'The industry is a bit too full of itself': Daniel Petre fears VC, startup hubris

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We are dealing with people’s retirement money…You can’t sort of f-ck around with that

He fears the same dynamic is repeating with venture capital firms that invested mostly in software “suddenly geniuses” in emerging fields such as lab grown meat, robotic technology and space exploration.

“These are areas which have incredibly high domain requirements,” he says. “Suddenly a couple of you guys have spent spent time reading a few blog posts and now you’re an expert? That does worry me a little bit that we take ourselves too seriously.”

Petre says founders also need to be wary of over-extending themselves into areas where they do not have expertise.

“One day they’re doing a SAAS [software as a service] startup and the next day, they’re doing a space company,” he says. “Now sure, Elon Musk did that and has played a blinder, but the number of Elon Musks in the world are small.”

The funding boom for venture capital has been underpinned by superannuation funds which historically shied away from the sector. Airtree’s latest fund was backed by AustralianSuper, Sunsuper and Statewide Super.

They’ve got a religious aversion to software which doesn’t make sense. [It is] not matched by what should be an equal obsession with software.

Daniel Petre on the Morrison government

Petre says that this actually places more responsibility on firms like his to make prudent investments. “We are dealing with people’s money and particularly dealing with superannuation, people’s retirement money,” he says “You can’t sort of f-ck around with that. A bunch of these people in these funds have never actually had to work through a recession, or work through companies that have suddenly lost all their revenue.”

While Australia’s economy has taken a huge hit from the coronavirus pandemic Petre says the impact has been less severe on the startup sector.

“Compared to the traditional economy, this is nirvana in terms of the level of impact,” he says. “Having said that there are some companies that have been hit hard…Glam Corner which rents dresses that’s been hit as Rent the Runway was in the US.”

Petre believes startups will play a key role in leading Australia’s economy out of recession but is critical of the government for its lack of support for the sector.

“The one thing that’s super clear from [Prime Minister Scott Morrison] and [science minister] Karen Andrews is they either don’t understand and don’t like software, or they understand but don’t like software,” he says. “They’ve got a religious aversion to software which doesn’t make sense. Their obsession with manufacturing is not matched by what should be an equal obsession with software.”

While politicians love to pose in hard hats with manufacturers for photo opportunities Petre says the advanced manufacturing Australia is focused on developing will not result in large scale job creation.

Instead he says the creation of high paid jobs and wealth creation globally is coming from software companies as evidenced by the leading companies on US stock exchanges which are mostly technology firms.

Last week’s budget provided some relief with the announcement of $2 billion for research and development tax incentives (RDTI) but Petre says this is just a reversal of the $1.8 billion in RDTI cuts which were slated and only amounts to an increase of $200 million for the sector.

He says not cutting RDTI is a “smart move” but says software companies are not addressed specifically which means it is up to the Australian Tax Office and Department of Industry to interpret the legislation.

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This hasn’t worked out well in the past with many software companies who thought they were doing the right thing subsequently hit with audits and repayment requirements.

“In summary, it is kind of like you were told that you were going to have both legs cut off and now you have been told that you don’t need to have your legs cut off… for now,” he says. “Sure a joyous occasion but tempered by what the future holds.”

For Petre, software is key to that future and this is where Australian policymakers should be focused.

“Everything you touch going forward will be underpinned by software, every device, every product,” he says. “We need to support software companies to the same degree we support the energy company plans or we support the advanced manufacturing sector.”

Cara is the small business editor for The Age and The Sydney Morning Herald based in Melbourne

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