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ATP innovations article

Wednesday, December 23, 2015

It’s time for the big corporates to stop advising the start-up space and start backing it — there are a lot of opportunities they are advising on which they could add significant value to.” Stephen Moss is feeling unwell today, but he remains undeterred. “We estimate the demand for investment for start-ups is around $6 billion to $8bn, those are solid ideas we’re talking about, and the supply, it’s just $90 million,” he says. Moss is the chief executive of BlackCitrus, which he founded with Pezh Moradi, now the company’s chief operating officer. For the past two and a half years, Moss and Moradi have been fielding hundreds of requests for seed funding, investing anywhere between $500,000 to $3m at a time.

“It started off quite by accident. We started as investors, not as venture capitalists, and we built a team to manage our own investments. One day we checked our generic email and

we literally had 100's of people pitching to us,” Moradi says.

But investments remain targeted, according to Moss. “We typically make five or six investments each year, and we see around 600. We won’t make investments where we don’t think we can bring in value, whether it’s a strategic partner or another investor. Our preference is for emerging technology companies that hold a bit of intellectual property, preferably technology with a licensing model. Technology that has IP is easier to understand for investors, and we’re looking to scale these business, so if we get too niche it may become difficult.”

BlackCitrus has already invested in a number of companies, including online auction site Fine Art Bourse, which Moss took on, he says, because he knew he could “incentivise Tim Goodman to head it up”. Goodman is the former executive chairman of auction giant Sotheby’s Australia. Then there was the investment in energy management start-up COzero, which BlackCitrus connected with Nippon Gas, the Japanese giant later taking a 16 per cent stake.

But for every start-up funded, Moss and Moradi fear many other good ideas miss out, even after innovation is well and truly on the radar of corporate Australia. “I think it’s great Telstra and KPMG and Deloitte are coming into the sector, the problem is they are just observing, they aren’t opening their own pockets,” Moss says. “I’ve seen them advise on accounting systems they could use internally, I’ve seen them advise on employment platforms they could use internally, or their clients could be using, so why can’t they bridge the gap between advising and backing?”

Moradi thinks that could be changing: “Particularly in financial technology where there are a lot of emerging businesses. I wouldn’t be surprised if some of the bigger players start investing in that space, otherwise they’ll miss the boat.”

Moss’s next move will be a fund connecting Asian investors with Australian start-ups. “Australian investors are risk adverse, and they have a strong preference in investing in equities or companies with fixed returns. The appetite for investment from Asia is huge, but there is a lack of guidance once that money comes to Australia. They have had to be more open to speculative investment in the past, because you couldn’t just put your money in the bank and get a 4 per cent return, so by nature to build wealth it was usually through speculation.”