Sydney’s Paloma wins $1.5m local investment


news Sydney-based next-generation mobile startup Paloma Mobile has raised $1.5 million in investment funding from Australian venture capital firm OneVentures, in a move which will further highlight the growing strengths of the local funding landscape for Australia-based technology startups.

Paloma was founded in July 2011 by established entrepreneurs by Jennifer Zanich and Steve Langkamp. It is focused on developing smartphone technology for mobile telco partners in fast-growing regions such as Southeast Asia and Latin America. Its first service, dubbed ‘Photo Chat’, allows users to share photos and use associated social networking features in private conversations with friends or family. It is based on what Paloma is terming its ‘cloud’ — a software as a service-based platform which allows low-end mobile devices to escape the restrictions of their limited hardware by utilising the benefits of online connectivity.

“There is massive demand for photos and messaging in emerging markets,” said Zanich in a statement, “especially on low-end smartphones. Our Photo Chat service, in Beta, is only one-tenth the download size of photo apps in developed markets, enabling it to run on the cheapest Android phones and even on GPRS networks.”

For its own part, OneVentures describes itself as a venture capital firm that invests in emerging Australian companies with differentiated products in the information technology, life sciences and clean technology sectors. The company’s investment achievements include exits via mergers and acquisitions ($30million) to NASDAQ listings (US$350million). OneVentures has reviewed over 650 companies and states that it has recently completed one of Australia’s largest first-round financings ($15M) through syndication with a top tier US VC firm.

The OneVentures Innovation Fund is a $40 million venture capital fund raised in 2010 and formed as an Early Stage Venture Capital Limited Partnership. OneVentures is supported by the Australian Government through the Government’s IIF program with this funding matched by institutional investors, individual high net worth investors and family offices.

“Our investment in Paloma is a great example of backing a strong team with an impressive track record in building and exiting companies,” said OneVentures partner Anne-Marie Birkill. “We are also particularly excited to be backing our first female founder with this investment.”

The pair said in their statement that the majority of consumers in emerging markets could not afford iPhones, but beginning in mid-2011, several manufacturers had introduced much more affordable smartphones based on Android. “With some entry-level models costing less than $100, consumers in emerging markets are rapidly becoming the primary driver of global smartphone growth,” they said.
“Creating services for these 1 billion consumers is one of the great opportunities of the mobile Internet,” said Paloma co-founder Zanich. “Consumers with entry-level Android phones expect to have ALL of the popular smartphone services, just like on expensive iPhones and other ‘superphones’ that cost more than $600.”

“But that is not a reality for sub-$100 smartphones. These devices are cheap because they have small screens, and limited processing power and memory. Many will operate only on 2G networks (not 3G) – again to keep device costs down, but also because mobile users in emerging markets will often have access only to these low-bandwidth networks.” Hence, the company’s solutions are targeted at this market.

The news comes as the Sydney Morning Herald has recently published a series of articles claiming that Australia’s technology startup ecosystem is unable to support local entrepreneurs, causing them to increasingly head to the US in search of the financial backing they are unable to attract in Australia. However, an increasing number of local technology startups are proving able to attract funding from Australian investors.

In April 2012, just a few months after launching, Web 2.0 collaborative consumption firm Airtasker also grabbed $1.5 million in local funding, after raising an initial $140,000 in seed capital. In February this year, visual data startup won $2 million worth of angel investment, after winning an initial grant from Commercialisation Australia of $250,000, and the month before that, bug-tracking software company BugHerd won $500,000 in funding from Melbourne venture capital firm Starfish Ventures. In November last year, Local crowdsourcing startup DesignCrowd also won $3 million in investment from Starfish, while that same month Australian startup consultancy and incubator Pollenizer raised $1.1 million for local startup funding.

Pollenizer co-founder Phil Morle a week ago participated in a startup panel during the Vivid Sydney festivities, which he said at the time was slated to reveal that globally, Sydney was ranked 21 as a startup ecosystem when measuring how many companies grow through a lifecycle towards scale. Data released at the time by the Startup Genome project showed that one of the big factors influencing startup growth locally was what Morle described as “a funding hole between angel investment and Series A that no one has stepped in to fill”.

Series A investment rounds are typically in the range of $2 million to $10 million while angel investment is usually in the tens of thousands of dollars to the hundreds of thousands.

I’ve been telling anyone who will listen over the past 12 months that Australia is continuing to see a huge wave of angel and early stage investment in the huge numbers of technology startups which are continuing to be formed in what is becoming an increasingly vibrant local ecosystem. And with some large investments recently by venture capital firms such as OneVentures and Starfish, it’s hard to see what people are talking about with respect to promising startups having problems finding investment capital in Australia.

I mean, with Paloma we’re talking about a company formed 12 months ago, which appears to have only one, fairly untested product in a highly dynamic market. But, with the combination of the experience of its founders and a little nous in targeting the right growing sector of the economy, it’s already won $1.5 million from Australian investors and is now set to conquer the world. I wrote this in late May:

“… it should be blindingly obvious — that Australia will never be able to offer IT startups the same level of support or infrastructure that exists in the US. We are a much, much smaller country, and we don’t have the same global technology and financial institutions headquartered here. It’s always going to be easier if you take your company to the US, to get a level of scale and open doors for larger and easier deals than you can get Down Under. This is a fact of life, and we need to accept that comparing Australia with the US is not a fair fight. We need to run our own race, and recognise our own significant milestones for what they are.”

In Australia, right now, we’re seeing a huge level of growth, innovation and funding in the technology startup sector, and we should recognise the fantastic wins being achieved by companies like Paloma, instead of constantly complaining about how we’re not as good as the US. The truth is that we’re never going to be; but we can be something else. Something great in its own right. Are there gaps in Australia’s startup funding model? Likely there are. But there are also great Australians rising to meet that challenge.

Image credit: Rolve, royalty free