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Steve Baxter on what the Australian Government could be doing to help the startup ecosystem

In 1994, before the terms “startup” or “bootstrapping” were in common use, Steve Baxter started a successful internet service provider, SE Net, from the spare room of his Adelaide home. Since then, Steve’s wide ranging career has led him to play many roles as part of the Australian Startup Ecosystem, including playing key roles in the founding of River City Labs, Right Pedal Studios and StartupAUS, as well as featuring on the TV show Shark Tank. In his conversation with Adam, Steve touches on many of these, as well as discussing his ideas on what the Australian Government could be doing to be encouraging growth in the Startup ecosystem.

Mentioned

Steve Baxter’s website – https://www.stevebaxter.com.au/

River City Labs – https://rivercitylabs.acs.org.au/

Startup AUS – https://startupaus.org/

Transcript

Steve Baxter: G’day, Steve Baxter here from Ten13, early stage, fully aligned, tech startup investment syndicate working out of Brisbane.

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Adam Spencer: That was nice and succinct. When did you first get involved in the ecosystem? Probably before we had all this vocabulary around it as well. 

Steve Baxter: Yeah I started my first, it became an ecosystem probably 20 years after I got involved. I want to say I first got started in entrepreneurship back in 1994 when I was a 23 year old full-time soldier working out of Adelaide. 

Steve Baxter: Decided to install 14 telephone lines into my bedroom and my bedrooms and started dialup ISP.

Steve Baxter: So that was that was all fully funded. I suppose we call it bootstrapping nowadays. Back then we just call it a, taking a home loan deposit and risking it. So that’s what we did there. And we grew that to be quite a substantial business, probably seventh,or eighth largest internet service provider in Australia.

Adam Spencer: Was that the one acquired by, I think I read Malcolm Turnbull’s. 

Steve Baxter: So Aussiemail started to acquire then during the process, they were acquired by Intuit Wilcom essentially. So they finished the process, but it was an Aussiemail acquisition. Malcolm Turnbull was the chairman of Aussiemail.

Steve Baxter: Sean Howard was the CEO, amazingly strong entrepreneur as well. But didn’t meet Malcolm till probably three or four years later when I lobbied him, I think he was under secretary of the Commonwealth or something. I can’t recall. I didn’t meet Malcolm at the time.

Adam Spencer: So not 94. This is probably going to be a really silly question, but, what did the ecosystem, or what did the community in terms of, the entrepreneurial community look like from your perspective? 

Steve Baxter: Well, it didn’t say I was an Adelaide essentially. Yeah, to be quite honest, it was we started a business back then. We were, managing directors and business founders, but we were managing directors and I had a business partner. 

Steve Baxter: I never knew the word CEO co-founder or founder back then to be quite blunt.

Steve Baxter: It didn’t even didn’t really exist the vocabulary. We ran a retail facing small business attorney to be quite a substantial, medium sized Australian business, and so aside from working inside my industry sector and Adelaide. And I imagine you’re in Sydney I, Adam. 

Adam Spencer: a little bit north of Sydney, Newcastle. 

Steve Baxter: No worries. Yeah, essentially, if you’re not in a Sydney in Australia no one really cares about you. We had we had thought leaders in the largest ISP in Australia, leading conversations in national newspaper, and we had seven times more customers in revenue than them.

Steve Baxter: If you’re not on the east coast, you’re not in Sydney no one gives a toss about you to be honest. So Adelaide, we were somewhat insular not of our own choosing, but because, I suppose that the thought centers tended to be more people whowere somewhere they could drive to.

Steve Baxter: And it’s such a way we did a lot of networking in amongst our community, or I helped start something I helped out. Cause it was a lot of competitors. So when I started that business, it was probably around the 20th or the 30th ISP in Australia. When I sold it, there was 1200. And by the time I fully exited that it was 700 and it was a period of about six years.

Steve Baxter: So very much, boom, bust, it feels a bit like that now. And the startup. Everyone’s jumping on that bandwagon coming out of the woodwork, all of a sudden being an expert. It’s really quite fascinating to watch again. We did several inevitably we had to work together as competitors.

Steve Baxter: We had one real problem in our industry and that still exists a bit in that business. And that’s Telstra. Telstra was their biggest supplier and our biggest competitor is the only supplier and our biggest competitor. So we tended to band together as a competitive industry and to help each other out in a wholesale sense, buying power sense it’s not the best description, but it’s the best one we’ll do today without a wider description.

Steve Baxter: And so I networked a lot, I got to understand the value of business networking because I had to go and talk to to my competitors and say we keep flogging each other to death, Telstra is just going to come and murder us, so we need to start working together.

Adam Spencer: So would that is hard for me to comprehend that in 94 there, w what did you say 30 or 40 ISP providers already? Was that the number that you 

Steve Baxter: yeah, probably. Yeah.

Adam Spencer: That’s internet service provider, and we’re talking about the same thing here that I didn’t really understand that internet was that big of a thing, even to have 30 to 40 providers. 

Steve Baxter: And six months later, it would’ve been 100, and 6 months later it would have been 300, and 12 months later would have been 600. Things go on, cycles, things, go on booms and busts. So it’s a part of the natural sort of enterprise, day to day or year to year, decade to decade thing, things are up and things go down, but literally it was 1200 at the peak within four or five years it was 1,200.

Adam Spencer: w what what motivated you to decide to put, install what was it? 30 phone lines? 

Steve Baxter: It was 14 to 30 now our house before we moved out and actually got a real premises, 

Adam Spencer: but what made you think I want to start an ISP. 

Steve Baxter: I get asked that question a lot and it’s hard to remember the actual motivating factor. I my, my wider background is I grew up in central Queensland. I pretty well failed high school left at grade 11.

Steve Baxter: Join the army as a full-time soldier at 15, when they recruit 15 year olds. So my first job was as a so I carry a rifle for nine years for this country.

Steve Baxter: As a soldier but we’re mostly a peacetime army at that point in time. Whilst I enjoyed whilst I had immense pride in that occupation. It was a pretty boring job to be quite honest, there’s nothing worse than not being led to do what you’re trained to do. Things changed changed about five years after I got out things got a little bit hot.

Steve Baxter: Oh, I started learning about computers. I’d have been a bit of a fascination with technology. So I did some courses learned about computers, programming installed this weird thing called Linux on it on a spare PC I had at home. And realized that you could plug fourteen modems in the back of this thing, and people could dial up and you could, you could run a business. So it was a really good mate from shark tank, Glen Richards.

Steve Baxter: He has a saying, which is an entrepreneurial seizure moment. So like the experienced technician who thinks he can run a business, was something along those lines. I suppose it seemed really easy. And it seemed… The funny part was, is, I was going to these computer user groups and, 

Steve Baxter: and I managed to look over the shoulder one night of someone who successfully got the windowing system of Linux installed, which was back then, no mean feat. It’s like 120 floppy disks, just to give you some idea. I saw someone using a web browser and I knew instantly the world was going to change.

Steve Baxter: I vividly remember where I was. A bloke’s garden, it was a shed in his backyard where he set his computers up. And I remember just thinking, I’ve got to get into 

Steve Baxter: you can instantly see what was going to happen. So so at the time I’d actually convinced my now wife then fiance to spend our $11,000 home loan deposit, this is when homes were costing 125 grand in Adelaide, so we almost had a home, that I was going to take all this money, I was going to buy some computer bit to put it in the bedroom and hey presto.

Steve Baxter: I hadn’t at that stage, even used a web browser.

Adam Spencer: Huh? Wow. Was there anything that, apart from that, learning the importance of networking that come out of that, what was it? 94 to roughly, ’01 time that any lesson that you’ve taken out of that served you really well in subsequent ventures?

Steve Baxter: There was, so it was the importance of… 

Steve Baxter: I’ve taught lots of things. Th the importance of being able to understand a set of books at least being a bit pretty decent cash flow accountant or bookkeeper. If nothing else the importance of team I came out of the army, I knew the importance of team.

Steve Baxter: I knew the importance of breaking people well, and other bits and pieces and having plans. It taught me to hate monopolies and, Telstra was such a, and still is, such a corrosive force in that industry. It’s incredible.

Steve Baxter: Cause we’ve given ourselves another monopoly with NBN, isn’t that a stupidest idea ever.

Steve Baxter: Excuse me. So it did teach me a lot basic business operations, taught me a lot about people. We went through a mini recession in that business and none of, probably very few of the people, younger people would actually have any clue what happens during a recession. But if you own a business and you don’t sleep because of it, you don’t sleep for months.

Steve Baxter: It was all of a sudden you can’t pay people, literally it’s debilitating. And I, thank God for having gone through it, but it’s also leading to it’s also leading to some pretty crazy economic behavior in the market at the moment. And it has for the last 10, 15 years. 

Adam Spencer: You had that massive realization around web browsers the internet that got you started in se net. Obviously the startup ecosystem didn’t exist at that point, or even any kind of, were there any precursors that you noticed that because there’s what changed between kind of, oh one start of pipe networks founding, about 10 years later river city labs and realizing that we need to start a co-working space. We need to get entrepreneurs together. What changed in that 10 years to switch you from purely entrepreneurs, small business owners to this world of founders and startups and high growth companies. 

Steve Baxter: Yeah for me, I didn’t really want to run a business again, to be honest. I tend to buy in to them quite hard. I tend to treat them quite seriously. And as a result, joyfully consuming, but probably to my detriment. And so I knew that. So with se net, my first business, we worked quite hard in that business and managed to sell that with pipe networks.

Steve Baxter: Similarly, we went a thousand miles an hour and jeopardized health because it’s not, it shouldn’t do that. I could’ve done it smarter and I get me wrong, but. 

Steve Baxter: And so it’s all through that. So that’s it on a personal level. That is I didn’t want to do that again, to be quite honest, I didn’t want to, I didn’t want the adrenaline that it is it’s adrenaline and it’s a weird background adrenaline, or, working the sort of 70, 80 hours a week and all the rest of it.

Steve Baxter: It’s a lot of fun being an investor, to be honest. Being able to sit back and to hear people’s hopes, dreams, aspirations, and other bits and pieces, and be able to fund them and get on that journey.

Steve Baxter: And, and back them, not just with capital, but with experience and networks and mentorship or whatever you wanna call it. But th that’s personally but what changed in the meantime was, a bunch of things changed. Essentially computers got really cheap networks got really cheap.

Steve Baxter: Yeah. Whereas, when we did pipe networks, we had to put into place like it ML infrastructure. Our business was, a couple of big honkin exchange servers and two data centers with it was like a two, $300,000 investment to support that sort of 40 staff. If and that’s what 11 bucks a month for office 365. So what changed was the commoditization of computers and essentially the access to. networks So that allowed a lot less capital to be deployed in order to get a similar outcome.

Steve Baxter: And this bad for Australia. I There’s nothing good in that statement for Australia. So I’m used to, it used to protect us and now it’s an absolute element of risk for us.

Adam Spencer: What made you decide to actually go ahead and start River City labs. 

Steve Baxter: So I we started poppy works 2001. We listed that in 2005 , I left there as a full-time exec in 2008, went and worked in Google and California for about a year returned to Australia on the sale of pipe networks fully by early 2010, when we executed the sale . I got back and relit some networks, and I wanted to be out of the telco space. Then I started to do a little bit of dabbling and met some people, help them out with the capital and experience. I found myself going in Sydney more and more to talk to people I saw what had started down at Fishburners and Harris street down there in Ultimo and thought that’s pretty cool. I’ll go back to Brisbane and find the Fishburners in Brisbane.

Steve Baxter: There was nothing really there, there was a bunch of really drab spaces, probably best called incubators at the day. Run by universities. Incubators are the things that keep babies alive. Not that they’d bring up. It’s, I think it’s a really poor term for a business to be honest.

Steve Baxter: And then I thought okay, how hard can it be , it’s some office space, a little bit of a flexible mindset and let’s get into it. 

Steve Baxter: it turned out it was very hard. So especially in a town where everyone’s got a second and third spare bedroom and the traffic ‘aint that bad, and no one really gives a stuff about cheap desk space, right?

Steve Baxter: So we had to alter what we did there pretty radically.

Adam Spencer: What exactly about Fishburners what was it that you found really attractive about that, that, that made you go we need to do this. We need to do this in Brisbane. 

Steve Baxter: To me, it had a clubhouse feel. And there was people in there. It was a bit noisy as a bit and had a bit of a bazaar feel about it as a market bazaar. and it felt like there was energy. And so I wanted to replicate that. It was a little bit exciting just to look at people being busy and a little bit noisy. And their stated goal was to bring together investors and startups. 

Adam Spencer: Either speaking from a Brisbane Queensland point of view or nationally, what do you think some of the gaps are that, that are in the ecosystem at the moment, like what’s wrong with how it all works maybe and where can we improve?

Steve Baxter: Be careful of that term ecosystem having been involved in it around this space for so long, it’s just thing that people want to buy. It feels like the soft, cuddly thing. If and it’s good that we can talk with them about, and those sort of terms, but at the end of the day, it’s that creating an environment where we encouraged lots of risk and hopefully lots of risks come with lots of success. 

Steve Baxter: So also for my sins, I spent a year as chief entrepreneur up here in Queensland in sort of 2018, I got to carry this amazing business card around and went and visited everyone in the state and purposely kept out of the Southeast Queensland corner. Cause there was lots going on.

Steve Baxter: So did a lot of travel. 

Steve Baxter: So that the term ecosystem I find frustrating because to me, business is about creating wealth in every sense of the term, creating wealth for the owners of the businesses and the people that work in the community in general. And then you have to understand who can do what in this entire in, in this entire segment of the market.

Steve Baxter: And most of this stuff falls to federal governments, for example. So most of the stuff, I think is about less regulation because to me that there’s very little government, for example, can do, to affect an operating business. So there is very little non-punitive things a government can do to affect an operating business.

Steve Baxter: But the one thing if you want to change how businesses operate is you’ve encouraged more people to compete. There’s the one thing a CEO, surely fears is loss of revenue. I think we’ve seen from the banking inquiry, they don’t even fear doing the wrong thing and going to jail. But they have a far bigger fear.

Steve Baxter: Every CEO, every business leader has a fear of loss of market. And so the way, and you can’t mandate that through things, the way you do that is just to encourage more people to get into business. So for me, everything I go to when I talk about ecosystems, how do we encourage more people to get into business?

Steve Baxter: So all my answers are really quite bland and then they’re not as demanding as a lot of others. And, but they are also born at 25 years of entrepreneurship and probably close to about 12 years of trying to make things actually work.

Steve Baxter: I can list them out if you want.

Adam Spencer: Oh, please do. And, but just before you do you beat me to the answer because earlier when I mentioned the word ecosystem, and you said it back to me in an answer I sensed that you were saying it through your teeth and that you didn’t quite like it. So thank you for answering that.

Adam Spencer: And that’s a great answer. I don’t even like the term ecosystem and I’ve said it so much that even saying it it hurts me to say that this. But I can’t think of any other way to really describe it succinctly to what we’re trying to build this environment that we’re trying to build that will enable more entrepreneurship to happen. 

Steve Baxter: Yeah exactly. That’s why I’ve used it. I’ve been using terms like market sector and focus areas and the other fluffy stuff. But good to me it’s a totally fuzzy word that should be okay. But it just covers so much crap and people tend to get it. And that’s because I’m doing eco, it’s like the word failure,the word failure is so fricking abused.

Steve Baxter: It covers so much stuff and it’s just the wrong approach. If but if we are talking at talking about ecosystems, I’ve had the camera turned on, you’d see my air quotes the, the things we need to do to encourage more people to start businesses, which is essentially what this is right is we would actually make it, this is a very motherhood and milk statement, I tell us the politicians all the time they think I’m taking the piss out of them. So we want more people to start businesses. We should make it easier for them to start businesses. So there, there’s a level of regulation, which is point stupid. So let’s get into some of that, but that’s still the things around employee share option plans.

Steve Baxter: So back in 2009, that the mind numbingly stupid ALP government at the time essentially modified the employee, share options, arrangement, and pretty well stopped them for six years. Didn’t change until the coalition could somewhat put it back. Not quite all the way back in 2015. And that’s still, it’s still not, it’s not as easy as it could be.

Steve Baxter: So I’m making it really easy for businesses to issue instead of paying their staff cash to issue them equity in the success of that enterprise, removing any impediment to people investing in the startups.

Steve Baxter: We have a country where you can lose your house on a horse race, but not a startup. About making the ability to access capital for startups a lot easier. So there’s something out there called the 2012 rule. For example, it basically says that every 12 months you can approach 20 people to invest up to the $2 million in your business without with a very, almost a regulation free environment.

Steve Baxter: Why don’t we just increase that to 5 million bucks, for example, and 40 investors. So there’s a lot of very simple things that we can do. One of the good things that Malcolm Turnbull did, and I have got no love for his prime ministership. But I think that his NISA plan back in 2000 and I want to say 16 or 17 national innovation science agenda, which essentially $2.1 billion plan of which $1.9 billion dollars was lollies the universities.

Steve Baxter: Now I think university sector is it’s a net negative for innovation in this country when it comes to startups. So I have a real problem in the university sector, but one of the good things he had out of that was the direct that the corporations act changes. So bought in changes to bankruptcy contract for law that affects a bunch of other things to take us more towards US Chapter 11.

Steve Baxter: If you wonder why I’m talking about, bankruptcy and stuff, the reality is most of these businesses fail, most of these startups don’t work. So what we want is the people, but the people who go through that process need to tidy it up, need to the pay the creditors out, pay the staff, do the right thing. But getting back into the game as fast as possible with as fewer penalties as possible, because they’ve just had one hell of an education. So all that stuff you bought in there, we’ve had such a small impact on the budget. If any, to be honest, it was all regulatory change. Removing regulation. A lot of cases was, is really quite good. The other good thing about the only other good thing about NISA in that from that program was the ESIC stuff.

Steve Baxter: So early stage innovation company tax, once again, this is about access to capital. So this is about giving tax incentives to investors to invest in very early stage, potentially risky companies. I think it was a good start and we can definitely move the boundaries on the ESI cities. We can make the time tests and the revenue tests and other bits and pieces so that it could encompass more businesses, not less.

Steve Baxter: But otherwise I think those two good things, that’s your access to capital, how to run the startup business. Bringing in talent, access to talent is a huge thing. It’s one of the best plans I had was that where I should have dinner one night with a it was the old industry minister Ian McFarlan. And he brought people together asking about how we how do we attract Peter teal to Australia?

Steve Baxter: And what do we have to do was he was asking us it was really good they reached out to industry, but in a moment of brilliance and I’ve actually, he’s mentioned it since. And he said, he doesn’t recall saying this, I call it the Mike Cannon-Brookes Plan. And he said, why don’t we just write to the top 100 graduates? IT graduates to the top 200 universities in the world, invite them to come in a really cheap, easy pathway. Every year. So access to the right skills and we shouldn’t be picking those winners. Providing they’re high tech young well-trained, don’t preface, it’s most likely going to be software because that’s where the world’s going, but don’t don’t preface rockets or hydrogen, excuse me, what the latest folly that is for Christ sakes.

Steve Baxter: So just preface young, high tech, highly skilled, and then let the market work it out. So that’s some of my rants , probably probably monologue a bit too much on you there, Adam. Sorry about that.

Adam Spencer: No, that was amazing. In a perfect world, like if you were in charge of everything, what are the top three things you would implement to, to make this country more competitive and make entrepreneurship easier for people. 

Steve Baxter: I’d reduce the price of energy. I’ll give you a very unpopular answer. I’m going to do that I’d say we’ve done it in the past and , we should be doing it right now. The one stable thing that underpins our entire economy is energy. And to make it expensive and unreliable, will not see my daughters live a healthy wealthy life in later years.

Steve Baxter: That’s just going to set your audience off. Cause this ecosystem is basically full of raving lefties. When it comes to tech startups, I think we’ve sort of covered it there. I, would make access to capital trippingly easy. So you may be aware, have you heard of E.S.V.C.L.P before early stage venture capital liver partnerships? Basically the investors in the VC firms get capital gains tax-free out of that firm, out of those investments. There’s a whole bunch of rules around that. There’s a whole bunch of things. It’s gotta be Australian businesses and it’s gotta be this and that , and there’s a bunch of rules there, if people listen to this they go that’s not right. It’s not in all cases, but for essentially, if you’re granted E.S.V.C.L.P status as a venture fund, you get to return, you get to pass through the capital gains tax free to investors and get your own tax advice. I’ll also say that at the end and which is good that the government wants to encourage investments into early stage risky businesses. And they also want to build a venture capital industry. Why isn’t it that every other angel investor who’s investing in those businesses can’t get access to the same benefits without having to pay a VC firm, 20% of the profits and 2% a year to manage it.

Steve Baxter: I would really open up the different, if we care about early stage, high-tech risky investment, I would remove the barriers . I’m also a libertarian, right? So I’m not a huge fan of any government regulation. So access to capital. We’ve already talked about access to 

Steve Baxter: Making a lot easier for businesses to start business and to do things like pay their employees in shares without having punitive tax rates applied, access to inbound talent. I think that’s quite important. And the Mike Cannon-Brookes plan I think is actually really good. So that’s probably four is it I think mate, I think they’re all pretty important to be honest. 

Adam Spencer: So between 2010 and today. Cause a lot of people are saying, 2012 seems to be the mark where this inverted commas ecosystem really started to gain momentum.

Adam Spencer: Do you have any insight as to what you think maybe the drivers were behind that? 

Steve Baxter: I definitely agree it’s probably the first half of the teens there somewhere, that would make sense. It’d be hard to argue a year, either way. 

Steve Baxter: Do I have a sense of what happened there? I think I’ve already mentioned it it’s the commoditization of access to when it used to cost say quarter million dollars to get a decent, probably in the early two thousands, say quarter million bucks, at least over a hundred grand.

Steve Baxter: And probably probably a quarter million bucks to have a decent IT set up where you could actually get some staff in an office and get things done. That all of a sudden went to 20 grand. If it’s that at all. And I mentioned before, so I think this is a real problem and still is a real problem for Australia, because we used to be able to get access to 250,000 bucks.

Steve Baxter: The poor people sitting over in a favela in Brazil or in the backlogs of Ukraine who didn’t have access to much capital. Couldn’t do that right now. And it only cost 11 bucks a month for an office account. And you need a laptop and a mobile office. That’s achievable. So all of a sudden cause talents evenly spread around the world, talent is evenly spread across gender and race and talents evenly spread around the world.

Steve Baxter: So essentially we are trade exposed because there is no longer a capital barrier. That’s really, it’s been urgent for about 10 years. And it should only get more urgent because once you realize that you realize how easily we can be left behild.

Adam Spencer: You mentioned earlier, you don’t, you think universities are horrible for innovation in Australia or something along those lines. Which is a real bummer for me and for this series, because 15 of our sponsors are universities.

Adam Spencer: So I don’t

Steve Baxter: They’re no strangers to my opinion, let me put it that way. So I’ve been saying this for some time. I was actually on the board of commercialization Australia, which then became accelerating commercialization. And I think I was there for four board meetings and I couldn’t, I could not believe how much that federal government program was being used to keep university projects alive that the free market said they didn’t want, them. so the way I view it is that I actually, I actually call them a wet blanket innovation. So they usually take too long to get the relevant sort of talent stream out through the universities. 

Steve Baxter: They’re teaching kids the wrong stuff for too long and not changing fast enough and market demand and appreciate university is supposed to research as well. Whatever. But, if anyone views the amount of money we spend on R and D into universities as having a return, if that was a VC fund, you would have actually you would have actually shot with a ball at the managers sometime ago, because for the amount that we spend in That we get back is an absolute travesty. And I say this as well, because they’re always, they really ever lead. So I started River City Labs because nothing’s happening in brisbane. Within 18 months, two of the universities had launched something very similar on the public purse. 

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Steve Baxter: I was using private money. So when I say they’re a net suppressant for innovation, a lot of the times that they’ll go up against the private sector, because they think that they should be doing it. And the problem with the university is it’s quite a large enterprise. The big ones call themselves sandstones. How crazy is that in a work from home world? They’re proud of the fact that they’re called sandstones for shit’s sakes. Because they a big business, they think they’re a smart business, but what happens is that the government in this country and probably as it should, because I’m a bit of a fan of theway we actually conduct funding for universities, we have the HECS system, the government underwrite, the debts and the revenue, the universities, and they’ve just got to open the doors and people walked through. And they think they clever nothing clever about that at all. 

Steve Baxter: But because they’re a big enterprise, they think they’re a clever enterprise, not a chance in hell. 

Steve Baxter: So for the most part they’re wet blankets of innovation. Yes, they do research and stuff. I’m not denying that I’m talking about the three quarters of what a university does. They typically produce, or they have sorry for the last few years, been producing a very bland entrepreneurial and dull product, it’s horrible talking about people as a product, but if their product is people coming out with with degrees, then it’s somewhat behind old skilled and entrepeneurial dull. Have you researched me and understood what I did with startup catalyst?

Adam Spencer: Startup catalyst is about one of the only things I didn’t go deep on. But I know, was Colin Kynar, did he have anything to do with that? 

Steve Baxter: It was, Colin Kynar was one of the first mission leads. So I got that pissed off with seeing these great young kids, coming out of universities cause they’re pretty good degrees. And they’re pretty clever kids. And just going into absolute, dead, batshit, boring jobs at the public service, the big banks or the big corporations.

Steve Baxter: And that’s fine those organizations need labor. So I’m not against that, but it, to me, it was a waste and I was down to Silicon valley a lot and I’d say young people over there who just. 

Steve Baxter: Similar skills, not as good in most cases, to be honest. And they were working on just bigger problems.

Steve Baxter: So it was like, how do I change it? So I can jump up and down and scream, know screaming, shake my arms like Kermit the frog, or I can actually do something because I’m a massive complainer, but I think you need to buy your right to complain. So I started a program called startup catalyst in the first year I took 20 kids over get all 20.

Steve Baxter: And then we targeted that. I can’t remember. To Silicon valley for two weeks on the Google and Twitter and Facebook and AWS and all these places, and literally show them how Americans did stuff, VC firms, that the whole thing. 

Steve Baxter: I didn’t make the first mission that day actually, but my I was asked to go on a shark tank show just as it started, just as the mission went over, I missed the first year I went in the second year’s one 20 kids over and dropped them inside of Silicon valleyfor two weeks. These companies love getting these bright kids coming from Australia, because theyliterally don’t have the best scientists and computer engineers. And they also had their recruiters in the room too.

Steve Baxter: So they’ll try to recruit them, which is hilarious. And we now in the middle of their startup weekend, so we dropped 20 bright, young future technical co-founder cause it was techies only. I didn’t want clueless clueless people, in the start up space drive me insane. Took them over to Silicon valley and literally tried to make them unemployable showed them that they’re just as good as anyone over in America if not better, they’re just working on shitty small problems and I should lift, they should lift their horizons, lift their eyes up to the horizon, I should say. So we did quite a few of those over the years I went in the second one. We also subsequently that subsequently the startup catalyst program for investors because also way too many angel investors.

Steve Baxter: Sometimes the big hearts, actually, sometimes we just malice, but usually just with big hearts doing the wrong thing and literally smothering the startups or investing in either because of silly monetary. Absolutely crazy non-monetary terms, which are worse than silly monetary terms. We used to take, we took a group of 12 that’s what, 10, 12, or 15 investors over, 

Steve Baxter: To, instead of going to, the technical arms of Google, Twitter, and Facebook, we went to A16 Z went to all the VC firms and the investment banks and people like that. And we basically just sat down and showed them how Americans invest in startups. 

Steve Baxter: Yeah, so I think that there’s a large education piece missing in Australia and I’ve attempted to, to at least lead and show how we can look at filling that with, especially with the startup catalyst 

Adam Spencer: junior program.

Adam Spencer: Are you familiar with the term, the Aussie mafia? Yeah, that’s a similar like that. Some people have pointed to that as to maybe one of the catalysts for the ecosystem really starting to pick up, but having all of those Aussies that spend a lot of time over in Silicon valley, for example, coming back and bringing that back, that experience and knowledge, that sounds like something that you tried to replicate with startup catalyst in bringing some of that education back to our community.

Steve Baxter: I never quite viewed the Aussie mafia that way. I think they were very much a north star bunch of people who work in Silicon valley, who demonstrated it’s possible to move to the U S and get employed and/or start a startup over there. 

Steve Baxter: I didn’t view them the way you were saying, but I they were important. The I think the biggest thing, they, back to your question before if I was god for a day and had three things to do, what would I do? One of the biggest I think one of the best things is the E3 visa. The E3 treaty trade visa between us and the U S is amazing. And if you’ve got a bachelor’s level of education or you’ve got the equivalent of 12 years industry experience, I’ve got my, I didn’t have an education.

Steve Baxter: I didn’t finish high school. So I had to go from the, on the equivalent experience test for the E3 visa. You can, you can get a two year visa pretty well, almost infinitely, renewable and they issue 10 thousand of these things a year, and you can work and live in the U S for two years. That was massive. And, so people who started doing that and it was part of the U S Australia free trade agreement that they bought in the later years, of the Howard government. 

Steve Baxter: It was just incredible. So that was a big focus and people doing that and doing that successfully and yeah, there’s little immigration mills, you can go and set up your own company and employee yourself and this sort of stuff to make it really easy to get over there. And then I think, and I think that the, if you want to do actually, so if you want to actually supercharge the Australian tech startup scene you can be, I don’t want this to happen, but I think that, if you were evil and wanted to do something, you’d actually convince the Americans to cancel every last E3 visa.

Steve Baxter: up up and send Australians home. All these people, engineering directors of Facebook have E3 visas, and they’d have to come home. I don’t want that to happen. 

Steve Baxter: But there’s probably, it’s a reflection or statement for me of how many people I believe are over there getting that experience. So how do we bring them back? 

Adam Spencer: Just a bit of a fun one that I ask everybody this question, you’ve probably been asked this a billion times. What one piece of advice would you give a new founder 

Steve Baxter: Just do it. When people pitch me ideas, I don’t need a picture. I say you should just do it. And I said, but I haven’t told you the idea. I’m like I’m probably not your customer. So what the hell are asking my opinion?

Steve Baxter: So you’ve got to launch what you’re going to do, get it in front of the customer and let them decide because no one else gets a say in this. So traction trumps opinion, you need to get traction. 

Steve Baxter: Other people’s opinions don’t count if it’s working because of it’s stupid and it works, it aint stupid.

Adam Spencer: Thinking about the future of the ecosystem, are we on the right path? Are we on the wrong path? What do you think? What needs to change? What are the, what do people need to hear? 

Steve Baxter: It’s doing exceptionally well, for all the talk in the last week or so about people not investing in Australia, et cetera, et cetera, the whole net zero debate what’s going on. I would say the $40 billion investment that Stripe made into Afterpay says that’s a load of crap. Excuse me. So we’re actually going quite well if you know what I mean.

Steve Baxter: So we have to be not getting down on ourselves. We’ve just got Canva has been amazing obviously Atlassian . So there are some incredible things happening.

Steve Baxter: So we should probably stop beating ourselves up that we’re not doing well would be a good start. I think we have to be really careful about how fragile it is. And I’ll go back to that change in 2009 on employee share option plans that literally left vacant the field. It was, it gutted the ability for Australian startups to actually pay employee structure.

Steve Baxter: That’s been mostly fixed. They could have gone further and fixing it, but that’s, that’s a discussion around the edges. As one example, the last election, there was how industry supported a political party that was going to halve the capital gains tax exemptions. And you sold shares. So it would’ve meant that investors in text startup space instead of getting a a 50% capital gains tax exemption will get 25.

Steve Baxter: It, do you think there’d be more or less investment in this space? So I think you’d be really careful. You need to look at exactly what changes to ecosystem changes to regulations will do thank God, that government didn’t get in and do that because it would have actually been an atomic bomb going off across the sector.

Steve Baxter: It wouldn’t have gotten up cause it would’ve been that much fury over to be honest. And so we have to be really careful with what we ask for in the current debate regarding seven or eight investors and sophisticated high net worth investors, with respect to the wealth bar about people wanting it increased is just mindset ludicrous.

Steve Baxter: So for me, it’s about, Things that feel good need to be thought through. And the unintended consequences need to be looked at really hard because I’ve been in business a long time and I’ve seen that much done and the unintended consequences just have debilitated sectors. So let’s be very careful when we ask for the government to do something, what usually happens.

Steve Baxter: And it’s never usually that good, excuse me. So that being said as well, what we need to do is to continue to deregulate. There are still regulated parts of the Australian economy. We’ve only received another 12 month extension on. It might’ve been six month extension. I think it’s now March next year. So we can still use DocuSign for various documents.

Steve Baxter: So that’s not permanent right now. It has to be re enabled in March next year. Why is it we’re still licking a stamp and using wet ink to contract with each other. So let’s push a lot of this stuff or let’s deregulate in an industry sense we have the pharmacies in the medical sector, still being quite problematic with respect to the level of regulation.

Steve Baxter: So there’s a bunch of things that the government can do to actually, instead of getting the pencil out and writing a new rule, they can get the rubber out and take out a few , that will actually arm us better for the future, but I’ll go back to access to capital. I’ll go back to making it easy. I’ll go back to, availability of staff.

Adam Spencer: Last question I have is, What makes you different? What makes that 20, 23 year old, was it decide to go out and leave the army and go into business as opposed to anything else? What about business? 

Steve Baxter: Looking at 23, if I knew how hard it was going to be at time I’m not sure if I would have done it, 

Steve Baxter: One of the chaps I’ve enjoyed backing the most and his business didn’t go well at all 

Steve Baxter: at 630 grand. I’ve always, I fully respected what the two founders in that business did.

Steve Baxter: They left nothing on the table if you know what I mean, so I’ve got no ill will at all. But I remember once when he was pivoting the business quite hard I said he wasn’t pivoting, he was adding a new, he was adding a new plank to his strategy, and not discarding with the others.

Steve Baxter: And I’m like, do you have any idea what that’s going to take? And he goes, I’ve found that before you start something like this, you’ve got to thoroughly underestimate it and ignore it all. And it’s business. It’s just hard, if you don’t want to, if you want an easy life, don’t get in the business.

Steve Baxter: If you just don’t want to have to think, don’t get into business. Okay. It’s exceptionally rewarding. It’s and it’s the way that you can change the world. It’s one true way that you can change the world. And a lot of people can change the world, for example, they become priests or politicians, politicians, it’s hard to get into, and it’s also, it’s really hard to do things and you’ve got to compromise too much. With the business you get to set your own way. You get to employ people. You get to, provide a product that people want. They don’t want it. You’ll go broke. So you’ll have to either go broke or change that. So I regard enterprise entrepreneurship as one of the highest callings and endeavors, in a free society? 

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Credits

Production Credits

  • Andy Jones
  • Will Tjo
  • Alex Carpenter
  • Alan Jones
  • Oliver Gaywood
  • Aleshia Spencer

Special Thanks

  • Sorrel Osborne
  • Alan Jones
  • Murray Hurps
  • Maria MacNamara
  • Peter Davison
  • Pete Cooper

Music Credits

Music by Lee Rosevere

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