Hamish Hawthorn discusses the evolution of the ecosystem

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3:08 Hamish Hawthorn: My name is Hamish Hawthorne. I've been in and around the startup ecosystem for many years. Currently though, I'm the Chief Operating Officer of Curious Thing. We're a conversational AI company based here in Sydney. So I've had the fortune over the years of building quite an extensive network of colleagues, both here in Australia and overseas. And last year, it was time for me to return to Australia after spending 5 years in San Francisco. And so coming back, I was looking for an opportunity to join a company that was starting the journey towards greatness, perhaps a company that would benefit from the experience, the highs, the lows, the challenges, the successes that I had been part of with a company called UpGuard in San Francisco. And so coming back to Australia, I was looking to see what people were working on, what interesting technologies were being developed, and what interesting entrepreneurs were doing together. And so from this, I made some— reconnected with some of my old colleagues from the Sydney ecosystem, and through that met the founders— or reconnected with the founders of Curious Thing.

4:23 Adam Spencer: Mm-hmm.

4:23 Hamish Hawthorn: And while I wasn't intentionally looking for an opportunity in AI, certainly AI is one of those technologies that is enabling the disruption that we're seeing all around us. It's also the enabling technology that has really delivered many of the really groundbreaking disruptive technologies over the last 12 months, last 18 months of the global pandemic. So all of these things pointed to AI being a very interesting area and working with some people that I trusted, that I'd worked together with before. That was really the entrée into the AI community.

5:01 Adam Spencer: When would you say you first got involved in the scene? And let's just be very loose with that term, the scene, just wherever you feel like it began.

5:14 Hamish Hawthorn: So my participation in the, the startup scene, the startup ecosystem, really goes back to the early 2000s. So I'd originally trained as a mechanical engineer and spent the first part of my career after university working for an automotive parts manufacturer as a design engineer. This included developing new materials joining processes, which obviously has a very strong, deep technology focus. This started my journey towards the startup industry. Ecosystem because I could see that, you know, working in manufacturing, developing new technologies, patenting those technologies, licensing in technologies from international research institutes, I could see that the path to real competitive advantage lay in building the basis of your technology to give you that advantage. And so as I looked for where I would take my career after working in a small manufacturing organization here in Sydney, I looked at which parts of Australian industry were working in areas of high tech, of where there was lots of innovation, where there was potentially lots of really interesting technology to be developed and commercialised. The journey towards the startup ecosystem took me through that journey, particularly through the medical device industry here in Australia. Medical device industry is, if we wanted to go right back to the beginning, is one of the early catalysts for the whole ecosystem we see around us today.

6:39 Adam Spencer: Mm-hmm.

6:40 Hamish Hawthorn: The medical device industry has been built on the back of incredible research out of Australian universities, incredible medical research. Cochlear is a great example, ResMed's another one. Even going back to the early days of Teletronics, these are all fantastic entrepreneurial organisations that are led by outstanding and great entrepreneurs themselves. So going to the medical device industry gave me some exposure to the startup community here in Sydney in particular. Mm-hmm. Around 2001, 2002. Very quickly though, I could see that the opportunities in the startup ecosystem were much more than just medical devices. And so we sort of jumped to where my sort of more, my first formal role in the startup ecosystem was when I joined ATP Innovations. This is now what's called Cicada Innovations, but back in 2005, it was called ATP Innovations. This was a startup incubator that was originally developed as part of the reconstruction or the remediation of the Australian Technology Park. The original founding members of this organisation were the University of Sydney, the University of Technology Sydney, and UNSW. They came together with the New South Wales government to redevelop what was at the time a derelict industrial site. The Australian Technology Park is what came out of this. And so from this, there was the formation of a startup incubator. This incubator followed a very traditional model of what incubators were like in the early 2000s, a physical space. We had a building called the National Innovation Centre that was based at the technology park. It was divided into a bunch of different spaces, not simply the coworking spaces we see around us today. These are very much an evolution of that original incubator model. Because we were a broad technology-focused incubator, we had both co-working spaces that you would see today, but also things like clean rooms. We also had laboratories for medical device biotech companies. We also had manufacturing areas for particularly the photonics industry, which was a great strength and catalyst for the Australian Technology Park coming into existence. So back in 2005, after having been a hands-on design engineer working in funding of startup companies as well, and that, that in those early 2000s period, getting involved in the medical device industry. Joining an incubator like ATP Innovations gave me that exposure to the broad cross-section of startup businesses as they existed in Sydney in 2005. Now, as you can imagine, in 2005 was a very different environment to what we see today. I must say that even in 2005, it was, still quite a unique thing to talk to somebody about being an entrepreneur or working in a startup company. It wasn't something that really had any distinct identity yet. To be honest, entrepreneur still had a somewhat negative connotation back in 2005, 2006.

9:44 Adam Spencer: Yeah.

9:45 Hamish Hawthorn: If you called yourself an entrepreneur, it generally meant that you were somehow shonky in some way. It was generally that you had ripped somebody off. And so it was quite funny to start with where part of this was really an education process, not just for people who had smart ideas to help them self-identify as an entrepreneur and have that being a very positive thing rather than a negative thing, but also just to see that as part of building community. Because back in 2005, if you wanted to go and hang out in a room full of startup people, there was very limited opportunities for that. In Sydney, it was probably us, ATP Innovations. You could go and hang out with Mick and the team at Pollinizer. Pollinizer. Kim Harris and the Push Start team, they'd just gotten started around that time. This was like the very early days of this. Certainly co-working spaces were not in any sort of existence yet. So you'd certainly, if you were looking to hang out with smart entrepreneurial people, you had limited choices. So being part of this initial catalyst at the ATP was a fantastic opportunity for me to learn a lot from what people were doing, to really cut my teeth on what it takes to help mentor, guide, coach those early stage entrepreneurs that are going through that journey of discovering what product they wanna make, what product that people care about, how to turn that product into some sort of a repeatable business model, how to engage with all the different parts of the ecosystem that are required to build a sustainable, scalable business.

11:18 Adam Spencer: What do you think has been the biggest changes between looking at the startup landscape in 2005 when you joined ATP compared to now?

11:28 Hamish Hawthorn: Okay, the biggest change is simply the density of activity. And I'll sort of expand on that on three fronts. So because we see so much more activity and so much more density of that activity, it means that you have efficiency starting to come into the ecosystem. So I'll talk about it from the perspective of the entrepreneur. So in the early days, it was very fragmented, very diffuse. It meant that if you were struggling to solve a big problem, you're generally on your own. There weren't hundreds of other entrepreneurs around you, either physically located with you in, say, a coworking space or inside Cicada Innovations. So you had to really solve a lot of these problems yourselves. What's happening now is that people are so much better connected, which means the entrepreneurs are able to learn from each other, particularly those people that have solved these hard problems already, potentially assist and steer people to success rather than having them go down dark alleys and end up dying a horrible death in the darkened alleyway. It also means that there's more speed. So people can get to the answer quicker. There's more, people can make progress in a much more rapid fashion. So that's the density for the entrepreneur. The density for the ecosystem around it is also so critical. So as we see more companies being formed, we see more of the ecosystem and the environment to support that buildup. Back in 2005, 2006, if you wanted to go go to a lawyer and get a term sheet written, it cost thousands of dollars because not only were there only a very small number of good legal firms that would work with startup companies, there weren't many people that had done this stuff before. So you're often educating the lawyers on transactional documents because they hadn't done it before. And there wasn't this great, as we see now, this great resource of information that sloshes around the system that's really accessible and available to everybody.

13:35 Adam Spencer: Yeah.

13:35 Hamish Hawthorn: So the density really helps the ecosystem form around it. I believe it's, if you've got lots of companies doing good things, then you'll have lots of good service providers providing support to those companies. Same thing goes for investors, which again is a huge difference between what we see now and what we had back in 2005, 2006, even 2010. Early days, there was very few investors that entrepreneurs could go to just 'cause there wasn't enough entrepreneurs and good companies to support that. Now we see great companies everywhere, lots of really good active investors. We see really well mature developed investment ecosystem to support that. The third part is really the entrepreneurs themselves. So we're seeing much more repeat entrepreneurs out there that have done this before. So you've got people who are joining startup companies that have either had their own experiences in an entrepreneurial situation or they have been part of companies that have been successful as well. So you've got this great head start because you've got this embedded virtuous cycle now spinning in the ecosystem.

14:38 Adam Spencer: Yeah, you're speaking about investment infrastructure. What prompted you to co-found Sydney Angels?

14:46 Hamish Hawthorn: So as with all good ideas, it started with Chinese food and a bunch of us had been trying to solve the issue of funding of early-stage startup companies for some time. And certainly this was a very challenging issue for all early-stage companies at that stage, there really was very limited access to capital. Some friends and family, some high-net-worth individuals, some early-stage formal venture capital, but very limited on all fronts. And a bunch of us had tried to solve this problem in different ways. Some of it had been very much on deal-by-deal basis. So either looking to support a company through a capital raise or potentially as an investor, try to find some deal flow to invest in, but very much deal-by-deal basis, investor-by-investor basis. And so some of us had been looking at what were the trends around the world. And a lot of us had seen the benefits and success of formal angel groups as a structure. Some of us had been to the angel investment conferences around the world. It's a the US Angel Investment Conference was one event that I went to in, I think, 2007, maybe around that time. A few of us had been doing this, looking at what was the best practice around the world for running an angel group. Because we could all see that if there was a solid angel group, then that would do a couple of things. It would potentially add some real value to the companies looking for investment just by having a process that would help guide, coach, structure deals in a better way. Also would be an avenue for investor education, again, to overcome some of the hurdles that individual investors have when they try and do deals themselves for the first time. So creating a network of people who are similarly aligned in doing best practice deal structures, you know, create a way where entrepreneurs could actually find somebody to go and pitch to. Again, this is early days of all this and it was something that we came together and said, well, maybe it's time for Sydney to have an angel group.

16:58 Adam Spencer: Do you have an opinion on access to funding in today's ecosystem?

17:04 Hamish Hawthorn: Yes, yes, absolutely. So back in the beginning of Sydney Angels, there was very limited avenues for people to go to seek investment. And we were solving a, definite problem. Now, to a certain extent, that problem is quite different now because there is such an increase in the amount of capital around and the success of companies that we see in the Sydney, in the Australian ecosystem, both in accessing that capital, doing amazing things with that capital, really building huge amounts of enterprise value. I'm blown away with the number of companies that are now quite proud unicorns that are just around the corner. I live in Surry Hills and just around the corner here, there are 3 or 4 unicorns, which is just something I never thought I'd see so close to one single cluster here in Sydney. So the challenges now, of course, is there's a lot more capital, but now the challenges just become somewhat different. Challenges now become in, you know, making sure that you are able to stand out from the pack if you are raising capital because the investment community is now so much more buoyant, but it is also much noisier.

18:24 Adam Spencer: What do you observe as some of the biggest gaps in today's ecosystem? Where could we— are we on the right track? What are some of the biggest improvements we can make?

18:34 Hamish Hawthorn: So some of the challenges that I see, particularly having come back from spending some time in Silicon Valley and San Francisco, is that we have significant growth in the ecosystem over the last few years. So there's a lot more participation, which I think is ultimately going to be hugely beneficial for Australia. That benefit comes from people's entrepreneurial experience being leveraged into the next entrepreneurial experience into the next entrepreneurial experience, this virtuous cycle that we are seeing spinning up. So I think that's fantastic. I think the challenge we have in Australia is that I think there is still more we need to do to allow people to break out of that initial cycle. And what I mean by that is we see, while there are a lot of companies that are being formed and a lot of companies that we see that comprise the ecosystem, I suspect that there's some deadwood in that pool of startup companies. It's possibly some companies there that perhaps should be recycled. The talent in them should be recycled into the next thing. But they are staying in a—

19:50 Adam Spencer: Mm-hmm.

19:50 Hamish Hawthorn: There's a few zombies out there, I suspect, that are holding back the development, really the development explosion of the ecosystem. And I think partly that's just the, there is still a slight fear of failure here in Australia. It's a cultural thing more than anything. I think there's a willingness to keep pursuing an opportunity even when all the evidence says you should kill that opportunity and start something fresh.

20:15 Adam Spencer: Let's go back, 'cause before we hit record, you were talking about, let's celebrate and put the spotlight on some of the early innovators, like some of the early movers and shakers of the ecosystem before it was really an ecosystem. Who and what were you referring to?

20:32 Hamish Hawthorn: If you look at the analogues of the PayPal Mafia, the lineage of so many of the iconic Silicon Valley companies all go back to that initial management team or early employee team that were part of PayPal's journey. The analogue in Australia is the links that go back to the Teletronics group of companies, the Nucleus Group of companies. So Teletronics was an implantable defibrillator, a pacemaker company. The Nucleus Group also was the parent company for Cochlear. There were also a bunch of other companies there. Osonics, which is a highly innovative ultrasonic company. So all of these businesses were part of the Nucleus Group, headed up by a gentleman called Paul Treanor. So he is somebody that is somewhat little known outside of the medical device industry, but he is definitely, you know, the original, the OG entrepreneur, I would suggest. Somebody that was both a visionary, somebody who could really understand the commercialization of technology, who could work with researchers like Graeme Clark to commercialize technology that ended up in Cochlear, who could really build exceptional teams. And so if you look at— Yeah. The people who then have now ended up in the medical device industry in Australia as the leaders there, people like Chris Roberts. These are people who in and around the Nucleus Group of companies and then went on eventually to build amazing companies like Cochlear, who, you know, you see them throughout the Australian industry. So I think people like that and the founders of those businesses that all draw their lineage back to the Nucleus Group of companies shows just how we potentially will see some of the current batch of iconic startup companies create this, will be the catalyst for these new companies that will form.

22:25 Adam Spencer: You know, you said you were in Silicon Valley for 5 years or so. Can you compare any changes you've observed in the ecosystem before you went compared to coming back now?

22:37 Hamish Hawthorn: So before I left, there was a sense that we were on a cusp of real prominence in Australia for the startup ecosystem. This was early 2016.

22:52 Adam Spencer: Mm-hmm.

22:53 Hamish Hawthorn: So we'd seen the benefits of Atlassian's success. We're just starting to see the next wave of successful companies coming through. So there was an expectation, felt at the time that these success stories would start to become the lightning rods for a whole new wave of entrepreneurship. I think this also perhaps coincided with this increase in entrepreneurial training inside the universities, which started to really crystallize the— almost providing a validation of joining a startup company as a career path. So you had this combination of successive companies like Atlassian spurning additional success stories and these companies now becoming, more often than not, companies that are being talked about on the front page of the Fin Review, just starting to happen around 2016. You then had people like Murray Herbst doing an amazing job at building a startup ecosystem inside at UTS. You have the Michael Crouch Innovation Centre at the University of New South Wales, again, doing a similar catalyst role for creating this servicing the demands of the student population to learn more about entrepreneurship. You have accelerator programs like Incubate at the University of Sydney. Again, all these things contributing to a greater awareness of the startup journey. And I could see that at the beginning of 2016, this was just about to explode. And so it's very pleasing now to have come back to Australia to see such a buoyant, such an explosion of activity. Going back to this density is now very tangible and creating all of those spillover benefits that I mentioned before.

24:43 Adam Spencer: And as I mentioned before, a lot of people are giving me the year 2012 or thereabouts as when a lot of things started to collide and and that was the birth of the ecosystem as we know it today. But do you agree with that statement? And what were some of the catalysts maybe that you could see coming before that that made that possible?

25:07 Hamish Hawthorn: Certainly there was a step change in around the 2012 period. I think we should go back a little bit further to say, well, what were the inputs to the ecosystem that allowed that step change to occur around 2012? So certainly one of them was the establishment of Startmate. I think having, while there had been previous accelerator programs, I think there was something about the timing, the people involved, just the way that Nicky ran Startmate in 2011, 2012, I think that really made a great impact for the ecosystem from having a very well-regarded, well-run accelerator program that really fulfilled the objective of connecting successful entrepreneurs, people that knew what they were doing, with early-stage entrepreneurs beginning their journey.

25:57 Adam Spencer: When you say how Nicky ran it, what, and you implying he ran it really well, why do you say that?

26:03 Hamish Hawthorn: So one of the reasons, he is very persistent and he had a very clear idea around what he saw the gap in Australia being. It was very much this challenge of somewhat returned entrepreneurs, but just in general, successful entrepreneurs or people that had that experience in other examples. How could you best leverage all of that experience and expertise to help companies at the beginning of their journey? Challenge when you're doing this on a one-to-one basis is it's very inefficient and there's quite a lot of friction involved. You have to hunt down people who know what they're doing. You have to build a relationship with those people. You then have to spend time really maximizing the value of that relationship in order to become successful, for example. The accelerator program, the model at the time, I think it's certainly evolved over the years, but at the time, it was a way that through a competitive process, you could provide a catalyst for people to get off their ass and to actually say, I'm gonna do this, 'cause there's an application date that is coming, and if I don't actually put down on paper what I wanna do, I'm never gonna get this thing done. So it was a great catalyst for people to come together and say, I'm gonna do this. There was a natural process of engagement with the mentor group because they were intimately involved in the selection process. So you had a group of 20 people, it was limited at the time to only 20 people who came together to say, we do plenty of mentoring of founders of companies, it's very inefficient and there's only a certain amount of time in the day. Imagine if we could work out a way where we could create essentially a screening process to get the best 5, 10, whatever the companies were at one time and we could all come together and work with them collectively.

27:56 Adam Spencer: Who, if you had to like rattle off a handful of around that time period as people that were leaders and making things happen, in the startup ecosystem, who comes to mind?

28:10 Hamish Hawthorn: Hmm, so certainly Nicky and both in terms of Nicky's establishment of Startmate and then Blackbird and then Rick being, you know, the person that jumped from the dark side of funds management into Blackbird to help be the catalyst for getting that fund off the ground. I think that they've made a great contribution to the development of the funding part of the ecosystem. Because again, they've done the hard yards of convincing the superannuation industry here in Australia that venture is an asset class they should have exposure to.

28:44 Adam Spencer: Do you have any exposure to ecosystems within Australia but outside of Sydney, New South Wales that you can compare where they were up to at the same time that we're talking about Startmate in Sydney?

28:59 Hamish Hawthorn: So the two areas that I had the most involvement with were the Canberra ecosystem. So partly as a result of ANU being a shareholder in Cicada, in ATP Innovations, I did spend a bunch of time in Canberra around the very early genesis of what has now become the Canberra Innovation Network. Very similar to what we saw in Australia, it was driven by some individuals that were active in both the investment side of things. So Nick McNaughton was a key player in developing the ecosystem down there. We had people that were involved in angel investment as well through Capital Angels. And the university was starting to support entrepreneurship through the InnovationANU, which was a business planning competition that's now been broadened out to being the whole of the territory. So you had all these different components. You also had some coworking spaces popped up. Entry 29 was one. And these things were all building on previous activity down in the ACT region, but really was that catalyst around that time that said, you know, we're seeing this happening all around Australia. And the way it happened in Canberra was similar type of model where you've got a few small people that see this as being a really important part of the development and growth of the territory. And they could do it because they had the expertise and the experience of knowing what was possible. The The other group that I had some involvement with was the iAccelerate team down at the University of Wollongong. So University of Wollongong again is, you know, got a mixture of regional development objectives, but also they educate a whole bunch of smart computer science graduates and they're always looking for ways to better engage with the startup community. And by using a physical incubator was the path they chose. Able to get some funding to build a facility and develop a range of programs. A lot of it's education-focused, some of it's mentoring, some of it is investment. It's following a very similar pattern that we've seen all around. So I think coming back to Australia after spending some time overseas and reflecting in preparation for this, this interview how far we have come, my message is that we have all the elements to ensure the success of the Australian innovation ecosystem. So we have a very vibrant entrepreneurial ecosystem in most of the capital cities. There's an abundance of capital that is now available for investment into that dynamic ecosystem. We've also got some structural changes in the world post-pandemic, where I think that markets that seem remote previously now are just a Zoom call away. And so I think we've got this unique opportunity now, which I encourage us all to capitalize on and not fall into the traps of letting it slip through our fingers. So I think we have the elements, we have much of the opportunity in front of us due to some of these structural changes. I just would encourage all of us to recognize that these, that the barriers that we used to perhaps use an excuse for our success have now gone, so let's make it happen.

32:25 Adam Spencer: If a brand new founder came to you tomorrow, what one piece of advice would you give them?

32:31 Hamish Hawthorn: One piece of advice is always very tricky, so maybe it's the bit of advice which I think is universal for all startup founders is go and speak to customers. And I think the reason why sometimes it's easy to forget to do it is that often it's the one thing we can do where we get a very negative outcome. So if you go and speak to other entrepreneurs, they'll say, "You're doing great. You're crushing it." If you go and speak to your co-founders, they'll say, "Look, we're all crushing it." Yeah. I think if you go and speak to a customer and they say they don't care about your product, it's really hard to take. And unfortunately, I think it's easy to say, "I don't want to have to hear that, so the longer I can avoid talking to customers, the more I can live without having to deal with the fact that my baby is incredibly ugly." I hope you enjoyed that interview.

33:28 Adam Spencer: More interviews are on the way. Follow the podcast wherever you're listening right now. Stay tuned for more interviews with many, many more amazing people from the Australian startup ecosystem. Thanks for listening and see you next time.

33:40 Hamish Hawthorn: Bye.