‘Dumb money’ is out and savvy investors are looking for opportunities in the Australian startup scene, leading venture capital partners say.
Speak at the Melbourne Startup Boot Camp at Bay City Labs yesterday, Rohan Workman, co-founder and CEO of Skalata Ventures, called out the ridiculous funding rounds that had given startup founders unrealistic expectations.
“It’s a great time to build a business,” Workman told Bay City Labs at the Melbourne Startup Bootcamp this week at Bay City Labs’ Docklands hub.
“I think it’s actually a really good time because there are a lot of people, including the three of us sitting here, who are probably going to make more investments this year than any other year before that, so it’s actually a good time to raise a .”
Workman appeared alongside Tractor Venture’s Jodie Imam, Archangel Venture’s Ben Armstrong and Stripe’s Jane Kou on a panel discussing the macroeconomic challenges facing startups and investors.
Ever since interest rates started ticking up after the historic lows of the pandemic, the startup community has faced financial headwinds because investors were looking for higher returns.
Coupled with a general cooling of marketing sentiment towards the tech sector at large, leading to massive job losses at the established giantsAt first glance, the outlook for startups looking for funding seems uncertain, but according to Jodie Imam, that’s not the case.
“We’re actually seeing some really great opposing experiences,” Imam said.
“One of our founders said to us in December last year, ‘Okay, I’m ready to raise,’ and we thought, ‘You’re crazy. You’re not getting any money in December!’
“He did. He got money from TEN13 and some others – the rest is being finalized – but I think it’s a good time to make investments, if you’re a company that has customers and is generating revenue and has a path to profitability .
“There is a lot of dry powder in this market, especially in Australia, that is still protected to some extent from what is happening in the world. Our VC funds have collected one and a half times to invest.”
The right time to start a business
Imam’s optimistic view was shared by Ben Armstrong of Archangel Ventures: “I think it’s a great opportunity to start a business in this environment if you have the right kind of business and the right attitude. .”
For those looking for angel investors and high valuations, the news may not be great, but with Workman warning, many friends and family won’t be looking for startup investment for the foreseeable future and the numbers will be much more modest.
“There were so many of these founders who came to you and said, ‘I’m turning over $4,000 in revenue, like a $10 million appraisal, I’m going to build a $200 million company in the next three months.’ It was just stupid And the thing was, what happened was there was a rush, and there’s a lot of FOMO in the market.
“Angel investors are generally high net worth individuals, you have a lot of people who might be doctors and lawyers, people with money, who don’t necessarily understand in great detail what it takes to be a successful novice investor.
“So what you find is that some founders might find friends, maybe an uncle who works as a partner for KPMG, to put money into. As you know, for a $10 million valuation, that really didn’t make much sense.
“Now that those investors are starting to step back, the whole world, especially the seed phase, is a lot more realistic. And what you want is when you think about building a business, what you don’t want to do right now for valuation, you want to think now about the next four or five capital raises that you need to make to build the business that you’re looking for.”
The message to the founders of the boot camp was clear: if you run a business that solves real world problems, Australian VCs are willing to talk to you.
“The dull sectors are the best,” said Workman. “If you work in a very boring industry, we really want to talk to you.”
Imam added: “We see a lot of attractive investments where our founders have started with a more traditional model, such as a consultant or a service provider, and then found the technology that is going to solve the problem and translate into a product company. And that is the kind of company that we like to support.”