More venture-capital investment will bolster the whole Australian startup ecosystem, but that doesn’t mean founders should rely on it, according to US entrepreneur and VC extraordinaire Jules Miller.
Miller, a three-time entrepreneur who now heads up the IBM Blockchain Accelerator in New York, was visiting Melbourne to appear as a keynote speaker at the Wade Institute’s VC Catalyst program, launched last month.
The program was conceived to equip aspiring investors with the knowledge and skills to make wise decisions, back startups likely to succeed, and help bolster the ecosystem as a whole.
Speaking to StartupSmart, Miller said while there is “a lot of good stuff going on here”, there are more opportunities for the Aussie startup space to grow. When compared to more mature markets such as Silicon Valley or New York, there are stark differences, she adds.
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In the US, “there are a lot more people who have been successful in the game of venture capital”, she observes.
Investors have seen startups through from early-stage until IPO, merger or acquisition, and those kinds of wins only breed more activity, Miller says.
“What you get when you have those successes is a whole new generation of investors and entrepreneurs, and people who were early employees of those companies who then become entrepreneurs,” she explains.
In the Australian ecosystem, “it’s still a little bit early” for this.
“It hasn’t seen the big successes yet. But they’re coming,” she adds.
“That is the next step here.”
Miller also points to another aspect of the Australian startup space that she didn’t necessarily expect to see: the lack of VC funding for early-stage startups.
“There are quite a few funds that are focused on, not late-stage funding, but Series A and Series B funding, and it sounds like what this ecosystem really needs a bit more of is seed funding, and particularly professional seed-funding investors,” Jules says.
In January, KPMG Enterprise’s Venture Pulse Q4 2018 report showed a record figure of $1.25 billion in venture capital invested into Australian startups last year.
The number of investments dipped, however, meaning the average deal size for 2018 was almost $11 million, up from $6.1 million in 2017.
This raised some concern that it’s getting trickier for early-stage startups to access venture capital.
Whether this gap in the funding available is down to the relative immaturity of the market, or to culture difference and a reluctance to take risks, Jules doesn’t know — and she doesn’t necessarily care.
What matters is there are measures in place trying to correct it.
“What I’m seeing is the right steps being taken to fill that gap,” she says.
“You’re getting on a train that you can’t get off of”
For startups hoping to move into a growth phase, Jules’s advice is simply to focus on building the business, running it well, scaling and selling, rather than on raising capital.
“We get stuck in this idea that raising venture capital is a metric of success — it is not,” she says.
“Building a real business that is successful is a metric of success.”
Raising VC capital is not right for every business, she stresses, and it’s not the only option. If a startup does decide to go down that route, “make sure you know what you’re getting into”, Jules warns.
“Once you take other people’s money, you’re getting on a train that you can’t get off of.”
On the other side of the fence, Jules also has advice for those thinking about getting into VC.
“The best way to do it is to start,” she says.
“Start networking in the startup ecosystem, start writing some small cheques.”
However, she also warns that it takes, on average, 30 deals “for you to develop your gut instinct and to really get good at this stuff.”
If VCs want to see returns, it’s important to take a portfolio approach, rather than get excited about just one or two countries.
Even the best investors make their money from 10% of their portfolio companies, she warns. The others are either moderately successful, delivering small returns, or they fail.
“Venture is a very risky asset class. One in 10 companies do not perform.”
And if an investor takes a portfolio approach, “you have to be very selective and very specific about where you can be helpful, and how much time you’re willing to give”.
Usually, investors can be the most helpful within the first six months, she says. And usually, that help is simply making introductions — whether that’s to other investors, potential clients, or new talent.
“Opening up your rolodex is the most important thing you can do as an investor,” she says.
Beyond this, she advises knowing what you’re good at and where you can add value to a startup.
“Investors go wrong if they try to be everything to everyone, and that’s not going to be helpful to anyone,” she says.
“If you’re really good at finance, go in and help people manage their financial model, help them manage their cashflow. Don’t try to help with marketing,” she advises.
Knowing your own strengths and weaknesses will also ultimately help you secure better investments. Good companies are likely to have a lot of investors to pick from, she explains.
“If you don’t have a clear value proposition, you’re not going to get into the best deals,” she adds.