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4 März 2024
Insight
Herbert Smith Freehills has a large network of founders who’ve raised from a range of different investors, including domestic and global VC Funds, corporate venture and family offices — we want to harness our network to better highlight the founder voice.
Our survey data found that continued challenges in the fundraising environment have not extinguished optimism among Australian start-ups, and that founders expect to raise and achieve higher valuations, whilst recognising the new paradigm in the Australian VC ecosystem.
Key survey takeaways
1
While times are currently challenging, most respondents expect their own companies to raise in the next 12 months and to do so at a higher valuation than the last round, probably through a priced round.
2
74% intend to raise in the next 12 months, with 60% agreeing that they were confident that their company’s next raise will be above its last post-money valuation.
3
84% of respondents agreed that the current fundraising environment is impacting strategic decision making in the Australian start-up industry. This is down from 97% in 2022, indicating that founders are coming to grips with the new environment.
4
The current environment is driving strategic decision making, in particular a much stronger focus on profitability or cash burn reduction and a pivot from growth to profit — over 90 per cent of respondents agreed that Australian start-ups will need to reach profitability earlier because of current market conditions.
5
But despite a challenging economic landscape, many Australian start-ups remain positive about their prospects and future — 62% of respondents agreed that they felt optimistic.
The state of the market (through Founders’ eyes)
Takeaways
- While the edge may have come off from 2022, founders still found 2023 challenging for fundraising.
- 73% agreed that the current fundraising environment is more challenging than in 2022. This is down from 81% last year, which could reflect the significant shock that the 2022 market dislocation was for some founders after the strong funding environment they experienced in 2020 and 2021. The sentiment seems to be that funding markets are more challenging, but founders now expect that to be the case and are prepared for it.
- 84% of respondents agreed that the current fundraising environment is impacting strategic decision making in the Australian start-up industry.
- This is down from 97% in 2022, indicating that founders are coming to grips with the new environment.
- Raises are taking longer to secure, which naturally impacts on the company’s ability to deploy that capital in pursuit of its strategy.
- Respondents reflected on the challenging environment but remain positive with one stating that, “good start-ups will make it”.
The current fundraising environment is more challenging than the last 12 months
The current fundraising environment is impacting strategic decision making by Australian start-ups
I am being told it is but at the same time am seeing evidence that it may not be
Founders actively looking to raise
Takeaways
- Despite the continued challenges of the fundraising environment, most respondents expect to raise in the next 12 months above the last post-money valuation.
- 74% intend to raise in the next 12 months, slightly down from 76% in our 2022 survey.
- Expectations on valuation were more measured than expectations on raising, with 60% agreeing that they were confident that their company’s next raise will be above its last post-money valuation. This is down from 85% last year, when founders were more confident in their valuations.
- Just over a quarter of respondents were unsure/didn’t know if they could be confident that the value of their next raise would be above its last post-money valuation, indicating a level of uncertainty.
- The results show a level of optimism tempered by a recognition of the new paradigm in the Australian VC ecosystem
My company intends to raise in the next 12 month
My company is confident our next raise will be above its last post-money valuation
Alternate pathways
Takeaways
- Our 2022 results were characterised by uncertainty. These results indicate more understanding of what is possible or required.
- When it comes to bridging rounds, the response was mixed - founders are willing to raise, but not no longer looking at bridging arounds. We expect this is driven by the large number of bridge rounds undertaken in 2022 and 2023, with Founders acknowledging that investors will expect to see priced rounds again, now that valuations have settled into a “new normal”.
- Over a third of respondents, 38%, said that their company will look at a bridging round before its next series or priced round.
- Almost as many, 33%, said that they are unsure/don’t know if they will look to do a bridging round.
- The final 26% of respondents said that their company was not looking at a bridging round before its next series or priced round.
- The majority of respondents, 79%, said that their company did not intend to pursue a liquidity event in the next 12 months.
My company will look at a bridging round before its next series or priced round
My company intends to pursue a liquidity event (eg, IPO or trade sale) in the next 12 months
If there is a chance to, we wouldn't say no but isn't main focus right now
Founders optimistic for future prospects
Takeaways
- Although it has been a challenging couple of years for the Australian startup ecosystem, Founders remain optimistic for the long-term prospects for Australian start-ups.
- 62% of respondents agreed that they felt optimistic, but this was down from 76% in 2022.
- The results show a level of optimism tempered by a recognition of the new paradigm in the Australian VC ecosystem.
Overall, I am optimistic about the long-term prospects for Australian start-up
Earlier push to profitability
Takeaways
- A strong majority (91%) agreed that Australian start-ups will need to reach profitability earlier because of current market conditions.
- There was a greater level of certainty in this belief than last year, with more respondents saying that they strongly agree (53% up from 41%), and fewer respondents remaining ‘neutral’ (6% down from 26%).
- One respondent made the comment that, “Getting a path to profitability is now a requirement, and we have adjusted our strategy to suit”.
- This result reinforces that founders recognise that the new paradigm includes solving for profitability.
Australian start-ups will need to reach profitability earlier because of current market conditions
Pipeline to profitability is probably the most common phrase with investors at the moment.
Contribution of major investors
Takeaways
- Founders are happy with their investors, with 84% stating that they valued the contribution and support that they receive from major investors.
- This result was more positive than in 2022 (76%).
- In a tough environment, Australian founders are indicating their investors have largely delivered.
We value the contribution and/or support from our major investors
Government support and regulation
Takeaways
- 94% of respondents agree that governments can do more to support Australian start-ups, with 64% strongly agreeing.
- Some respondents stated that a number of programs have been removed and not replaced by the current government, and that they felt there was “too much focus on software, not enough on hard technology development”.
Governments can do more to support Australian start-ups
Government support is always welcome, but it is hard for them to pick winners and in the end only good businesses should survive
Key contacts
Elizabeth Henderson
Partner, Head of Venture and Growth Capital, Australia, Sydney
Claire Thompson
Partner, Head of Venture and Growth Capital, Australia, Melbourne
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