Folklore Ventures and Cut Through Venture published the State of Australian Start-up Funding.  Every start-up seeking investment already knows that it has been as difficult as ever to attract funding.  Australia’s capital markets are shallow not deep and largely uncompetitive.  Many late stage start-ups go offshore for capital to larger more established VC markets.  Many also shift manufacturing wholly or partly offshore either due to lack of expertise, scale, high labour costs, or just to be close to larger markets.  This is the troublesome reality.

That said, this Report has some useful insights.

1.   Total Capital Raised is on a par with 2020 (Covid year 1) a 38% decline from 2022. In 2023 41% of investors saw a portfolio company close, and 90% saw a portfolio company layoff staff.  The market has been tough and many cashed up VC’s have twiddled their thumbs on the side line. Not every HNW investor is happy about this.  An experienced Angel Investor who invested $1M in a VC fund communicated to the LP that if his funds were not invested in good ventures in the down market within 6 months, those funds would be transferred to a VC who knew what they were doing!

2.   While VC IPO’s and trade sales offer simple exists they are actually rare.  Stock selling from one investor to another (a larger specialist or growth fund or family office) are gaining acceptance especially as VC funds come to the end of their investment horizon and seek to liquidate investments.  Exit options for new start-ups and management of the share register and valuations is as important as ever.

3.   Angel investors are saying that there is competition for ‘quality deals’.
Well maybe, and then maybe not.  This type of comment is on a par with the Report comment that start-ups have been experiencing ‘wartime’ conditions.

4.   Mooted wholesale investor regulation changes to protect investors will dampen investor activity in 2024, even if there is cause for optimism.
There is a threshold question of the extent to which wholesale investors need protection – this group of investors are largely self-selecting and more than capable of risk assessment or joining an angel syndicate run by experienced investors.

5.   Angel Investors see Accelerators and Venture Studios as affording some investment credibility to the companies they nurture.
However, the success of these companies is really no greater than the bulk of start-ups that are not selected to participate in these models.  As the Report highlights, it is a bet on people – the start-up team – above all else.  The quality of governance fits in there somewhere.

If This Report means anything, there is cautious optimism from Investors about 2024… everything else being equal…

 

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