Australian founders adapt to the challenging fundraising environment with optimism and strategic shifts

By Newsdesk

March 05 2024
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The landscape for start-up funding in Australia has been increasingly challenging, but this has not dampened the spirit of the country's entrepreneurs.

Australian founders adapt to the challenging fundraising environment with optimism and strategic shifts

According to a recent survey conducted by Herbert Smith Freehills (HSF), Australian start-up founders are facing the difficult fundraising environment with a mix of resilience and strategic adjustment, while still nurturing hopes for higher valuations and successful capital raises in the near future.

The survey, which marks the second annual exploration of sentiments among start-up founders by HSF, uncovered that a significant 73% of founders perceive the current fundraising environment to be more challenging compared to 2022. Furthermore, a notable 84% acknowledged that these conditions are influencing their business strategies. Despite these challenges, a majority remain hopeful, with 91% recognising the need for start-ups to achieve profitability sooner due to market conditions. Moreover, 74% of the respondents are optimistic about raising capital in the next 12 months, and 60% believe their next raise will surpass their last post-money valuation.

Elizabeth Henderson, HSF partner and Co-Head of Venture Capital in Australia, shared insights into how founders are navigating these testing times. "A couple of years into the new capital fundraising climate for start-ups, founders are more accepting of the economic challenges that they are facing, and more are pursuing a path to profitability over growth, funded by new capital," she explained.

The survey also highlighted that only 25% of the companies are considering a liquidity event in the next 12 months, mirroring a broader preference for achieving profitability over seeking exits. Claire Thompson, Co-Head of Venture Capital in Australia at HSF, noted that the trend of bridging rounds preceding series or priced rounds is becoming less common among founders. Only 38% of respondents indicated their companies would consider such rounds before their next major funding milestone.

This pragmatic approach to funding is also reflected in founders' tempered expectations regarding valuations. While a majority are hopeful about surpassing their last post-money valuation in their next round, more than a third of respondents expressed uncertainty or anticipation of a down round.

Clayton James, another HSF partner, hypothesised that 2024 might see a rise in secondary transactions, especially among profitable start-ups, as early investors and employees look for liquidity and new investors seek entry points into successful companies. James highlighted recent deals involving firms like Canva and Employment Hero as evidence of a strong interest in these types of transactions.

Finally, while acknowledging the ongoing challenges, the survey revealed an enduring optimism among Australian start-up founders. Sixty-two percent of respondents expressed a positive outlook on the long-term prospects for start-ups in the nation, suggesting a collective confidence that persists despite the current fundraising conditions.

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