The US venture capital market has always been important to Australian founders. Australian founders have global ambitions from the start and are now looking to expand into technology-rich, densely populated and innovative markets.
As a seasoned Australian seed stage investor, we closely monitor the market and strive to foster relationships in the region to support the growth of our founders. I recently traveled to San Francisco to meet with various US investors to understand their views on Australia given the current market conditions.
I left the tech mecca with a few key takeaways for the returning Australian founders.
Interest in Australia remains high, but is not being considered at this time
US investors who have previously invested in Australia have positive feedback about their experience and are keen to continue pursuing opportunities in the region.
They highlight the success stories of domestic companies such as Atlassian and Canva as evidence of the exceptional opportunities available here. However, they express some concern about our competitive advantage in key technology areas compared to what is readily available.
As a result, founders are under a heavy burden to prove themselves and compete vigorously with the wealth of capital and talent available in the United States.
Nonetheless, the perception remains that Australian companies excel in capital efficiency and early profitability. A small advantage is that it has built a reputation for being able to achieve significantly higher annual recurring revenue (ARR) levels at the seed and Series A stages than its US peers that have raised at similar stages.
This is especially important in an environment where capital is expensive and efficiency is paramount.
For founders looking to attract U.S. venture capitalists, I highly recommend establishing a presence in the U.S. market from both a team and customer perspective. Demonstrating a significant increase in customers in the US has been critical to its success.
The ‘art’ of early-stage investing is still a game of extremes, not averages
Appropriate sizing of round sizes and valuations has yet to fully emerge in early stages (Seed A) in Australia and the US. There are many reasons for this, but in general, the “technique” of early-stage investing is still a game of extremes rather than averages, and is often driven by check size rather than proof points.
“High quality” betting remains prevalent, with some investors continuing to pay high valuations for opportunities with certain characteristics and acting early beyond standard obligations to access the opportunities. means to The general idea is that early-stage valuations are irrelevant to his IRR results, VC is an outlier game, and apparent options aren’t always the best.
In a market like the one we’re in right now, this kind of deal is certainly not common, but that doesn’t stop people from talking about it. It turns out that these stories become the dominant ones not necessarily because they are actually the most common occurrences, but because they get the most attention.
Even more common (and real) is the presence of market-driven fundamentalists who emphasize sustainable growth and sound business models. Most investors stick to their core themes in this environment. This means not deviating too far from the themes and stages you are familiar with.
More than ever, founders need to be careful about which investors are truly active in this market during the maturity stages of their business.
Help founders learn about different types of VC models, understand the strengths and weaknesses of small versus large funding partners, and choose a fundraising path that fits their ambitions. need to do it.
Develop a sourcing strategy tailored to the current market
The key is to develop a fundraising strategy that considers the importance of investing in light of market conditions, the relative quality of the business as an investment opportunity, and prior strategic evidence.
- “Like everything else we do” is the most commonly cited reason to “take a hard look” at a company and seems to be the most important cue for success. This rationale is very important and a strong signal for future partners. When companies follow familiar patterns, it becomes easier for partners driving deals to formulate theories. Plus, relying on solid pattern recognition skills, in-house intellectual property, or unique insights gives you confidence. To identify a good match investor has previously invested in Australian founders, owns and actively develops a significant portion of offshore investments, and has invested in companies similar to yours. Look for someone with a proven track record.
- Achieving high growth is essential even in the face of market downturns, and the focus remains on two to three times the traditional growth rate. However, investors will increasingly focus on the quality of this growth, considering factors such as speed, consistency and concentration, as well as risks and dependencies.
- At a minimum, Australian founders should establish a US go-to-market (GTM) presence either through a sales function that can serve the region or by appointing a US sales leader. It is important for founders to ensure that their products and markets are a good fit in the United States, demonstrating their ability to attract and retain top U.S. talent. Investors rarely cite stringent requirements for founders to immigrate to the United States. Some internationally-focused investors ignore it entirely, but it’s always worth considering if your focus is on the US region.
- A move is seen as a sign of a company’s confidence and ambition, and a true risk aversion in the early stages of market entry. Founders must demonstrate that the company’s attention and resources are focused on the United States. I would suggest developing a strategy and putting real capital into the region.
There is no denying that Australian start-ups seeking US funding may still attract the attention of US investors, even if they are not initially at the forefront. Australian founders must be good at expressing themselves and demonstrating their capabilities in order to compete effectively with the vast amount of capital and talent that exists in the United States.
Whether establishing a sales team in the US, relocating a founder, or devising a strategy to serve US customers, establishing a strong presence in the US market is a real essential for success.
- Georgina Turner is a partner at Tidal Ventures.