Published on the 07/12/2015 | Written by Beverley Head
A valuation rethink is due on some technology startups – but it will be just a temporary hiccup, with the longer term future for companies in the sector being bright…
Craig Blair, a partner in the $60 million AirTree Ventures fund, says that there is more deal flow in tech startups than ever before in Australia. “We see 1,000 deals a year and have done ten this year,” he said at an innovation roundtable organised by Amazon Web Services.
Blair however warned that investing in startups remained a risky business and even in the US only the top quartile of all deals delivered decent returns. He said that in Australia there had been a significant improvement in access to funds, and talent, as people with operations backgrounds and experience in developing companies were increasingly investing in and mentoring startups.
However he warned that; “We will probably have a hiccup; a valuation adjustment.
“A lot of the new capital that has flowed in may go back to areas where it came from such as real estate, but that’s OK because there is still money out there. And in five years’ time we will have much better businesses,” as the second generation of tech investors would stick around to invest in the new crop of startups.
“In the past people who’ve made money have tended to buy a boat,” but he said technology veterans were increasingly willing to invest money and time into getting startups to scale. However he acknowledged that there was still a shortage of funding options in Australia where companies needed more than $5 million to fund growth, though new funds being raised by Blackbird and Square Peg could address that, he said.
Cloud technology had also proved an important ally for startups. Blair noted that when he started a business in the 1990s he had used GBP5 million of venture capital funds to buy servers and technology infrastructure; the next time he was involved with a start up in the 2000s, infrastructure cost around $1.2 million where now, cloud computing meant that “you can get started with a credit card.”
Startups present at the roundtable including Expert 360, Canva, GlamCorner and SafetyCulture stressed that access to affordable cloud had been essential to their success, but that they still needed access to investment funds in order to be able to scale the business fast enough to establish a beachhead position, especially in highly competed market segments.
