It is no secret that Australia has a venture capital problem. However, it would be remiss to say there aren’t people within the startup ecosystem that are doing their bit to help solve that problem. Five years ago, Australians had no where near the amount of access to seed capital as they do today; and though it is still early days, the access to Series A capital is beginning to improve.
One such venture capital firm striving to make a difference is Trimantium Capital, founded in 2008 and led by entrepreneur and investor Phillip Kingston. The firm targets early-stage FinTech and HealthTech companies, meaning it invests between $500,000 and $2 million in startups that are either pre-revenue or early revenue.
“We’re probably one of the only Australian VC firms working in the real US valuation model,” says Kingston. “Essentially we are not interested in questions like ‘How do we get good value and more equity?’ and instead ask real questions like ‘What are the equity dynamics to ensure that the company’s going to be successful?’. I don’t want to dilute startups too much because I know [they are] going to have five more rounds in order to reach growth milestones. So we ask the question ‘What’s the best amount of equity so that you can be successful.’ That’s a very different way of approaching a valuation. So I’m happy to pay more if it gets a better outcome”.
Trimantium has invested in startups like Good Super co-founded by Dr Aron Ping D’Souza. Good Super is Australia’s first all online superannuation fund where users can actually sign up, roll over money and everything will happen without them doing any paperwork. The startup has been a great investment for Trimantium; it’s grown rapidly to 12,000 members within its first six months of operation and recently acquired a competitor fund.
The firm has also invested in Tom Dawkins’ crowdfunding site StartSomeGood.
“I think we’re trying to find companies that are either going to absolutely dominate a weakness in Australia or are global from the start,” says Kingston. “We’re not interested in replicating other global companies. In that sense, we are similar to funds like Blackbird VC.”
Kingston says there are not many investors in Australia with global connections; this is what Trimantium solves.
“They talk about having global connections. However, this year alone, I have been to the US every single month. It provides us with a different level of global interface. Half of my investors are from the US and half are from China. Four out of seven of our Directors are American. So whilst we’re Australian, we have this global thesis and our money is smart in the market,” says Kingston.
“We are able to find under-appreciated, undernourished Australian and Asian opportunities and then get them to the big guys in China and the US. There’s no one doing that here in Australia.”
Kingston does make a good point about the issues Australian startups experience when it comes to raising capital. There have been many times when individuals and startups that have participated in well-known accelerator and incubator programmes, have attempted to raise money in the US and heard nothing but crickets. If American investors do not have skin in the game, we are going to have trouble getting them to take the Australian ecosystem seriously.
“All of our investors are from these markets so when I bring them in, they have a vested interest in introducing the startups to everyone in New York or Silicon Valley or LA, because that’s how they make money – by getting these companies funded,” says Kingston. “It’s about aligning the domestic knowledge with a commercial incentive.”
Kingston did tell Startup Daily that he has a problem with some of the ‘support structures’ currently in place in Australia’s startup ecosystem – particularly programmes that are not entrepreneur-friendly and are set up to make money from entrepreneurs by charging them for services or forcing them to work with associated companies. He believes that the approach of certain Australian incubators has been absolutely devastating for the startup community and some entrepreneurs.
“I have had entrepreneurs literally crying in my arms about how they’ve been loaded up with debt from these incubators, and forced to buy stuff they don’t want,” says Kingston.
“The equity deals that have been made are meaningless; the incubators got equity on the basis of false pretences like ‘we’ll get you over to the US for additional funding’. I don’t caution entrepreneurs against that, I just say, ‘make sure you’re very clear on what you want. Very, very clear and then make sure they’re the best partner to have’. If founders want US investors, this isn’t the best way to get them. I think a lot of people do these type of deals because they’re not sure what to do next.”
This suggests that there’s a pre-education phase that is missing in the startup ecosystem. As startups have become more ‘sexy’ in the last few years, it has resulted in more people running into the market – some of them are perhaps not the best ones to be teaching or guiding entrepreneurs.
Kingston wants Trimantium to play a role in the whole ecology of Australian entrepreneurship. For him, this is not about getting ‘all the deals’. He says that the firm believes and loves co-investing and doing deals with other investors.
Kingston certainly has strong opinions on incubators and accelerators, opinions that could be seen as contrarian to a large portion of the players in the Australian ecosystem.
“Compared to the average Australian fund we’re contrarians,” says Kingston.“There’s three major things that are contrarian about us. First, we believe impact investing is more robust over the longer-term; second, we have a very different view on valuation than most people; and third, we believe very heavily against a lot of things like incubators and accelerators.”
Until there is data that actually supports claims that incubators and accelerators actually produce global companies that make a difference, Kingston stands firm on the belief that they are not great for the ecosystem.
“We don’t believe in incubators and I don’t think that accelerators work at all. Entrepreneurs need to be able to fail quickly. The problem with incubators is that they keep them alive. Just die. That’s what you need to do and incubators do not create that outcome and that is very unfortunate.”
Featured image: Philip Kingston. Source: Provided.