Our first Founders and Funders Dinner (what we talked about and learnt)
It’s been a long time coming
As founders ourselves, and with our growing client community of startups and scale ups, we’ve been wanting to launch this for a while.
But then came the topsy turvy COVID years and the need to focus on our own business. Finally, here we are in August 2022, fresh from our first Founders and Funders Dinner!
It wasn’t a big affair
The opposite actually – it was a deliberately intimate evening with some of our founder clients and funders from our network.
No one takes IRL get-togethers for granted anymore, so we were stoked to bring the group together for a fun dinner with a stunning Sydney view, good food and plenty of food for thought.
Thanks to Cheryl Mack from Aussie Angels, Ada Yin from AirTree and Chris Quirk from Rampersand for sharing their insights on funding, the state of the market and how to approach it.
And to share it further, here’s a wrap up of the night. With all the news of tech layoffs and economic uncertainty, we reckon it’s especially worthwhile reading right now.
But first, a quick look at the stats
Thanks to Cut Through Venture’s latest Australian Startup Funding stats for the first calendar half of 2022 (1H 2022), here’s some context to the funding discussions we had on the night:
- In 1H 2022, there were just over 300 deals and $4.8 billion raised (down about 25% on 1H 2021)
- At the end of the first calendar half, 2022 is tracking more than $1B ahead of where we were this time last year, and well ahead of total capital raised in 2020
- This lead is unlikely to be sustained. Lower funding announcements in Q2 reflect the trend seen globally in venture capital, and subdued funding levels are expected in 2H 2022
What we learnt on the night
The stats are one thing but what are investors in the thick of it seeing?
Here are the topline takeaways from the night (further commentary in the next section).
- Everyone gets squeezed on valuations
- With public markets down, and uncertainty about that as a path to exit, later-stage investors are cautious on valuations so we’re seeing some flat rounds and rumblings of down rounds
- At the angel level, there’s still a lot of deal flow although angels are being more cautious before committing
- For startups that have raised recently at a high-ish valuation in the competition for deal flow, be prepared for harder valuations discussions
Since early stage companies still have the same funding needs to get their businesses going, deal sizes at that level remain largely unchanged
- Well-positioned startups with solid business fundamentals are choosing to delay equity rounds, and are looking at alternative funding methods (such as R&D loans, revenue-based financing and equity crowdfunding). Therefore, angels and later-stage investors are seeing lower-quality deal flow
More detailed insights
Not surprisingly in a room full of optimistic tech-loving funders and founders, we’re all expecting the market to come good in the longer term (it’s just a matter of when), reflecting the position that tech companies hold in the public markets.
While we acknowledged that immediately applying the public market downturn to early stage investments doesn’t necessarily make sense for future exits, there’s no denying the psychology it creates with founders taking haircuts on valuations and good buying opportunities for savvy cashed-up investors. This has attracted more overseas investors who are taking a good look at Australian deals, which are already cheaper from their perspective. This could be a good opportunity for Aussie founders to make international investor connections.
At the series A/B level, startups that were previously relying on investment to keep growing should no longer count on that as a strategy. As in previous downturns, business fundamentals – cash above all and also path-to-profit – matter more for follow-on round investors.
VCs are working harder with their portfolio companies to make sure they have 18 month cash runways.
What we’d say to founders
Taking all this into account, our tips for founders in the current climate are:
- Watch your cash and extend your runway to ride things out
- Good business fundamentals matter (cash, path-to-profit, and gross and net profit)
- If you are capital raising, you might need to recalibrate valuation expectations in line with recent events
- Having said that, well-positioned businesses have an opportunity to stand out amongst lower quality deals at the moment
We’re looking forward to hosting more Founders and Funders Dinners. With our own business to run (and clients to look after), it’s not something we’ll be doing every month but we’re definitely planning to make it a regular event in the calendar to help connect our community of founder clients with one another, and with the investment community.
If you’re keen to get involved or have an idea to contribute, please get in touch.
Until the next one,
Remco and Mike