Australian startups are raising on average $645,500 in funding rounds in return for an average 13% equity stake in their businesses, according to data collected by legal startup LawPath.
Launched in 2013, LawPath provides a cloud-based legal platform for startups and businesses to access legal advice and services, and its chief Dominic Woolrych says it is experiencing 20% month-on-month revenue growth, while bringing on 2000 new clients a month.
Over the past two years, the startup has leveraged this rapidly expanding user base to collect and anonymise data from roughly 5000 capital raise documents. Through this process, LawPath found the average amount startups had raised from investors in this time was $645,500, while the average equity stake taken in the startups by investors was 13%.
The total amount invested into startups across these raises was $109.1 million dollars, and the average associated expenses of raising funding was found to be $9317.
LawPath collected these 10 million units of anonymised legal data from its clients in an effort to provide a snapshot of the Australian startup landscape — from how much startups are raising, to how how long they’re keeping interns on board.
“We are leveraging this data to help new clients, who often don’t know how much to raise, or how much to give out in equity,” Woolrych tells StartupSmart.
“We thought, if we say to them, ‘the last 5000 startups of your size did this’, then that’s really going to help them.”
Woolrych says all the data LawPath uses for analysis is anonymised and cannot be matched back or identified to the client.
The startup sees a range of both early and late-stage companies processing capital raise documents through the platform, and Woolrych says the average raise of an early-stage startup sits around $250,000, while later-stage startups typically raise up to $1 million in funding rounds.
Since LawPath started collecting and analysing its user data, Woolrych says he has anecdotally noticed a “definite” increase in the average amount of funding startups are raising.
“Over the last two years as the startup scene has continued to heat up so has the investment scene and the corporates coming in to invest,” he says.
Woolrych says even early-stage raises where family and friends contribute funding have grown in size in recent times.
“Friends and family early stage rounds were previously around $50,000 and now it’s uncommon to see rounds of that size; you almost always see them over $100,000 now,” he says.
Woolrych says his team has also seen a change in the types of shares being issued. Whereas once LawPath would see primarily preference shares being issued in funding rounds, he says the team is now seeing more ordinary shares issued.
“This suggests that startups are starting to get more power in the relationship and investors aren’t dictating all the terms,” he says.
Startups may also be keeping interns on longer than may be legal, Woolrych observes, pointing to LawPath data that shows the average term of intern agreements is five months, while “it’s not uncommon” for agreements to last for over 12 months.
“This is interesting from a legal perspective, because the general rule is no more than three months — otherwise it’s seen as an employment relationship,” he says, adding LawPath can now use this data to warn future startup clients about these requirements.
The value of data
Woolrych says the data collected will now be used to help the startups that use LawPath services to make more informed decisions about the legal considerations they need to be aware of.
“In the startup space the VCs have data, incubators have data, but on the legal side there’s no data out there,” he says.
“I think it [collecting data] is really important at the moment because there’s a lot of support for startups out there but it’s still relatively difficult for startups to get information about capital raises,” he says.
“Startups often don’t want to give away share price or valuation. It’s hard to get a grasp of what’s fair, and that’s why data is so important, because you can look back and see on a larger scale what’s happening.”
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