Australian start-ups are suffering from a “devastating” funding drought that could take several years to lift, the CEO of a leading seed capital fund has warned.
Amanda Heyworth, CEO of Adelaide-based Playford Capital, says the economic uncertainty has made it extremely hard for start-ups to find funding from venture capitalists or business angels.
“It’s been very tough in the last two years,” she told StartupSmart. “Our numbers may look as if everything is the same, but we’ve had to work three times as hard to get the money. There is just a capital drought at the moment.”
“The main sources of funding are super funds, but they are not investing in the start-up area at the moment. I spoke to someone who has been to 27 super funds to try and get money, without any luck.”
“It’s logical why they are being conservative, but it is having a devastating effect on the start-up sector. We are seeing a few signs of improvement, but I think the recovery will be a few years away.”
Heyworth’s grim assessment comes as Playford Capital marked a $100 million investment milestone in South Australian technology start-ups. The fund, which has attracted around 80% of this total investment from co-investors, typically invests around $500,000 to $3 million in start-ups.
Although the funding situation looks bleak for start-ups, Heyworth said that investors were still seeking suitable candidates.
“I care much less about a slick business plan and presentation and more about the relationship,” she said. “We need to be convinced that we can work with someone collaboratively to succeed.
“A start-up needs a good management team with a strong vision. They also need execution skills, such as how to manage and recruit well. The product needs to be compelling. While it’s nice to see IP, the product has to be more an aspirin for a customer than a vitamin pill – it needs that ‘must have’ quality about it.”