The US venture capital market has always been important to Australian founders who have had global aspirations from day one or are currently considering expansion into the technology-rich, densely populated and innovative market.
As experienced early-stage Australian investors, we monitor the market closely and ensure we maintain relationships in the region to support our founders as they grow. I recently visited San Francisco to meet with several US investors to understand their thoughts on Australia in light of current market conditions.
I left the tech mecca with some key takeaways for our Australian founders back home:
There’s still a lot of interest in Australia, but we’re not in the forefront right now
US investors who have previously invested in Australia are positive about their experience and remain eager to pursue opportunities in the region.
Georgie Turner, partner at Tidal Ventures
They highlight the success stories of our own companies, such as Atlassian and Canva, as proof of the exceptional opportunities available here. However, they express some reservations about our competitive advantage in key technology areas compared to what they could achieve closer to home.
Consequently, the burden falls heavily on our founders to demonstrate their capabilities and compete vigorously against the abundance of capital and talent available in the US.
Nevertheless, the perception that Aussie companies excel in capital efficiency and rapid income generation remains unchanged. A small benefit is that we have built a reputation for being able to achieve significantly higher Annual Recurring Revenue (ARR) in the Seed and Series A stage than our US counterparts raising at similar stages.
This has become especially critical in an environment where capital is expensive and efficiency is paramount.
For founders looking to attract US venture capitalists, it is highly recommended to establish themselves in the US market from both a team and client perspective. Demonstrating significant customer growth in the US has become a requirement for success.
The ‘art’ of early stage investing remains a game of extremes rather than averages
Proper sizing of round sizes and valuations has not yet fully manifested in the early stage (Seed-A) in Australia or the US. There are many reasons for this, but in general the “art” of early stage investing remains a game of extremes rather than averages and is often driven by the size of the check rather than points of evidence.
The “high quality” bet is still prevalent, meaning that some investors will continue to pay high valuations for opportunities with certain characteristics and go earlier and beyond their standard mandate to access the opportunity. The general thinking is that early stage valuations are irrelevant to IRR results, and VC is a game of outliers where the apparent options are not always the best.
These types of deals are certainly less common in a market like the one we’re currently in, but that doesn’t stop people from talking about them. You’ll find these stories become dominant because they get the most attention, not necessarily because they’re actually the most prevalent.
What is more common (and realistic) is the existence of market-driven fundamentalists focused on sustainable growth and sound business models. Most investors will stick to their core thesis in this environment, meaning they won’t stray far from the themes and stages they are familiar with.
More than ever, founders need to do their best to ensure that investors are really active in this market at their stage of business maturity.
Founders should be trained in the different types of VC models and understand the pros and cons of smaller versus larger funding partners so they can choose a funding path that fits their aspirations.
Formulate an increase strategy for the current market
The most important takeaway is formulating a raise strategy that takes into account the state of the market, the relative quality of your company as an investment opportunity, and the importance of deploying capital against strategic upfront evidence.
- “Similar to other things we do” seems to be the most cited reason for scrutinizing a company and the most important signal for success. This rationale is hugely important and serves as a strong signal to potential mates. When a company adapts to familiar patterns, it becomes easier for the partner driving the deal to formulate a statement. Plus, it inspires confidence because they rely on solid pattern-recognition skills, in-house intellectual property, or exclusive insights. To identify compatible investors, look for those who have previously invested in Australian founders, own a significant portion of offshore investments, actively stake and have a track record of investing in companies similar to yours.
- Achieving high growth is imperative, even in the face of a down market, and the conventional 2-3x growth rate is still emphasized. However, investors will now place more emphasis on the quality of this growth, taking into account factors such as speed, consistency and concentration, as well as risks and dependencies.
- At a minimum, Australian founders must establish a US go-to-market (GTM) presence, either through a sales function that can serve the territory or by appointing a US sales leader. It is critical for founders to ensure the product-market fit in the US and demonstrate their ability to attract and retain top US talent. Investors rarely cite a hard requirement for a founder to move to the US; some more internationally oriented investors dismiss it entirely, but it’s always worth considering if the US region is your focus.
- Relocation is seen as a sign of the company’s confidence and ambition and a real risk reduction in the early stages of market entry. The founder must prove that the company’s attention and resources are focused on the US. I suggest formulating a strategy and investing real capital in the region.
There is no denying that Australian startups seeking US funding can still capture the attention of US investors, although they may not be at the forefront at first. Australian founders need to be good at presenting themselves and demonstrating their capabilities in order to compete effectively with the vast amount of capital and talent available in the US.
Whether it’s building a sales force in the United States, relocating founders, or strategizing to cater to US customers, a strong presence in the US market is imperative to making a real impact in the US .
- Georgina Turner is a partner at Tidal Ventures.
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