New voluntary guidelines aiming to create a “new dynamic in the relationship” between angel investors and Australian startups have been announced.
The guidelines, developed by the Australian Association of Angel Investors in collaboration with KPMG Australia, and KPMG’s head of innovation James Mabbott says it’s all about helping startup founders communicate with high-level investors.
“What we’re trying to do is create greater collaboration between angel investors and startup founders, to basically make that a more complete relationship,” Mabbott says.
A way to improve communication
The guidelines recommend a full set of reporting standards, stretching from basic requirements to advanced suggestions formulated by those in the industry.
They aim to provide practical guidance for startup founders in order to gain full value from angel investors, and encourage them to report openly on financials, employment matters and compliance.
They’re based around four simple principles: openness, professionalism, good governance and regular communication.
“These guidelines can help startups and angel investors start to sing from the same hymn sheet when it comes to reporting – allowing both to understand best-practice and to articulate their roles and responsibilities,” Mabbott says.
“There is a strong correlation between startups that have a good relationship with their investors and those that are successful in growing major businesses.”
Why they’re needed
Australian Association of Angel Investors chairman Jordan Green says there are a lot of barriers experienced by both angels and entrepreneurs in Australia at the moment.
“Most startups in Australia struggle to do a good job communicating with their investors,” Green says.
“Bad communication is not due to a lack of goodwill or intention on the part of entrepreneurs. It is simply an absence of education and guidance when it comes to the ‘how-to’ of reporting.”
“For entrepreneurs, this can sabotage what should be highly beneficial relationships with their most valuable shareholders. Effective, positive relationships with their angel investor shareholders significantly enhance the ability of entrepreneurs to raise additional capital and to realise their vision.”
There is a “real buzz” surrounding Australia’s startup ecosystem, Mabbott says, but there are still significant roadblocks in place.
“Part of the challenge is that by its very nature that ecosystem is reasonably opaque. Businesses can start and fail very quickly so it’s hard to get good visibility on what’s happening.”
More transparent and effective conversations
That’s where the new guidelines come in, and Mabbott hopes they will be beneficial for both parties.
“We tried to highlight a number of things that can act as a code of conduct to promote more balanced and effective collaboration from both sides,” Mabbott says.
“They create the opportunity for more transparent conversations between founders and investors to unlock value in the relationship. It’s not just about the financials, it’s really about getting a holistic conversation around where the business is and what it’s looking to achieve so it can have a more strategic impact.”
These new reporting guidelines will encourage more investment in Australia startups and make the ecosystem more globally competitive, Mabbott says.
“Initiatives like this will hopefully attract more people to invest and give better quality information for investors,” he says.
“That’s the key to unlocking investment and attracting people to the space. If there’s quality information available that makes people more comfortable in taking a risk.
“This will drive that transparency and coherent conversations, and that can only be a good thing.”