Startup investment in Australia hit new highs in the first six months of 2020, according to KPMG’s Venture Pulse report, but what does the reality of the raw numbers look like on the ground?
KPMG’s Venture Pulse report found a jump of nearly 50% in venture capital investment compared to 12 months ago, reaching US$944.7 million in 92 deals, up from US$627.3 million in H1 2019.
The report points to US$439.7 million of venture capital investment in Australian startups over the April to June quarter in 2020, an increase of 38.5% compared to the same period in 2019 (US$317.5 million).
What did founders and others in the sector think of the figures? Many we’ve asked over the last few months on Startup Daily TV pointed to the increased deal size in more mature startups as evidence that some investors were looking to protect their existing investments.
We asked others, from founders to VC investors, for their views on the KPMG findings and what’s coming next.
Here’s what they said:
CEO and co-founder, Fresh Equities
I’m not surprised by these numbers. Technology has been a big winner of funding across the board, from listed to unlisted. It is easier to pivot a product than it is to pivot a workforce – it shows why tech based start-ups are so in demand.
Looking at our own data, in March and April we saw a lot of rescue raises — companies raising for balance sheet protection.
That’s changed in the past few months though, now the focus is aggressive raising for growth and expansion. This was highlighted by recent news of CBA investing into VC’s as well to gain additional exposure.
We personally, haven’t needed to raise. But I wouldn’t begrudge anyone raising during this period. Additional capital applied correctly always helps to accelerate growth.
CEO, StartUp Victoria
Despite the current economic climate we’re seeing growth in the total amount of investment funding available to Australian startups.
We know some of the world’s most innovative companies were forged in the fires of a previous crisis. Founders that are able to sustain and grow their company in this environment will be our strongest cohort yet. Investors are eager to support these startup warriors.
On the flip side, many investors I’ve spoken with over the last 6 months have been focussed on supporting their existing portfolio companies, rather than looking for new deals. We’re starting to see that focus shift now as demonstrated by Blackbird VCs new Principal role.
One thing’s for sure – if you’re a founder looking to raise VC right now, make sure you’ve got an ironclad financial forecast!
Founder and CEO, Intime Collective
I’m not surprised. Where there is disruption, there are needs and therefore opportunity. VC’s have capital that’s already committed. They still have funds they need to invest.
I do wonder if we look closer at the data if it’s reflecting larger deal sizes while the total number of VC investments are falling. I recently heard of two companies that have raised significant amounts over the last 3-4 months.
I think the general sentiment in the startup community isn’t that VC money’s dried up. It’s more about looking at what opportunity this disruption has brought with it and how our companies can harness that opportunity right now. If we needed to raise this year, I absolutely would without hesitation.
CEO and founder, Shootsta
Many may see this data as a sign of how robust Australia’s startup sector is right now. But it could also be interpreted as startups buckling in and closing rounds sooner, bracing for future uncertainty.
They realise the trouble they will be in if they run out of cash next year, when the full extent of this inevitable economic downturn really hits.
This level of raising also makes me question whether startups have followed the advice of many experts in the sector and reduced their cash burn this year. We just don’t know what next year will look like yet, and while we’re all hoping for a quick recovery, you need to anticipate and prepare for the worst.
It is, however, a good time to be in VC. I’m sure there’s some bargains to be had with the economic stress of this period weakening valuations.
Founder and CEO, EdApp
For the majority of start-ups these will be challenging times when it comes to capital raising.
Sequoia famously told the founders of their start up portfolio companies in March this year that Covid was The Black Swan of 2020 and to evaluate spending in the face of private financing softening significantly.
However there are a number of start ups for whom the reverse will be true.
Despite the pandemic, the global lockdown has rapidly accelerated digital transformation within most businesses. This has led to unprecedented growth in solutions aimed at B2B productivity, and any startup in this area of the market would currently be enjoying explosive growth.
In my experience, and looking at the level of VC investment in B2B productivity (US$14.3bn in the last 3 months alone) there is plenty of evidence to suggest that 2020 with all its shortcomings, could be an ideal year to raise money in the right sector.
Managing Partner, Giant Leap Fund
This data indicates that VCs are adapting to the current climate, and that’s more of a shift for them than you think.
Deals are being done without in-person meetings. That trust, that underpins all VC funding agreements, is being built over Zoom and other video conferencing apps.
We always did character reference checks with our broader network and these checks are critical to the trust meter.
I think this could really change the way deals are made going into the future. We’re going to have reduced reliance on face to face meetings, and that’s a good thing for any regional or remote founders. It’s going to give them better access to funding opportunities and may help reduce disadvantages founders may have in building a business outside of a capital city.
Co-CEO, Assembly Payments
Companies will all have been impacted differently by the pandemic but success stories of businesses winning against all odds are not new. As such, to our knowledge, VCs are still out in force looking for the best opportunities, and this data confirms this trend in Australia.
It’s important however that companies continue to perform as best they can during COVID-19, and continue to justify these investment opportunities. This will ensure funding continues to flow for the entire ecosystem.
One high profile collapse could have ripple effects for the entire sector.
During this uncertain time, industry and company track record will be a focus for investors. Investment in fintech was climbing rapidly ahead of COVID-19, so we are bullish this will continue.