not on the software side. 

Everybody talks about how exciting China is as opportunity, but cash just doesn't come out of China. It's extremely difficult to extricate your profits, and people get excited about it and I just don't; because I've had too many bad experiences.

Why is it do you think that other venture capital firms are yet to set up shop in Perth? 

I think it's our track history thing. Investors think that the future is going to be like the past and it's pretty rare that you find an investor who is willing to take up a new team or new market where there isn't a history of returns, right? There's a great long long history of returns from mining investing in Perth. There's very, very little history of great returns from startup investing, particularly from tech startups in Perth.

Investors are reluctant to go into a new space. Now our Yuuwa Fund got up on the back of a reasonably generous program , (but not nearly as generous as Israel or the UK), to incentivise venture capital investing by private individuals, and it got up on the back of the vision of one guy and his advisor who were willing to back us as a team. There was four years of relationship-building to get to that point.

You've got to be able to point to the potential success and hopefully have a couple of stories from the past showing that the success can happen. We now have Sydney-based VCs flying to Perth to deal with limited-partner investors because these investors are based in Perth. There's a lot of money in Perth.

These investors are willing to back a professional organisation based in Sydney, who are investing in Sydney startups because there's a number of very, very good success stories out of there. They're less willing to back a WA-based VC because there aren't those success stories.

One model that we might be looking at is a more Australian VC organisation where there happens to be a partner in Perth and a couple of partners in Sydney and another partner in Melbourne and they look at opportunities across the continent. Maybe that's the way that VC will get more active in Perth. 

I know that investors look at Perth opportunities, but they really want their investees to be close to them, so they can be actively supported and helped, because early stage companies, you don't want them on the other side of the planet. You don't want them more than a few blocks away if you can help it.

There's Stanford research that says proximity to the Portfolio is one of the key contributing factors to success. It's amazing how the one variable has such a huge influence on it.

It also has a huge influence on your exits, right? When you're negotiating to sell a company from Perth into a multi-national overseas and they're based in the US or Europe, and you explain, "Well, this team is in Perth," there's a huge discount applied to that. It's extremely difficult for people from buyout companies having to get their head around doing due diligence thousands of miles away. Having to integrate a team that's not event remotely close to their home base. This is one of the reasons that investors are very reluctant to think about backing Perth companies.

So, for the Valley based VC's pitch, startups have got a really simple story. I build my business with an eye on selling to this person, this person, this person and they're all five blocks away and going to be interested in buying this company, and the VC’s love that, because the team will be straight away integrated with a purchaser.

Try to talk to a bunch of start-up entrepreneurs from Perth about leaving Perth, which is an awesome place to live, and moving somewhere else in the world. It's one of the questions I always ask my founders when I invest in their startups. It's very hard for them to extricate themselves and their families off to these far off and less lifestyle oriented places.

It's one of the reasons we haven't had so many big success stories and why investors are so reluctant to back Perth startups. It's difficult to get measured, too. It's difficult to live a long way away, just like it's hard to get investment from VCs on the other side of the country.

While Perth's isolation really is a hindrance. What are the major risks going forward?

It's a risky game in general in a startup space. I don't see any major risks of it all falling in a heap or anything that like. There is the risk of these companies who are chasing backdoor listings at the moment and going the reverse takeover route. This is likely to burn a lot of investors (in their minds) towards startup investing, because people will be saying saying, "Oh, I backed this company, which did an RTO or did a backdoor listing, and I lost a lot of money," and that's because the companies that are going into these backdoor listings are very often using it as a “last resort” source of funding, and they thus tend to be the lower quality companies that are going through this process.

So, that's a major risk for the industry that people will start tarring us with the same brush as all those same companies who have gone out on the public market, because they back-door these companies and the businesses are actually very often the second-tier companies that are going out to be listed, because the good ones are being backed by private investors like VCs, angels and all the rest of it.

And what are some of the things that excite you about the future of the WA startup community? 

More accelerators, more success, and a couple of decent lifestyle success-type companies. Companies where you're not necessarily looking for a big trade-style exit, which is, as I said, quite challenging out of Perth, but a company that pays decent dividends to investors and makes for a good lifestyle for the entrepreneur, there are sufficient success stories about getting the message out that people should invest in the startup space.