Cutting through tech funding maze

21/01/2019 - 15:23

SPECIAL REPORT: Tech startups in WA can raise capital if they know where to look and how to ask, a Perth seminar was told.

Cutting through tech funding maze
Gary Macbeth (left) with Susie Jackson, Morgan Barron and Tracie Clark. Photo: Gabriel Oliveira

Tech startups in WA can raise capital if they know where to look and how to ask, a Perth seminar was told.

Gary Macbeth says the tech sector and tech funding were moribund when he arrived in Perth 10 years ago.

The jovial Scot with 16 years’ experience in Silicon Valley was undeterred, however, and has helped turn that around.

“There was a dearth of companies trying to do things,” Mr Macbeth said.

“In the 10 years I’ve been here we now have, to a degree, all the check points in terms of sources of funding and capital.

(click here to view a full PDF version of this special report)

“That represents a massive maturing in Western Australia and everyone should be absolutely stoked about that.”

Mr Macbeth, who is managing partner at venture capital group 808 Ventures, was one of the more positive speakers at a seminar held late last year on funding for the tech  sector.

The 10 panelists at the event, organised by Perth-based consultancy Techboard, were divided on how well the local tech sector is being served.

Dorado Capital’s Tim Moore was positive about the prospects for tech startups.

“A good idea with good people will find money, it doesn’t need government grants and it doesn’t matter where they are,” Mr Moore told the seminar, held at Spacecubed’s Flux co-working space.

The discussion was framed by Techboard’s data on fundraising activity by startups and ‘young’ tech companies.

Nationally, there were 736 funding events by Australian startups and young tech companies totalling just over $3.5 billion, Techboard’s 2017-18 report found.

Of this, WA companies raised $295 million, or 8.3 per cent of the national total.

Techboard’s reports have consistently shown that WA tech companies are more reliant on public funding via the stock market.

Specifically, their main source of funding has been placements by ASX-listed companies.

In other states, angel investors, accelerators and venture capital funds are the major funding sources for startups.

Mr Moore said this reflected the history of WA, where investors had traditionally taken risk exposure by investing in small listed companies via IPOs and placements.

Charlie Gunningham, whose diverse experience includes being founder of a successful tech startup and a former chief executive of Business News, took a different slant.

He noted the large number of reverse takeovers in 2014 and 2015, in which tech startups listed on the ASX via mining  ‘shells’.

“Personally I don’t think a tech company at a very early stage should be going anywhere near the ASX,” Mr Gunningham said.

“I haven’t seen many that have gone onto great success, I’m worried about that.

“I think some of them do that because of the dearth of other options.”

Mr Gunningham said he saw the funding problems in his current role as an adviser on the federal government’s Accelerating Commercialisation program.

“Companies come to me for a grant but really struggle to find the matching funding,” he said.

Founder and director of equity crowdfunding platform Enable Funding, Ashley Zimpel, shared this concern.

Mr Zimpel said there was a cultural issue in investment markets, with too many people chasing a quick buck and not enough patient capital.

“There is a lack of patience that investors have in this state, and I guess in Australia at large,” he said.

Mr Zimpel believes an ASX listing is very much the wrong strategy for tech startups and has welcomed tougher listing rules.

“They have done us a favour,” he said.

“The ASX has become quite stringent in terms of the type of businesses they want to list and that’s a good thing.”

Mr Zimpel said this has opened other options, including the National Stock Exchange of Australia, the Sydney Stock Exchange and equity crowd  funding.

Preparation crucial

Tim Brewer, who was entrepreneur in residence at the Plus Eight accelerator and adviser to investment group Larsen Ventures, said tech entrepreneurs needed to invest a lot of time and effort in their fundraising strategy.

“Far too many founders have a conversation with a single investor and then wonder why there was no competition in the deal,” Mr Brewer said.

The best funding source was from customers, he added.

Where founders needed third-party funding, months of preparation was usually required for a successful campaign.

“If your path requires venture capital investment, you need to put in the same amount of energy as you do building your business,” Mr Brewer said.

“You need to understand what makes a venture capitalist tick, how they are paid, how their fund is structured, and their typical terms.

“If you want angel funds, angel investors follow things they like, what they are comfortable with, what they know. Find out what that is.”

Mr Brewer encouraged founders to educate themselves and then go and meet investors here and overseas.

“It’s nobody else’s responsibility to find you when you want capital,” he said.

“The people who do really well, you can track it back years to when they met the VCs and started building relation- ships.”

Consultant Susie Jackson agreed preparation was key.

“I think there is money out there, but you need to meet half way and be well prepared,”  Ms Jackson said.

“It has to be really well targeted.

“As long as you do your homework and are well prepared, there is money.

“It can’t just be a handout for a bucket of money.”

The panellists at the Techboard event agreed that educating tech entrepreneurs and investors was a priority.

Tracie Clark is an angel investor with a 20-year track record, with 11 companies currently in her portfolio.

“I’m quite surprised about how few people are aware of angel investors as a source of funding,” Ms Clark said.

“We’re keen to raise awareness among both investors, this is a viable asset class, and founders seeking investment.”

While angel investors typically make small investments in very early stage startups, venture capital funds are able to make larger investments in more mature businesses.

Tim Moore (left) with Liddy McCall and event organiser Peter van Bruchem. Photo: Gabriel Oliveira

Venture capital

Techboard chief executive Peter van Bruchem said there was more venture capital funding available in Australia than ever before.

VC funds have in excess of $1.5 billion available, but very little has been deployed in WA.

“VCs historically have been more likely to invest where they are located,” Mr van Bruchem said.

Mr Gunningham advocated the establishment of a large venture capital fund based in  Perth.

“Seriously, we need a $100 million fund,” he said.

“There is lots of money in this town, that’s a small amount.”

Some of the panellists played down location as an investment driver.

Mr Moore said he was agnostic about where Dorado invested.

Similarly, Mr Macbeth said his focus was on finding good quality deals.

As a result, 808 Ventures had invested in startups in the US, Europe and Israel, with just one from Perth.

Ms Clark said many angel investors also took a broader approach.

“If we see a good deal here, we will share that with our counterparts in other states,” she  said.

“We will invite other angel groups around the country to co-invest with us, so the funds come from across the country.”

Leaving home

The panel noted that some tech startups have left Perth in search of money and markets.

Liddy McCall, who is a director of Perth-based VC Yuuwa Capital, said one reason was the availability of generous government grants in states such as Queensland and Victoria.

As a result, some of Yuuwa’s investees were incorporated in those states.

DigitalX director Leigh Travers said he knew of several companies that had shifted their domicile overseas to take advantage of more favourable regulatory jurisdic- tions.

A notable example of Perth entrepreneurs moving away from their home state is  Canva.

Privately valued at $1 billion, the Sydney-based tech success story was founded by Perth-raised Melanie Perkins and Cliff Obrecht.

Mr Macbeth said tech startups leaving Perth to achieve success should not be seen as a negative.

“If they have to leave to be successful, go do it,” he said.

“Because what that proves, if you fly the flag, they started here and moved on.

“The investors will see that success and will want more and more.

“Let them go.

“Some of them might come back; some might come back and invest because this is where they started.”


Subscription Options