Deals Down Under: A Recap Of Australia’s Venture Capital Scene

Earlier this month we reported on a pretty sizeable fund being launched in Australia by Salesforce Ventures.1

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During the course of our reporting and shortly thereafter we started to hear rumbles from the land down under. Over a dozen Australian entrepreneurs, venture capitalists and other interested readers reached out to share their stories and experiences in the Aussie venture capital market.

So, to cure our curiosity (and hopefully yours), we’re taking a deeper look at the country with a snapshot of its VC scene.

On a broad level — Australia has gained the interest of prestigious incubators like 500 Startups and Techstars, and spun out unicorns like Atlassian and Seek Ltd. Still, there aren’t too many venture funds and most people don’t necessarily think of Sydney or Melbourne as up-and-coming “tech hubs.”

So we did what we do. We ran the numbers and talked to the startups and venture capitalists behind them to learn what investment activity is happening in Australia.

Broken Down in Numbers

Overall, the amount of investment has grown from 2016 to 2018, according to Crunchbase data. In 2018 there was about $1.4 billion dollars of venture funding fed into Australia-based startups, compared to roughly $600 million in 2016. So we’re seeing money being pumped into companies spinning out multimillion dollar companies like 99Designs and Tribe.

In 2018, a notable boost in total venture capital came from Judo Capital’s Series A of $99 million. According to William Buck’s 2019 Venture Capital Report on Australia, the industries snagging money are primarily software and biotech.

The chart below breaks down the types of startups we’re seeing in Australia, by industry, thanks to data from Smart Company Australia, a local business publication.

While there’s more money, there are also fewer deals. Our analysis shows that deals decreased about 28 percent from 2017 to 2018, from 383 deals to 274 deals.

What the funds are saying

The aforementioned Salesforce Ventures’ Australia Fund will focus investment in enterprise software companies while also supplementing major venture funds in the area, Salesforce’s Matt Garratt told us.

They don’t plan to lead rounds, but rather help existing venture funds support more startups, said Garratt who serves as a managing partner at Salesforce Ventures.

“We’re complementary,” he said, adding that the Salesforce Ventures fund will mainly do early-stage investments.

Some aspects that stood out to Garratt when in Australia: funds are open to the help, and there’s a lot of innovation happening that they’re excited about.

The Buck survey mentioned that some venture capitalists are migrating to favor late-stage rounds. That’s good for big companies, but that means there is less money to go all around.

Some Early-Stage Startups Are Left Behind

As our second graph shows, while total fundraising is increasing, average deal size is decreasing. Some industry watchers are concerned about how early-stage startups will stay afloat — especially as activity by angel investors and the availability of seed investment in the region falls short, said Amanda Price, head of KPMG’s Australia High Growth Ventures,  in a press release.

“We need capital at every stage of the pipeline,” Price said in the statement.

But it’s not like funds aren’t investing in young companies.

Take Blackbird Ventures, founded in 2012. It’s invested in over 119 startups like Bugcrowd, Canva and Baraja, and according to Crunchbase data, about 70 percent of its investments have been in seed rounds. Square Peg, another top fund which invested in Uber and Stripe, had about 55 percent of its investments in early-stage companies.

It might just be a sheer supply and demand problem. Some solace for these young ones looking for attention and funding: Sydney opened up an incubator-of-sorts one year ago, with a $35 million grant from New South Wales government. Their goal is to promote entrepreneurship and job creation, and give startups a place to, well, start.

But still, some startups are choosing to take a different route towards growth.

Enter Ben Schwarz, the founder of Calibre, a web performance monitoring tool that helps companies improve user experience, with customers like ProPublica and BMW.

He has not taken any funding from venture capitalists. Instead, he’s bootstrapping starting from $15,000 with the goal of building a sustainable and profitable item.

“There’s definitely a shift in how founders approach and perceive funding,” he said. In Silicon Valley, raising venture capital is a normal route – but he said that founders are now exploring other options “especially if they aren’t willing to relocate to San Francisco and base their operations there.”

He said they can build on their mission with a shoestring budget and avoid venture capital, and “if anything, this constraint has yielded better focus.”

And then there’s Kate Kendall, who runs a female founder-focused accelerator, Atto, that focuses on bootstrapping principles. Atto’s website describes the accelerator as a “contrast to the ‘growth at all costs unicorn’ Silicon Valley ethos.”

There’s a rise in startups that are raising capital through ways other than VC: equity crowdfunding, self-funding, bootstrapping, Kendall told me.

One example is Australia’s Atlassian. The unicorn, which launched its IPO in 2015, never took a traditional round of investment from venture capitalists (except a $60 million round from Accel so its employees could cash out, reports BusinessInsider).

Finally, there’s Kashif Saleem, the founder of Track’em that is based in Perth. The company, which wants to make inventory more streamlined, is beginning to seek funding for a Series A, but not from Australia-based venture funds.

A majority of the big venture funds are in Sydney and Melbourne, some 2,000 to 2,500 miles away from Saleem. So Track’em is now looking to raise funds from U.S. based investors, because there are more options for investment, Saleem told me on an early morning call from Perth.

U.S. investors are more open to investing in SaaS products and Track’em plans to expand into the U.S. late this year or early next year, he said.

“We’re in Australia,” he told Crunchbase News. “But not where the funds are.”

Saleem’s comments add an interesting nuance to the startup-land that is indeed growing in Australia, but not in favor of all contenders. Coming up next, we’ll look at which U.S. city has attracted a slew of Australia-founded startups, and why. Stay tuned.

Illustration: Li-Anne Dias.