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What our members have to say...
"I can confirm that we managed to secure a private investment through the web site in conjunction with YFM VC investment. We will also be looking for further investments in 6 months time. "
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Philippe Brillant |
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The top-three pet hates of Australian investors
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Raising investment money in Australia is different to doing it in the US, for example. Very different.
It's not that Australian investors are looking for completely different products, markets or teams than their American counterparts. It's just that they place different emphasis on particular aspects of a business.
If you are not aware of what they are looking for, you might find fund-raising in Australia a difficult process.
When we began trying to raise funds for Eventarc back in 2008, we did so after reading everything there was to read about US-style fund-raising.
Some of the advice was sound, while some of it was completely wrong for an Australian audience. We were eventually successful, but we would have gotten there quicker if we had better understood the focus of Australian investors.
While there are undoubtedly many more nuances you need to be familiar with when raising funds, here are three reasons you might find fund-raising in Australia difficult.
They are not hard and fast rules, and they don't necessarily apply to later-stage money (series A and higher). But you will need to dodge these three pet hates of Australian investors if you are to prise any money out of them.
Reason one: You want to spend the money on engineering
As a general rule, Australian investors are extremely focused on sales and revenue. They care only that your product works and is pointed at a large market.
Once there, stop coding and start selling, or you can forget about funding.
In the US, leading investors such as Fred Wilson suggest the only form of marketing a start-up needs is a great product. He goes so far to say you should not include a marketing spend in your budget.
Try walking into a meeting in Australia with that philosophy and watch how fast your butt gets kicked out the door.
In Australia, you should be able to articulate a strong sales and marketing strategy and your budget should reflect a focus on driving revenue through sales and marketing spend.
Reason two: You will require a second round to get to break-even
The funding environment in the US is conducive to multiple raises over extended periods of time. At every level there is a wide range of funding options available.
This produces investments in companies where revenue is not seen as important in the early years – Twitter, for example.
These companies know that if they are showing good traction they will be able to raise another round of investment at a healthy valuation.
In Australia, every round of funding is hard, with venture capital-type money especially thin on the ground.
It's hard for investors in Australia to back a company that is going to need millions in venture capital before reaching profitability, given there are maybe two or three VC firms in the country with any money at the moment.
Typically, early stage investors in web companies in Australia will look to invest in businesses that are capable of reaching break-even on a single round of funding.
Reason 3: You have no financial model or no immediate plans to make money
Certain types of companies are going to struggle to attract angel investment in Australia. If you are doing a big consumer play which requires millions of users and a few years of growth before revenue is a possibility, you are better off heading to the US to try and raise there.
The Australian funding environment and the lower appetite for risk found in Australian investors both come into play here.
It is unlikely that companies like Twitter, Turntable.fm, or Color would have attracted early-stage money in Australia if they were founded by Australian entrepreneurs.
Australian investors want a financial model and they want to know exactly how you plan to make money.
Ultimately, do not be put off attempting to get money from Australian investors.
There exists some great investors in Australia at all levels, and if you can convince them to get on board with your business, you will be one step closer to that exit we are all searching for.
You should, however, think very carefully about the type of business you have and the best way to position it when pitching an Australian investor.
Think revenue, early sales and a focus on breaking even as quickly as possible.
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