VCs plough $14m into crowdsourcing startups


news Two high-profile Australian startups who have built their businesses on crowdsourcing this week revealed they had attracted a total of $14 million in venture capital funding that will allow them to continue to grow aggressively and extend their reach outside Australia.

The largest investment a $11 million Series A round which was ploughed into local data analytics company Kaggle by investors including Index Ventures, Khosla Ventures, Google’s chief economist Hal Varian and Applied Semantics co-founder Gil Elbaz. The deal was announced in the US, where Kaggle is now based in San Francisco, following a move from Melbourne earlier this year. The company also this week announced Slide’s Max Levchin as its company chairman.

Kaggle is fundamentally a company which conducts predictive modelling activities. “Companies, governments and researchers present datasets and problems [and then] the world’s best data scientists then compete to produce the best solutions,” the company’s web site states about its model. “At the end of a competition, the competition host pays prize money in exchange for the intellectual property behind the winning model.”

“The motivation behind Kaggle is simple: most organizations don’t have access to the advanced machine learning and statistical techniques that would allow them to extract maximum value from their data. Meanwhile, data scientists crave real-world data to develop and refine their techniques. Kaggle corrects this mismatch by offering companies a cost-effective way to harness the ‘cognitive surplus’ of the world’s best data scientists.”

In a blog post, the company said its vision was to build Kaggle into a “hive” buzzing with enough public and private competitions to support hundreds of thousands of data scientists relying on the site for their full-time incomes. Kaggle was founded by its Australian chief executive Anthony Goldbloom about a year ago.

“Having noticed that Melbourne seemed to be popping up as a hot-spot over the last few years with the emergence of Atlassian and 99designs, I asked Steve Lipchin, a business school friend who recently moved there from South Africa, to let me know what companies he thought we should look at. A few weeks later, Steve put me in touch with Kaggle,” wrote Index Ventures’ Neil Rimer in a post on the Kaggle investment.

“I met with Anthony Goldbloom and [Kaggle chief data scientist[ Jeremy Howard for coffee on a Sunday when I was passing through San Francisco, and yes it was one of those meetings that is supposed to be 45 minutes and ends up being 3 hours. It was also one of those meetings that makes you smile on your drive home because it reminds you why it is such a privilege to be in the business of helping entrepreneurs fulfill their missions.”

The second major investment to take place this week in an Australian firm is more local. It saw some $3 million ploughed into DesignCrowd, an online marketplace that helps businesses around the world outsource creative projects.

The company was launched in 2008 by local Alec Lynch from what the entrepreneur described as “his mother’s dining room table”. DesignCrowd’s ‘crowdsourced’ business model is not dissimilar to the one used by Kaggle — taking advantage of resources located around the world. The company has some 40,000 graphic designers from around the world registered to bid for design projects on its system.

This week DesignCrowd announced Melbourne investment house Starfish Ventures had invested $3 million in the company. The money will allow the Sydney company to further expand globally. “We’ve done well in Australia, now we want to take on the world, and Starfish is the perfect partner to help us succeed,” said Lynch in a statement issued yesterday.

Tony Glenning of Starfish Ventures (who led the investment in DesignCrowd) said: “We really believe in the crowdsourcing model. In particular, we are really attracted to the idea of crowdsourcing the solution, rather than simply providing a marketplace for outsourcing, which ends up as a race to the bottom and is neither beneficial to the customer nor the designer. Alec and his team have done a great job providing a unique offering that serves both.”

A few things come to mind when I think about these two investment this week. Firstly and most obviously, the idea that it’s hard to find venture capital investment in Australia has now been completely debunked. We’ve now got a stack of incubators for solid angel investment, plus VC firms locally and globally that have demonstrated a willingness to invest in Australian companies at any level — from a few hundred thousand dollars right up to tens of millions.

And it doesn’t matter how new or old the startups are — after all, Kaggle is only a year old. All that matters is their potential and early demonstration of an ability to execute on rapid growth plans.

Secondly, both DesignCrowd and Kaggle demonstrate that forming a startup in Australia can actually be a benefit to your business, not a curse. Both companies have used Australian insight into their industries (backed by our great education and technology startup community here), coupled with an ability to leverage global resources.

To my mind, it seems like this will very much be the future of Australian startups from here. Using Australian ingenuity plus tapping resources outside our borders to get the job done. And if you think about the potential for this model, it looks as though Australia’s technology startup sector has a very bright future indeed.