What does an Australian start-up need to get investment? NICTA new ventures director crunches the numbers

After an article about the similarities between 39 American billion-dollar software start-ups went viral last month, Andrew Stead, the director of new ventures at NICTA, decided to research the most successful investment-backed Australian start-ups.

 

Welcome to the Unicorn Club’, the TechCrunch article by seed-stage fund Cowboy Ventures founder Aileen Lee, detailed the key factors start-ups that received investment and became worth more than a billion dollars had in common.

 

The findings were companies that became worth more than a billion dollars had two or more founders who were over 30 years old with university degrees and who had worked together before and launched companies previously.

 

Stead analysed 71 investments in Australian start-ups in 2012. This included 44 deals totalling around $30 million from angel investors and smaller venture capital firms, 20 deals worth $24 million from early stage venture capital investors and seven deals worth $17 million from venture capital.

 

“There is certainly not a formula and plenty of exceptions to every rule,” Stead says. “Building successful businesses takes time, experience, a team that knows each other and the ability to convince an investor that you are the team to exploit a big opportunity. With this in mind and the preferences of Australian venture investors, start-ups can go into a pitch forewarned and forearmed.”

 

He found early stage venture capital and venture capital firm investments demonstrated a preference towards enterprise-oriented start-ups (80%), with two or three founders (67%), aged between 35-45 (71%), who have previously founded a business (68%).

 

A key difference was Australian investors appear to be more open to backing single founder companies (41% of the companies were single founder led) than the findings of the American research, compared to only four of the American companies.

 

“Determining whether the founders knew each other before was more difficult, with only 14% with obvious connections, compared to 90% in the US,” Stead says. “Australian founders had a solid track record of building businesses before with over 65% having done so and around 6% had sold a business.”

 

The majority of the Australian founders were university educated with 95% of the founding teams had at least one person with a university degree. Of the founders who were also chief executives, 83% had university degrees.

 

“In the US there is a focus towards the top schools but here that is less relevant, with a good spread across states and universities,” Stead says.

 

The peak age for founding a business in Australia was similar to US, with 35-45 the most common bracket and just over half (62%) older than 35. Only 5% of Australian founders were under 25.

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