Giant Leap's Will Richardson says now that funding is returning for startups, it's time to focus on the 'emotional runway' both founders and investors need

Spring has come early for Australia’s startup industry.

Signs of life are now starting to return to the industry, with funding levels starting to show signs of normalising.

According to the latest Cut Through Venture data, funding is up 30% from the previous year, albeit with fewer, larger deals. It has us, as well as many other investors, cautiously optimistic that the worst is behind us.

But as we all head back to the deal table, I think it’s worth cautioning the sector about a trend we’re seeing emerge. The cracks are starting to show on both sides as the ‘emotional runway’ is at an all time low.

Given the funding climate we just went though, we’re all familiar with the concept of financial runway. But the idea of founder and investor fatigue, its impact on company resilience and dealmaking is not discussed enough.

At Giant Leap, we are looking for financial returns commensurate with the risk we take as early stage investors combined with scalable and measurable impact.

In challenging times, we have observed investors losing their nerve and while they may think they are protecting their portfolio, their actions can actually have the inverse effect and undermine their likelihood of success.

Founders have faced many shocks, including COVID-19, interest rate changes, flipping investor sentiment from growth-at-all-costs to profitability, team redundancies, bridge rounds, and cash flow stress, all of which take a toll on their psychology.

Giant Leap managing partner Will Richardson

Investors should be mindful that founders have endured some of the roughest business conditions in recent history. Many would have remortgaged homes, drawn money from their superannuation or even borrowed from friends or family just to keep the lights on with their startup. They don’t have a portfolio, rather everything is concentrated in their startup.

There is limited support for founders in Australia. If you are successful in any regard, our tendency to perpetuate tall-poppy syndrome shoots down your ability to openly vent about how difficult your journey has been or the tough decisions you’ve made. Sure, there’s peer-to-peer networks, but there’s little in the way of mental health support for founders, and it is a mentally taxing job.

The changing dynamic between founders and investors will form the backdrop of funding negotiations going into 2025.

Investors who can navigate this, empathise with it and support where they can will be better placed to succeed than those who cannot. It’s not our job as investors to offer “soft” terms as a result of this — we have a duty to our investors. But it costs nothing to be mindful in how we as investors engage with founders and be particularly careful in what advice we give over this period and dare I say it, act with greater empathy. Our view is that acting from a place of fear leads to poorer decision making and acting from a place of calm leads to more favourable outcomes for all.

We have a unique opportunity to approach this recovery with a mindset of abundance rather than scarcity. Instead of rushing deals, both funds and founders should take the time to consider each opportunity thoughtfully.

By fostering a win-win mentality and playing the long game, we can ensure the success of not just individual startups, but the entire ecosystem.

In the long run, successful startups will generate winners who can become angel investors and Limited Partners in funds, supporting the next generation of startups. This creates a virtuous cycle that is essential for sustaining Australian innovation and preventing us from being left behind on the global stage.

After almost a year of waiting for improving conditions, the last thing either party wants to get is a cold shoulder.

* Will Richardson is the Managing Partner of impact venture fund Giant Leap.