After travelling through the investment climates of Europe and South East Asia, it’s clear that a tide of optimism is rising for early-stage startups, including those based in Australia.
The terrain for securing funding has become more conducive, but how should an Australian entrepreneur navigate this promising period? Let’s explore.
Global trends, local implications
Firstly, valuations have tempered to become more attractive to both early-stage investors and founders. Alongside a compelling product-market fit and positive unit economics, these more reasonable valuations lay the groundwork for long-term growth.
While these shifts are global, they’re not without impact on the Australian scene. Domestic investors are increasingly inclined towards diversification and are adopting these international trends.
Secondly, later-stage venture capital funds are likely to loosen their purse strings in the next 18-24 months, making follow-on investment rounds a likely scenario.
Though this is a global trend, it’s pivotal for Australian startups, given that local investors have traditionally been more risk averse.
Competitive landscapes: Europe and South East Asia
The early-stage market in Europe has recently become more competitive, even for investors. Shorter due diligence periods and an increased willingness to close deals provide an arena where entrepreneurs can command favourable terms.
Investors in early-stage startups in South East Asia, especially Indonesia and Vietnam, remain bullish.
Singapore continues to be the preferred jurisdiction for establishing holding companies, but these emerging markets are ripe with opportunities.
Both these international trends have important ramifications for Australian founders.
Investors in Australia are needing to invest money they’ve raised into the local market, increasing the level of competition between VCs.
Advice tailored for Australian startups
So how should Australian startups respond to these changing dynamics? Here are some key takeaways:
- Mature early: the expectations for startups have become increasingly stringent. To gain a competitive edge in funding, it’s essential to showcase tangible signs of product-market fit and positive unit economics as early as possible. Investors now look for startups that have more than just a promising idea; they want to see real traction, validated by data, to ensure a risk-mitigated growth path.
- Assemble an outstanding team: a venture is only as strong as its weakest link. Investors scrutinise not just your product or business model but also who’s running the show. A team with a balanced skill set, industry experience, and a proven ability to execute is often the linchpin in investment decisions. Make sure your team not only complements each other but is also aligned in vision and commitment.
- Be internationally savvy: in an increasingly globalised market, a startup’s potential to scale beyond domestic borders can significantly bolster its attractiveness. Even if your immediate focus is Australia, demonstrating an understanding of international markets will send a powerful message to investors. This is not just about market size, but also about understanding the nuances of different business cultures and regulatory environments. An internationally adept startup is more likely to gain the confidence of venture capitalists who are themselves looking beyond their home markets
- Communicate well: effective communication is not a soft skill; it’s a crucial business requirement. This applies to every stakeholder in your startup’s ecosystem—employees, customers, and both current and prospective investors. Internally, open and transparent dialogue fosters a culture of trust and innovation. Externally, continuous engagement with your customer base helps you adapt and evolve. When it comes to investors, communication should not be confined to fundraising cycles. Periodic updates, even when you’re not actively seeking funds, can lay the groundwork for future rounds and keep you on the radar. In essence, stellar communication serves as an ongoing bridge between your startup and all of its stakeholders, influencing perceptions and encouraging a culture of collective stake in the business’s success
- Plan ahead: given the expected availability of additional forms of capital in the next 18-24 months, long-term planning becomes essential. Align your strategic growth initiatives to tap into this forthcoming financial boon. Whether it’s product development, market expansion, or team scaling, a well-laid plan will position you to capitalise on the future influx of capital more effectively
The time is now
For Australian startups, the current global trends in venture capital offer significant opportunities. Attractive valuations, more stringent expectations, and the likely availability of future capital create an urgent call to action.
Now is the time to tap into international buoyancy, adapt to the shifting investor landscape, and stride confidently forward.
Your balance sheet will thank you.
- Benjamin Chong is a partner at venture capital firm Right Click Capital, investors in bold and visionary tech founders.