2018/19 - Venture snapshot

We have continued to see a steady increase in deal flow volume and interest from early stage companies seeking capital coupled with investors looking for ‘quality’ venture investments respectively throughout 2018 into early 2019. 

Investment stage:

We are receiving more approaches from companies at the scale up stage seeking growth or expansion capital rather than earlier stage companies seeking seed capital. Scale up early stage companies being defined as companies who have already demonstrated a track record, are revenue generating, have a viable product in the market and proven management.  This also fits with the trend of investor appetite seeming to be more aligned to scale up company opportunities than seed stage investing. 

The reasons cited by investors is that early stage company failures, or under par results, are now emerging from investments made in their portfolios in the previous 2/3-year time horizon which are now coming to their end without the desired results. Investors cited they are now preferring to look at somewhat ‘de-risked’ venture investments with proven track records over very early seed stage opportunities. Some investors appear to have tempered their risk return balance preferring to entertain a lower revenue return outcome which is considered safer and more likely to occur. Nb some of these investors still wish to look at early seed stage opportunities, but typically for much smaller tickets (c.$50k). 

Sectors:

In terms of sectors; Cyber security, IoT agricultural, various Fintech (mainly lending plays), SaaS market networks, sophisticated booking engines, millennial favoured themes (leisure, travel oriented), and a growing number of investments with an Environmental, Social and Governance (ESG) angle are the key sectors we are receiving approaches from for capital from early stage companies within Australia. We have seen some later stage round companies in the robotics and AI program space, but predominantly emerging from overseas companies seeking Australian capital.

We are still seeing a variety of blockchain opportunities, but much less crypto currency plays than earlier in 2018 given the crypto market declines. Esports appears to have exploded onto the scene as an area of investment interest given its large number of followers internationally. From the research we have undertaken to date, it appears to support the focus of traditional sporting franchises to ‘hedge’ their positions by developing their own esports teams and indicates keen interest from companies wishing to take advantage of this mass consumer following.

With specific regard to cyber security, corporate Australia appears to be getting more up to speed and developing greater awareness in the cyber security space making the conversation a lot easier with potential strategic investors being introduced to more developed Australian patented cyber security opportunities. We continue to see a significant number of cyber security opportunities coming out of Israel. The early stage cyber security companies we have been speaking to still say their products appear to be better understood in overseas markets, particularly US and Europe. 

International interest in Australia:

We are witnessing greater overseas investor interest and appetite for early stage Australian companies to invest in. This interest is coming predominantly from Europe (mainly UK, Germany) and America with Australian companies being cited as “greater value” opportunities when compared to valuations perceived to be materially higher in US and Europe, which is cited as “quickly catching up” to similar levels as US valuations. In addition to the valuation considerations and even though already well publicised, we have received feedback that international investors see Australia as a “fertile hunting ground” for quality investments given the quality of founders, stability of economy and recognised common law. 

Listing vs private capital

The number of overseas early stage companies coming to Australia with the intent of achieving ASX listing to raise capital appears to be continuing to increase in volume, with our main inquiry coming from Israel and China. The quality of these opportunities appears to be sound, albeit with mixed expectations of success around listing with some reported revenue levels possibly lower than Australia based companies seeking a similar public listing status. The key reason cited for pursuing a public listing rather than raising capital via a private placement or similar, is the consideration that the inbound companies have a lack of historic presence on the ground feeling this precludes them from accessing funding via private markets in Australia. Having noted the listing preference, we are, however seeing an increase in activity out of these countries for companies seeking capital via private markets, particularly across the following sectors: medical device tech, Agri tech, cyber, Internet of Things (IoT). 

Investors continue to seek ‘quality’:

In nearly all early stage businesses we have worked with to date, strategic investors and sophisticated investors are seeking companies with a proven model, seasoned management, robust product, defendable valuation, revenue generating with global applicability. Again, nothing new, but if you’re a founder looking to expand and attract capital via private markets without at least 5/6 of these items, we see this as a very difficult capital placement experience given the market is somewhat saturated with many early stage companies seeking capital compared to a few years ago. To put this in perspective, some investors we speak with quoted as “seeing, or are pitched to on 4-6 new ideas a day”. Of these, it is typical for an investor to invest in only a handful per year. This is not an uncommon conversation. A growing number of investors have quoted that they are now preferring to take a less passive stance with the companies they are investing in regardless of cheque size and seek to add more strategic value where they can e.g. network introductions etc  

Opinions will no doubt vary as to success factors, but what we have outlined here is a high-level snapshot of our experiences in the latter half of 2018 in the venture space from our investors, clients and supported companies. Our currently active pipeline supports investment across many of the themes outlined above which we see as growing throughout 2019: cyber security, Esports, SaaS offerings, millennial directed themes & ESG.  

Disclaimer: The above narrative represents our observations and assumptions formed from the direct activity we have exposure to with our investors, clients and companies and accept that views and experiences will vary. It also does not constitute in anyway investment recommendations or any form of advice.