Investors and companies spent more than $2.6 billion on tech startups in the first three months of 2019, but the cash splash looks set to dry up if the longer-term trend continues according to Startup and tech directory Techboard, which released its March 2019 quarterly funding report today.
It was a good quarter for mature startups as larger businesses turned to M&A deals for growth.
One key deal dramatically increased the figure – CBA’s $1.6 billion acquisition of property exchange network PEXA (Property Exchange Australia Ltd), as part of a joint bid with Link Administration Holdings Ltd and Morgan Stanley Infrastructure Partners Inc., but other funding still topped $1 billion in the first three months of the year.
It was the largest quarter for funding since Techboard began producing its reports.
Techboard identified over 150 funding events across a broad range of funding types ranging from accelerator program funding, acquisitions, equity crowdfunding, major debt instruments (sometimes called venture debt), grants, initial public offerings, ASX placements and private investment (including angel, VC and other large-scale private investment).
One even used an ICO – initial coin offering. The controversial fundraising method has come under increased scrutiny by corporate regulator The Australian Securities & Investments Commission (ASIC), which has blocked several ICO attempts in the last 12 months.
As a result, the crypto-currency/token component of the funding mix continued to decline, although Victorian-based Liven’s ICO was a major success, raising $14m for the lifestyle payment platform.
Meanwhile, a new equity crowdfunding record was set by Victorian-based female ridesharing service Shebah, which raised $3m on the Birchal platform.
Others took a more traditional route to bolster their balance sheet. Fintech Moula turned to debt funding to secure $250m, which Techboard says is the third largest debt financing for a startup it’s seen, behind Judo Capital’s $350m in Dec Q 2018 and NextDC’s $300m in Sept Q 2017). Those three funding events represented almost $2b in funding events, more than double the quarterly funding average during 2018.
The report found private investment (including angel, VC and other large-scale private investment) was second most prominent form of funding at $477m. That’s down from $570m in the 2018 September quarter, however private investment was up more than 200% on $156m in the December 2017 quarter and above the 17/18 quarterly average of $236m.
Foreign investors played a major role in larger scale investments, with half of the top 10 investments involving foreign investors and four led by it. investor-led. While Techboard was unable to to identify how much of each investment round came from by foreign investors, overall they contributed to 67% of private investments by value and 27% by number.
Private investment was at $476m, up 31% from the December Q 2018 and up 37% from March Q 2018, but did not return to the September Q 2018 peak of $579m. Public investment was down and debt funding was also down from December Q 2018 and March Q 2018 levels.
Techboard’s historical data on private investment reveals trends during FY19 thus far that should concern the sector. There has been a general decline in the number of funding events per quarter. Breaking it down into four funding categories – under $1m, $1m-$5m, $5m-$20m and $20m+ – the only category to show an increase in the number the number of deals this quarter was above $20m.
StartupAus CEO Alex McCauley said he was pleased to see Australian startups securing larger later-stage investment rounds.
“The fact that foreign investors are participating in and leading these rounds speaks to the growing regard with which Australian startups are held globally,” he said.
“Access to this global pool of capital helps expand the horizon for founders based in Australia.”
Those trends will be scrutinised more closely in Techboard’s second annual funding report for FY18/19 to be released later this year.
“Looking at the overall levels of private investment for the last three quarters compared them to the same period in the previous year shows that while the overall level of investment was increasing, the rate at which it was increasing had declined over the past three quarters,” the report says.
The trend away from early stage investment is in line with global movements, Techboard says, but needs to be addressed in Australian to nurture the pipeline of high potential early stage businesses.
There were eight private funding deals of more than $20m and above. The standout was foreign exchange fintech Airwallex, which raised $141m, turning it into a unicorn with a valuation above $1 billion.
The others were Baraja, which is developing a LiDAR system for autonomous vehicles and raised $45m; fintech lenders Lendi and Lumi Finance, which raised $40m and $34.1 respectively; worker productivity software company Skedulo raised $39.1m, e-learning edtech company Go1 raised $30m, while Respirion Pharmaceuticals, which is developing treatments for Cystic Fibrosis and logistics company Sendle both raised $20m.
That trend could likely continue in the June quarter with 0nline tutoring startup Cluey announcing this week that it had raised $20 million in Series A funding, while Melbourne educational training startup A Cloud Guru raised US$33m (A$47m) from US and local investors, including Summit Partners and Airtree Ventures.
Fintech dominated private investment for the quarter with 11 investments totalling $245m with an average value of $22m making up 51.4% of private investment, followed by People solutions (10.3%), Automobiles (9.7%), and Edtech (7.1%).
New South Wales had the largest share of private investment at $200m (42.2%) compared to Victoria’s $162m (33.8%). NSW companies had more than double the number of private investments (25), than Victorian companies (12).
The Report and Interactive Charts are available for free from Techboard here.