The Australian Venture Capital Landscape
While Australian investors have traditionally looked to the domestic market, the rapidly growing funding ecosystem has given way to increasing opportunities and appetite for investment into international companies in recent years.
In a snapshot, in 2022 Australia investors have:
- Invested in 712 deals
- Deployed $7.4B AUD, of which the majority in Series B
- Produced 6 new unicorns
The Structure of the Australian VC and Angel Investor Sector
Domestic vs. International investments: The majority of angel investors in Australia focus on the domestic market for practical reasons: it is easier, safer and more advantageous (think tax benefits) to invest in companies within Australia.
Appetite for investing in international companies: There has been a steady rising appetite for international investment over recent years. While there was a slight decrease of the total amount invested between 2021 and 2022, Australia saw a sharp overall increase in funds raised and active investors. Dry powder (undeployed funds) is also at an all-time high (Source: Cut Through Ventures). There is also healthy rivalry amongst VCs, offering a diverse pool of funds and skills.
Industries are often allied to trade exposure: The industries and sectors investors focus on often align with Australia’s strengths and trading objectives. In particular, fintech and enterprise software are the most popular segments in the Australian VC industry.
Cleantech and agritech are also rapidly growing sectors, with Australia’s significant agriculture industry and long-term development sustainability goals.
Other popular industries include biotech and medtech, robotics & IOT, blockchain & Web3, and edtech.
The value add of VCs beyond capital: Many Australian VCs are passive investors. This, however, highly depends on the VC or angel syndicate that you work with as some are known to be incredibly helpful in facilitating introductions to potential partners, customers and (international) investors. More generally, VCs can open up access to new networks, people and insights that can help you and your company move forward.
Types of investment sources
- Crowdfunding: e.g. Equitise.
- Accelerator funds: Some accelerator programs offer investment or equity opportunities such a Startmate or Antler.
- Family offices
- Syndicates: e.g. Ten13 and Flying Fox Ventures.
- Funds that invest at various company growth cycles
- Corporate VCs (CVCs): e.g. 1835i
- Specialist funds
- Venture debt: e.g. Tractor Ventures
Should you raise money in Australia?
From our experience, the general rule of thumb is that if you find it difficult to raise money in your home market, you’ll find it even harder to raise capital in a foreign market where you don’t have a brand or a strong presence.
There are of course exceptions to this rule (particularly in medtech) and later-stage companies, those that have raised funding in their home market and/or are seeking scale up capital, may find it easier to raise money in a new priority market.
Do Australian VCs invest in international early-stage companies?
Yes, Australian VCs invest in early stage international companies but there are important caveats you should be aware of.
Limitations exist: Some VC sources cannot invest in foreign peak entities. This may include high net worth angel investors with tax benefit considerations, Early Stage Venture Capital Limited Partnerships (ESVCLP) that are restricted to domestic entities, and government sponsored venture funds in certain industries. These issues can sometimes be resolved through deal structuring.
Other issues: There are many other factors that can limit the amount of foreign investment a VC makes. This includes foreign investment restrictions within sensitive sectors (see Australia’s Foreign Investment Policy), subsidy eligibility for foreign entities, tax and regulatory limitations, as well as the visa eligibility of the investor.
What do Australian VCs look for in international companies?
An advantage over the domestic market: Whether your company provides a better quality, more unique or better priced option to what is currently available in the market.
Benefit in investing in a global company: VCs may gain an earlier bigger return at lower risk by investing in a global company to overcome the small nature of the local market
Reduced risks: Whether you have already demonstrated product-market fit, proven routes to market and an ability to scale teams in other markets and that you can replicate this success in Australia.
Domain advantage: Whether a potential investor has an unfair advantage in a particular domain and can provide specialised support for your company.
Is your team investible? Like any other VC in the world, consider whether your team is backable, if the Australian market is the right fit and able to provide returns, if you have product-market fit, and if your business model works.
Why should you raise investment in Australia?
Capital for expansion: The raised funds can be channelled into marketing and sales rollout in Australia.
Network and access: Local VCs can improve your access to capital, people and customers in Australia and provide other in-country support beyond investment.
Business goals: You might want to reduce risk by diversifying your liquidity options, or get ‘skin in the game’ in diverse markets.
Tax and restrictions: You may be able to avoid certain restrictions placed on foreign owned companies in certain sectors.
Australian Stock Exchange: The ASX can be a friendlier environment than many other jurisdictions.
How do you find Australian VCs?
Finding an investor in Australia can be relatively easy, thanks to a thriving VC and startup ecosystem and up-to-date databases of investors online.
Getting your foot in the door with Australian investors
Get involved in the local startup scene: Ingratiating yourself into local startup community by attending events and programs can lead to good results, whether in person or virtual. Joining coworking hubs or startup communities (such as Sydney Startups Facebook Group or Spark Festival) are great ways to find make new connections.
Traditional introductions: Don’t underestimate the power of traditional outreach methods. Cold calls and warm introductions are still highly receptive. Refer to the investor list below.
Network, network, network: Make your way up the network hierarchy, whether it’s asking for referrals from FFF or scouts. Consider joining accelerator programs or coworking spaces and keep an eye on networking events held by VC firms.
PR and marketing: Making a name for yourself in local media can bring investment opportunities, especially if you use your diversity as an advantage. Junior investment managers are often on the lookout to build their own portfolios.
Australian investors database
The AirTree Investor List is a crowd-sourced list of all active investors in the Australian startup ecosystem.
Like any deal in the startup world, you must do your due diligence. There are various resources available for companies to do a holistic check before doing a deal.
Airtree Investor DD checklist helps you tick off important questions you should ask your VC before singing a term sheet.
A Founder’s Guide to Startup Due Diligence outlines the other side of the process and of the various areas a VC will consider when making investments.
Other sources of funding
Government grants and programs
If VC investment is not for you, there are other ways of raising funds. There are a wide variety of national and state government grants and incentives available.
The following (federal) grants are popular amongst startups:
Export Market Development Grant (EMDG) provides funding for businesses that are looking to expand their export markets.
Research and Development Tax Incentive provides a tax offset for eligible R&D activities.
Grants and Programs Finder is the government search engine for all available grants.
Crowdfunding can be a useful alternative to traditional funding methods, particularly for early-stage companies or those that have difficulty securing investment from traditional sources.
Billfolda: Follow-on investments only, get access to their SaaS platform for listing
Birchal: For consumer brands
Equitise: For early-stage & growth technology companies
OnMarket: Wide variety of deals, early & growth stage businesses
VentureCrowd: Investor-led deals only across early-stage, real estate & alternative investments