Funding for SMEs and startups declines


6th May, 2019

Local funding for startups continues to shrink, report shows

After the release of a Techboard report revealed funding for startups is dwindling, founders are left wondering what the future holds for early stage investment.

Earlier this month, Techboard released its quarterly report which focused on the status of investments into Australian companies, and while it was clear that the size of investment deals were continuing to grow, funding available for early stage businesses had diminished in the first quarter of 2019.

Techboard report’s key findings

Within the report that Techboard released, there were seven key findings that gave a clear indication as to where Australian funding was at as we moved into Q2 of 2019:

  1. The value of private and public equity investments rose, while debt financing became less popular
  2. There were less Australian IPOs
  3. Public funding deals decreased in number
  4. Public deals of $20 million or more were nowhere to be seen in the last quarter of 2018, but had a strong presence in the first quarter of 2019
  5. The value of private deals gradually increased, but their trajectories started to flatten during the first quarter of this year
  6. The overall number of privately funded deals have lessened in the first quarter
  7. There were more private deals valued at $20 million or more in this quarter, than there were at any point in 2018

In summary, this report seems to show that the Australian investment appetite is growing in terms of deal size, which is subsequently causing a disinterest in the market for smaller sized investment.

Things aren’t as bad as they seem

Techboard’s CEO Peter van Bruchem told The Pulse that while these findings don’t favour SMEs, it certainly isn’t all doom and gloom for those seeking early stage investment.

“The idea here is not to frighten anyone,” Bruchem said, “but to offer insight as early as possible so that early stage startups can begin to consider their options properly.

“It’s important to remember that it is not uncommon for the year to get off to a slow start.

“We can expect to see more detail in the annual report which will be released in September.”

READ: Top government grants for Australian startups and small businesses

Early stage funding is less newsworthy

The style of Australian investment today is very different to the way it was in years gone by. Naturally, as VC funds continue to advance, their investors’ wealth continues to grow, allowing them to make even larger investments.

According to Bruchem, Australian VCs have joined the likes of the US and Europe in terms of their appetite to make large investments.

“For Australia, $20 million deals used to be extremely uncommon,” said Bruchem.

“Now, due to the many Australian success stories, investment rounds of that size are starting to become regular and are attracting all the attention.”

One of the recent Australian success stories that Bruchem was referring to was ZipCo, a fintech company that was given the ‘unicorn’ status after being evaluated at $1 billion late last month following their $42.8 million raise.

With stories like ZipCo keeping everyone preoccupied, Techboard, which is Australia’s largest startup and tech company directory, has far less visibility over the smaller and early stage investments that take place, simply because they aren’t considered “newsworthy”.

“There are various events taking place in the ecosystem that are making the smaller sized deals less reportable.” Bruchem told The Pulse.

“Whether it is the news around the Australian Federal Election, Brexit or the contentious state of US politics, journalists just aren’t reporting the smaller deals anymore.”

Where to from here?

Whatever the case is, given the early signs of funding trends heading downwards, it would seem wise for early stage startup founders and small business owners who are looking to raise capital to start looking for other avenues to receive funding.

According to Gary Cobain, CEO of a fintech company called Pokit Pal, now that VC funds are putting more of a focus on companies that are looking for ‘later-stage’ funding, reaching out to personal networks or looking at overseas investment might be a better option.

“Australian VCs are looking for businesses who have already generated traction and are looking for (at least) a Series A investment,” Cobain said.

“If you’re looking for seed funding, I would suggest reaching out to family and friends, angel funds and family funds.”

READ: Taking on investors for the new business owner

“Or, if you’re building a business that has scope to tap into other international markets, it might be worthwhile to look for seed funding from investors from Asian countries, as they have been proven to have an appetite for risk and early-stage innovation.”

Aside from seeking equity funding or debt financing, there are various Federal and State-based government grants that offer funding to Australian early stage businesses.