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Young Rich Listers tech start-up Appster collapses after tough four months

Yolanda Redrup
Yolanda RedrupRich List co-editor
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App development business Appster, created by Young Rich Listers Mark McDonald and Josiah Humphrey, has collapsed, with the co-founders placing operations globally into liquidation.

The young tech gurus have been ranked as some of the country's richest people under 40, making their debut on the list with a combined wealth of $58 million in 2015 and featuring on the list every year since. This year they were ranked at 96th and 97th and had a combined wealth of $52 million.

But on Thursday the business, which was founded in 2011 and developed apps for other companies, voluntarily placed itself into liquidation, appointing Paul Vartelas of BK Taylor & Co to manage the Australian liquidation.

Co-founders of Appster Josiah Humphrey and Mark McDonald said despite their best efforts, the business collapsed. Wayne Taylor

The business had publicly said in the past that its goal was to get to $100 million in revenue in 2018, but in the last four months work had dried up, the business started missing targets and its revenue took a substantial hit.

The co-founders said in a statement to AFR Weekend that they were heartbroken and acknowledged that despite their best efforts, sometimes "things don't work out".

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"Surprisingly we were in one of the best cash positions the business had been in, just four months ago, but things spiralled out of control very quickly," the pair said in a statement. "We missed forecasted sales targets by about 50 per cent four months in a row ... with expenses of roughly $1 million per month, our cash reserves were depleted very rapidly despite attempting cost reductions."

The entrepreneurs started the business when they were only 18 and scaled it to 400 people in three continents, including about 25 employed in Melbourne, and were one of the early success stories of the local tech ecosystem.

The company tailor-made apps for businesses across the world and had operations in the US and India, as well as Australia. It was behind apps such as events app Affynity, cashless clubbing app Venu and edtech app Smartr.

It started out with just $3000 and has been largely self-funded, with many of its staff also holding stock options.

Indian tax woes

Mr McDonald and Mr Humphrey also blamed a tax ruling by the Australian Taxation Office for contributing to its collapse.

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"Another contributing factor was the Tech Mahindra ruling with the ATO, which changed how money was taxed between Australia and India," they said.

"As well as retrospectively paying the last four years of the new tax, which wiped out our profitability through double taxation, this was very difficult because we had structured the business after getting professional advice."

In its most recent financial report filed to ASIC for the 2016 year to March 31, Appster reported having revenue of $8 million in Australia and made a loss of $2.2 million, but the company had previously said publicly that including its international operations it was making about $19 million a year in revenue.

The company had a number of high-profile advisers, including former Paypal chief financial officer David Jaques and former Virgin Australia executive Liz Savage.

Liquidator Paul Vartelas said he was still assessing the extent of the company's liabilities, but even though the firm had only been appointed yesterday, he already had interest from up to 10 parties in acquiring the assets of the company, and he expected that number to grow to around 30 in the coming days.

"We'll try and do the process as quickly as possible in the next three to six weeks. The longer you leave it the harder it is," he said.

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"We'll provide an information memorandum to the interested parties to hopefully buy the business and offer employment to some of the staff."

The local start-up ecosystem has often been criticised for its fear of failure, which is widely accepted as part of the course in Silicon Valley, with many entrepreneurs failing numerous times before launching a successful venture.

Mr McDonald and Mr Humphrey had never shied away from sharing their ambitions for the company, having expressed the belief that they could turn the business into a unicorn ($1 billion tech company).

"Just like Rockefeller did to oil, Henry Ford did to cars, we want to build the world's first global ideas company," Mr McDonald told the Financial Review in 2014.

"We're very confident. It's a long-term goal and not a two- or three-year play."

Yolanda Redrup is the co-editor of the AFR Rich List. She previously reported on technology, healthcare and Street Talk. Connect with Yolanda on Twitter. Email Yolanda at yolanda.redrup@afr.com

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