Startup Funding Advice

In terms of the state of startup funding - from an early sneak peak of the latest quarterly 'State of Australian Startup Funding' Q2 2023 report by Cut Through Venture:

• Venture funding has significantly slowed since the 2021 peak; however, it should be noted that 2020 and 2021 were unusual years with low interest rates and abundant capital and shouldn't be used as a base case. Funding actually looks broadly in line with pre-pandemic levels now.
• While valuations have fallen between 30% and 50% depending on the deal stage, there is still abundant capital chasing fewer deals. More VCs are now focusing on early-stage deals (pre-seed and seed), meaning that if you are an early-stage founder, now is still a very good time to raise capital.
• Investor preferences and trends change all the time. Crypto was the hottest sector in 2021 and is currently the least favored by investors. Climate tech has also been riding the wave over the past few years, but it now appears to be losing steam. AI is the clear dominant theme now, driving insanely high valuations, but it remains to be seen how long it will take for investors to lose interest and chase the next cool trend.

If you are looking for funding, you must understand the stage of your company and target investors that fit your mandate. Summarised below are some avenues for funding to consider:

• Angel Investor Groups such as Sydney Angels, Melbourne Angels Inc, and Brisbane Angels Group Limited are good avenues to raise larger check sizes ($200k-$500k) than individual investors ($10k-$100k) since members invest as a group or syndicate. You can be pre-revenue, but they would generally invest in your startup if you can show early traction of your product or service. They would rarely fund your startup for market or product validation. Angel Investors also invest their own money and can provide significant strategic and operational experience.
• VCs (such as Investible and Five V Capital) have different mandates and check sizes depending on the funding stage of your company. At the early stage, they generally fund between $1m and $10m, but it is important to understand their mandate as they might be constrained in the type of businesses they invest in. For instance, Five V Capital strictly invests in B2B SaaS startups so, do your due diligence before approaching them.
• Crowdfunding can sometimes be seen as a last-resort avenue for funding; however, it can be very hard to raise capital that way if you don't have an established brand. Consumer products work well in this space – look at how many micro-breweries have raised capital this way in the past 2-3 years!
• Debt funding is also another avenue you can tap into to raise capital, which generally comes at a very high interest rate (~20%), but it allows you to retain control of your business. If you are confident you can achieve a return greater than the servicing cost on your debt, then you could consider this.

Be investor ready:

• Having a data room set up for investors is often an efficient way to centralise all your documents in one place for investors to access.
• Have your pitch and pitch deck ready to tell investors a compelling story. Show them that you know your market inside out, that you are the right team to back, and that you have deeply thought about your business model. Keep it simple, as the aim of a pitch is to get a deeper session later.
• Be prepared to support your valuation with a compelling reason behind those numbers – look up the Berkus method as an early guide. Think about ways to de-risk your business from a market, product, and team perspective as they should help you achieve a higher valuation. No one will believe your financial forecasts, but be ready to show the thinking behind them and articulate some scenario analysis.

In conclusion, receiving funding for your startup requires careful preparation and understanding of the current landscape. Consider the advice from seasoned investors in Australia and tailor your approach to target investors that align with your company's stage and goals. Whether it's engaging angel investor groups, exploring venture capital options, leveraging crowdfunding, or considering debt funding, each avenue has its merits and considerations.