Fund Raising

New Australian Venture Capital Funds are actively chasing deal flow – The Nuclear Winter is Thawing

I sense the nuclear winter of startup funding in Australia is finally thawing. In the last few months we have had a number of funds and investors actively launching pitching events and promotions and are actively chasing deals and  trying to generate deal flow. Even back in the dot com boom I don’t recall VCs having to be so proactive to bring in new deal flow.

As I have said many times I think we have a big problem with Startups solving non problems and making things that no one really cares about however for those that are fundable I can’t recall a time when the funding environment looked better, certainly it takes me back to the DotCom boom days, not that I think the market is frothy, just there is money to be had if you have a fundable idea.

This hasn’t been the case for many years.

So I had to think hard about who is out there, a few years ago you could count the number of early stage VCs that still had funds to invest on one hand, however there has been numerous fund announcements and raisings in the last year, here are most of the Angel, Seed and VC funds which are actively operating in Australia.

They are in no particular order, possibly the most recently active are listed first.

I know I will have missed some of you, I am sure there are some biotech, medtech and cleantech specialist funds that may have slipped past my apologies in advance, if you want to be added please feel free to comment at the bottom or use the contact us form and I will include them.

Oxygen Ventures

Oxygen Ventures is offering up to $5,000,000 and on-demand Oxygen Ventures resources and running its first “The BIG Pitch” event on June 17, 2014. The Melbourne-based investment fund is putting out the call to all digital SMEs, offering funding, mentoring and operational support.

In addition, mentoring will be provided by entrepreneur Larry Kestelman (Founder of Dodo) and his team, providing insights from his own brand of business know-how in a unique opportunity for founders.

You can apply here thebigpitch.com.au

M.H. Carnegie & Co

Mark Carnegie & Co have recently run Carnegies Den a quarterly pitch event covered by mainstream media looking to generate deal flow.

Whilst Carnegie has been active in the space for some years and has $200 million under management and presumably could raise more if they wanted, the Carnegies Den events are clearly trying to generate new deal flow and have a Shark Tank style to them.

Blackbird Ventures

Blackbird is a $30 million fund with a team from Southern Cross Ventures Bill Bartee, John Scull and Niki Scevak and Rick Baker and backed by 35 investors including Dave Mcclure from 500 Startups and Bill Tao the kite surfing VC.

Notable deals include early stage investments in Canva and Ninjablocks.

One Ventures

When Michelle Deaker told me she was going to raise a venture fund 7 years ago, I wasn’t sure how it would turn out, but she did manage to get a $40 million IIF fund raised when the majority of the proposed funds failed to raise matching funding. Notable investments include Paloma (headed by Jennifer Zanich who has a good track record) and Smart Sparrow.One Ventures 

ASSOB

The Australian Small Scale Offering Board has raised over $133 million for startups, this is essentially an early form of Crowdfunding with a developed platform and many angel and professional investors on board. Generally speaking it tends towards companies that have traction and not as early stage tech focused as many of the investors on this list. ASSOB 

 

GBS Ventures

GBS Ventures serious player in the Life Sciences space, has raised $400 million since 1996 with numerous exits.

Sydney Seed Fund

Garry Visontay, Ari Klinger, Benjamin Chong launched Sydney Seed Fund last year with $2 million to seed fund 20 businesses. They have run a number of pitching events as well as managing the local chapter of Founders Institute.

Square Peg Capital

Square Peg Capital was formed after the merger of two funds Square Peg Ventures and Victoria Capital last year. Paul Basset the founder of Seek and the Lieberman family with the backing of the Packers are planning to invest a few hundred million over the next few years. Squarepegcap.com

Artesian Capital Management

Artesian Capital Management is an alternative investments management company spun out of ANZ Banking Group’s capital markets business in 2004, with backing from ANZ Private Equity. They run a number of the smaller funds including Slingshot, Sydney Angels Sidecar fund, iAccelerate, Bluechilli and Ilab.

Tank Stream Ventures

$20 million fund founded by Markus Kahlbetzer son of Rich Lister John Kahlbetzer, notable deals include early stakes in Gocatch and Pocketbook. TankstreamVentures

Telstra Applications Venture Group

I couldn’t find any corporate announcements about the size of the Telstra Ventures fund, however it’s been rumoured that AVG has multiple hundreds of millions $ of funding to invest, given its first few investments add up to over $60 million (see Crunchbase) it is probably true although they have stated that much of this will be spent offshore. Telstra Ventures

Bluesky Funds

Bluesky is an ASX listed entity and applied for an IIF fund, Venture Capital appears to be one of their capability along with Private Equity, Real Estate and general equities investments. Despite the IIF application its not clear from their website if they are actively currently investing in early stage.

Talu Ventures

Talu Ventures is the successor to CM Capital not a lot of detail on their site about the size of their fund however they have a few notable successes including ThreatMetrix Talu Ventures

Reinventure & Westpac

With $50M in committed funds, Westpac is the largest investor in the Reinventure Fund.  The fund is operated independently by the managers, Danny Gilligan and Simon Cant, who are also co-investors in the fund. ReInventure

Singtel-Optus-Innov8

$200 million fund across Asia Pacific with a local Australian office, notable recent success includes a series C stake in Maker Studios which sold to Disney for $500 million + up to $450 million in performance payments. Innov8

Starfish Ventures

One of the older and larger funds on the list, Starfish Ventures was established in 2001 and has raised three funds: the PreSeed Fund and Technology Funds I and II, totalling over AU$400M in funds raised.

The team has invested in over 60 companies to date with 14 trade sales and IPOs, including listings on the NASDAQ, AIM and ASX and if you look through their portfolio you will find substantial business or tech/science plays that are generally solving very hard problems.

It appears they are still funding companies, although given they raised their last reported fund in 2008, its not clear how much longer they will be making new investments for the existing fund or if they are keeping their powder dry for the inevitable follow on rounds. 

Sydney Angels – Sidecar Fund

The Sydney Angels Sidecar Fund is a $10 million investment fund that invests solely in early stage business ventures as a co-investor alongside Sydney Angel member investors and as a follow on fund for Angel investments.

Notable investments include Buzznumbers which was sold for an undisclosed amount and NinjaBlocks arguably our most successful Internet of Things hardware play.  Sydneyangels.net.au

SydVentures

Not really a Venture fund but given the founder Andrey Shirben has made 40 + startup investments in the last ~5 years he is worth talking to. SydVentures

Incubators & Accelerators

Whilst not Venture funds, many of these are backed by venture or corporate funds and are providing small seed funding to get a business started.

Muru-D which is backed by Telstra offers $40,000 seed funding + office space and mentoring for very early stage pre revenue, possibly pre product startups.

Innov8 which is backed by Optus/Singtel is aimed at startups which have some evidence of customer traction offers co-working, mentoring plus upto $250,000 seed funding.

ATP Innovations one of the older incubators and has runs on the board $113 million in capital raisings for its companies, $45m pa in revenue from member companies last year, $28 million in Government Grants and 8 exits. Strong focus on life sciences and biotech with very sophisticated facilities.

ANZ InnovyzSTART SA based

Startmate $50,000 related to Blackbird Ventures so probably a good follow on funding available if successful

Founder Institute

Pollenizer has had some good wins including Spreets sale for $40m

Blue Chilli 

iAccelerate based at University of Wollongong

River City Labs

Startup Tasmania

iLab

Incubate.org.au Originally launching at The University of Sydney Incubate is now national with backing from Google Ventures

Singapore

The Singaporean Government just announced they are pumping $50 million + into local Venture Capital Funds  

Its 0nly 8 hours away and they are doing everything they can to attract new tech businesses to establish there, there is no Capital Gains Tax, you can get a visa on the strength of a business plan and they will do everything to help you get going, my prediction is this will be a popular alternative to Silicon Valley for Australian startups.

Photo by tobyct

Photo by jenny downing

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The Physics of Startup financings, or why you can’t raise a Series A

Photo by EWFTT

There is a fundamental paradox in the startup world: A lot more founders try to raise money than successfully do. But for those that do, they raise on incredibly friendly valuation terms relative to other areas of the business world. The reason is growth and it’s useful to apply the metaphors of physics to understand why.
For those tl;dr read Paul Graham’s essay on growth.

One of the most unanswerable questions I get as investor is “what do my metrics need to be to raise a series A”. I can give a guide on numbers but the reality is that the static one dimensional numbers ($100k MRR, 1m MAU or whatever the most important metric for the business is) are only half the story.

I’ll use the three simple concepts of physics – distance, velocity and acceleration – and use a SaaS business and monthly recurring revenue (MRR) to explain why.

A common piece of advice, like I said earlier, is that you need $100k MRR to raise a Series A ($5-10m) in today’s market. But the problem with that simple answer is that it’s not about the $100k figure (the distance in this analogy) nor even about how quickly MRR is growing (velocity), it’s about how quickly the change in MRR is growing (acceleration).

Stay with me. If you have a startup who grows to $100k MRR by adding $2k MRR each month for 50 months (4+ years), you are unlikely to be able to raise a Series A. If the $2k MRR you are adding doesn’t itself growing ever bigger (acceleration), the business is not a great candidate for venture financing.

On the other end of the scale, backing out a few numbers, we can see ZenPayroll skipped right past the series A and raised $20m from Andreessen Horowitz and General Catalyst at the time they had roughly $60k MRR (take the $400m payroll vanity metric, which would translate into roughly 8,000 employees or 1,000 businesses, who would pay roughly $60,000 a month according to their pricing page). You can bet that the revenue would have grown incredibly quickly, the change in MRR (acceleration) was off the charts and they had really happy customers with incredibly small churn rates.

That last part is incredibly important. There have been plenty of mobile games companies with short engagement curves, ad networks that were artificially inflating their growth by doing uneconomic partnership deals and local deals companies growing revenue at the expense of their customers viability.

So the first step investors tackle is evaluating the foundation of the building (how engaged and happy are the customers, how often do they use the product, how rarely do they unsubscribe from it etc.) and then they bet on the law of compounding growth (Warren Buffett attributes the lack of appreciation of compound growth as one of three reasons for his wealth) and hang on for a long period of time.

The rate of growth really matters a lot. 40% compounded over 10 time periods is 29X from where you started, compared to the 6x that 20% compounded over the same period is. Acceleration let’s you keep that rate of growth.

And it’s all about the acceleration not the distance.

 

 

Niki Scevak - Blackbird & Startmate

Niki Scevak – Blackbird & Startmate

Niki Scevak is a Managing Director of Blackbird Ventures. Before Blackbird Ventures, he founded Startmate, one of Australia’s pre-eminent incubators. Startmate is a mentor-driven seed fund based in Sydney that has invested in 21 startups, including Grabble which sold to Walmart Labs.

Prior to that, Niki founded Homethinking, a US-based online real estate site which helps home owners choose a selling real estate agent by ranking agents on their sales history and customer reviews.

He was awarded a cooperative scholarship to study Business Information Technology at the University of New South Wales, graduating with distinction.

 

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Checklist for Raising Investment Capital – Tony Brown @Supertrac

Tony Brown Managing Director Supertrac

Tony Brown Managing Director Supertrac

Tony Brown is the Managing Director of Supertrac a corporate advisory firm with 8 offices across Australia that specialise in business divestments, mergers and acquisitions in the SME market across Australia and New Zealand.

Tony established Supertrac in 1999 and has provided transaction advisory services for hundreds of businesses with a total value of more than $1 billion.

You can contact him at www.supertrac.com or via his linkedin profile

12 Step checklist for the key elements of an effective capital raising proposal.

1.     Step into the shoes of investors

Understand how they weigh risk and returns.

2.     Outline the business model and where you see the business going

a.     Articulate your sustainable strategic advantage. Explain the problem and how your product or technology solves it in a superior way.

b.    Articulate a clear vision of what is possible and formalise a plan for achieving it.

c.     Explain where the business is now and where you believe it can be.

3.     Secure key assets, relationships and IP

a.     Protect your IP assets as far as possible. Eg Formalise protection via trademarks, patents etc.

b.    Lock down key supplier and licence arrangements that underpin your position.

4.     Showcase your track record of achievement (if there is one)

Explain your expertise and how competent you and your team are at delivering.

5.     Determine what resources are required

a.     Including money, expertise, technology, people etc.

b.    Work out how much each will cost and how long it will take to acquire it.

c.     Work out how much money you will need in total.

d.    Plan to take as little cash off the table as possible, so most or all of the investors’ funds are available to grow the business.

6.     Explain in detail what you need the money for

a.     Break your goals into discrete stages.

b.    Set out key milestones that will be achieved along the way.

c.     Work out how much money you need to complete each stage.

d.    Break the investment into instalments with drawdowns conditional on achievement of those milestones.

This provides a staged investment plan for the investors and reduces their overall risk.

7.     Decide on the overall value of the business with the investors’ funds included

Decide on what share of the business the investors’ funds will buy.

8.     Decide on the optimal organisational, legal and financial structure

a.     Work out the degree to which you will accept equity or debt, or a combination of both.

b.    Also consider loans with options to convert to shares.

9.     Decide on the profile of the investors

a.     their industry experience

b.    financial capacity

c.     active or passive

d.    strategic fit eg ready-made distribution channel.

10.  Set out exit strategies for the investors, including how and when

11.  Set out all the above items in an Information Memorandum or Prospectus

12.  Engage an appropriate M&A Advisory firm

a.     A firm that has the expertise and the resources to perform effective direct targeted marketing on a large scale.

b.    A firm that can facilitate negotiations and the process to completion.

 

 

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