Securing venture capital for your fledgling business is no easy task in Australia. Entrepreneurs are often forced to look overseas or bootstrap the company, like the mega-successful Atlassian. However, the future of venture capital investment in Australia is brightening as companies, such as Sapien Ventures, establish a beachhead in the large Chinese investor markets.
Venture Capital 101
First, you’ll need to a minimum viable product. It’s time to talk to the wealthy people in your network, the ones who are happy to inject a bit of money to get things rolling. This is known as angel investment, and you can often get it without giving up equity.
Once you’ve refined your product or service, the next step is to raise some more money (probably from your angel investor again) and put your product or service out to market. Once you can prove people will pick up what you’re putting down, you can start poking around for some serious venture capital.
Several funding entities, such as banks, local venture capital funds and wealthy Australians, are still somewhat trepidatious about investing big in local firms. Startups are therefore beginning to investigate overseas markets for funding. International backers from the US or Europe, for example, offer your company several benefits, including a wider network to draw on, much deeper pockets to reach into and they are traditionally far less risk-averse.
Chinese investors are also dumping money into Australia by the truckload, and with the Federal Government’s changes to immigration visas poised to bring more wealthy people into the country, opportunities are aplenty.
What to Do in a Venture Capital Pitch
So you find yourself in the room with the big wigs, but what do you say? How do you get them over the line?
- Prove your product or service has high barriers to entry: the high-risk nature of venture capital investment means those investors want insurances. You need to prove how your product/service fills a void in the market and why competitors can’t just knock together a rival in a few months
- Inspire with your value proposition: make sure you can answer the questions, ‘Why would someone wait five minutes to get access to my product and service? Why would they persist?’ You also need to prove how your business is scalable – these people want to see a return
- Have committed customers: investors want to see a sizeable opportunity in your idea. They want to know the customers you do have represent large untapped markets
- Have experienced pros around you: as the old legend goes, it’s not what you know, it’s who you know, and it rings especially true here. Venture capital firms are gambling on you, and the fewer variables the better. If you can establish a credible team with proven industry experience, the money men will feel more comfortable backing you
Before You Take the Plunge
Sometimes taking venture capital might not work in your business’s interest. Here are some things to consider before accepting the money:
- Will it cloud your vision? Once you accept investors, you will be pushed for a return. How hard will you fight for your ideas? And how will you know when you’re being resistant to change?
- The clock will start ticking for your startup to work. How well do you work under this kind of pressure? Some major blue-chip companies, such as Microsoft, Apple and Google, all took close to a decade to hit the big time
- How badly do you need to expand? Are you ready for that kind of expansion? Can you just keep bootstrapping and grow organically? The boys from Atlassian founded their company in 2002 and didn’t take venture capitaluntil 2010
Carefully weigh up the pros and cons of getting venture capital, and make sure you’ve got all your ducks in a row before you embark on the rapid expansion adventure.