What’s Happening In Venture Downunder?

The following article is an overview of the programmed content for our Venture Downunder event held in June this year. We have removed all names and associates to ensure our community remains anonymous and are able to speak freely and openly at every Innovation Bay event. 

In June, with support from our local partners and hosts Advance Queensland, Noosa Council, Office of the Queensland Chief Entrepreneur and Peregian Digital Hub, Innovation Bay brought together the Australia and New Zealand venture community in Noosa Queensland for the fifth annual hallmark event, Venture Downunder, to discuss the future of the industry. 

Across three epic days, our community of venture partners came together to connect, learn and help each other in building a leading global tech ecosystem. The agenda included opportunities to connect with local startups and ecosystem leaders, a deep day of peer to peer learning and a final day of community and relationship building.

A Queensland Startup Showcase was held with a handful of Queensland’s most promising and exciting startups pitched to a room full of the most influential VCs in the country. Pre-vetted by a panel of experts, founders joined us from GreaseBoss, Monarc Global, Leakster, Bloom and Endua. 

A full day of extensive programmed content was delivered including a Keynote Presentation on The State of the Market from Macquarie’s Head of Wealth Management Investment Strategy Jason Todd. Attendees cherry picked from nine back to back expert panels featuring incredibly talented speakers and moderators as vast as the ecosystem! Topics discussed in the peer to peer content included: 

Down Rounds & Protecting Your Portfolio: The bull market is over. Cost of living is rising, interest rates and inflation are up, and the public markets are down. How should VC fund managers react? We ask the questions to investors that have lived and invested through previous cycles before and dive into how we should think about protecting and managing our funds in the coming years.

Fund Structures: A deep dive into the structure of funds with incredible advice from one of the top law firms in the country. 

Fund Strategy in a World of Huge Rounds: The last few years of venture have seen a material shift in growth funding strategies by later stage funds. This phenomenon began with Softbank with a smaller number of very large rounds and then industrialised through Tiger Global’s (and to a similar degree Insight Partners) approach to fast, broad ranging and significant growth funding rounds.

IPOs & Exits: Like many taboo topics, Exits are infrequently discussed and shrouded in mystery. This panel shone sunlight into this awkward but necessary corner of the VC investing life-cycle, that of Exits, Realisations, Liquidations and IPOs. It discussed the mundane and trivial, the strategic and important, and everything in between. 

Why Impact Will Outperform: This session took a look at why impact will outperform; climate and gender opportunities; measuring impact; and impact through the investing stages.

The Role of Debt In The Current Market: Debt comes in many flavours including Venture Debt, Quasi Debt and Revenue-based Financing. We learned about how these financing options work, and what the merits are for companies. Classical finance suggests an efficient capital structure should have Debt on the capital table. We learnt why.

Creating An Ambitious VC Brand: VC brands should be ambitious and aspirational. This panel taught us why and how to go about it.

QLD Startup Ecosystem: During this session, we heard from some of the key figures in the Queensland ecosystem and took their pulse on the sunshine state’s industry now and for the future. 

The Founder Funder Relationship: Trust and true partnership, alongside a long term focus, are critical to a relationship’s base. Founders need their VCs to be superfans, to get in the trenches with them with an aligned mission. This panel dissected the relationship between the startup founder and the VC fund manager. 

Jason Todd’s keynote highlighted what many already knew – that the next 12 months (at least) are going to be challenging. As a result of the global pandemic, governments and banks reacted by lowering rates and flooding the market with plentiful liquidity. As demand has recovered, we’ve seen inflation rear its head and, in turn, central banks trying to fix the problem by raising interest rates. These rising rates will hurt both valuations and interest coverage ratios. We’ve since seen exits slow with liquidity via IPOs all but completely dry. As the market reassesses valuations, it’s likely there will be a fall in returns across the next few quarters. 

The ‘Down Rounds & Protecting Your Portfolio’ panel, reiterated some of Jason Todd’s presentation. The conversation kicked off with while last year was extreme in terms of valuations and rounds, we are currently seeing a normalisation with valuations being compressed or brought down. The panel discussed that we should get back to business fundamentals of acquiring and retaining customers and the bottom line with an encouragement for companies to get as much cash in their pockets as they can in order to survive the next few years. 

Though not all doom and gloom, the conversation moved to the fact that we are seeing an influx of talent in the market making it easier for early stage companies to find great people. As well, there is a focus on leadership, attracting talent, keeping staff and maintaining positivity to support the management of potentially difficult times coming. The key takeaway – “think like camels, not unicorns”.

General consensus is that the market is in a state or re calibrating. While we have seen the size of venture funds increase, so too have we seen an increase in the number of companies being created and the funding opportunities.  What is generally believed is as previously stated, valuations have come down from the highs of 2019/20 to a more traditional and normalised basis.   Venture Partners felt that founder strategies have also pivoted to a strong focus on driving profitability and customer engagement, rather than pure growth, as access to capital becomes more difficult that it has been over the last two years.

Last year was the best year in ASX listings with 204 new listings and $13B in capital raised – a fair amount of them venture backed. Further, the last 5-7 years have seen 100 tech listings with the sophistication of investors really evolving. During the ‘IPOs & Exits’ panel it was concluded that there’s a huge opportunity for IPO in Australia given the size of super funds proportionate to population size.  The general consensus is that IPO’s may slow as the market slows.

Impact is an increasingly important topic in business, socially and globally. Impact does not equal philanthropy, however. Impact sits directly beside the business model – it is just as important. During the ‘Why Impact Will Outperform Panel” we learned about a shift in progress with regard to diversity. It was declared that women in leadership move the dial and a leveling out of boards should be a key focus. Shifting to a future lens, Millennials will make up 75% of the workforce by 2025, and they are looking for socially responsible employers. Impact VC is on track to invest $100b in 2022, with a focus on Climate, Education and Health tech companies. Meanwhile, the rate of climate tech companies reaching unicorn status is amongst the fastest of any category. 

On ‘The Role of Debt in the Current Market’ session, a unanimous “yes” was felt across the panel for this being the golden period for debt. It feels like a we told you so moment; a time to optimise the cost of capital and capital structure with the equity centricity of markets changing. The market has changed the analysis of companies with panelists suggesting they look harder at runway and burn and posing the question “can companies survive in the absence of an equity market?” Advice across the panel was to always integrate debt to bolster their capital stack and maintain the flexibility. 

Most VC brands are not ambitious but should be to attract ambitious founders – so declared our panel titled ‘Creating an Ambitious VC Brand’. Brand is identity with ambition equaling inspiration and vision. A VC brand distinguishes and in a market so small, a VC needs to set themselves apart. VCs were advised during this panel to aim to be as ambitious as the founders they invest in! 

Finally, Venture Downunder in Noosa would not have been complete without a microscope over the thriving local Queensland ecosystem where there is an abundance of success stories that weren’t there before! The resilience of the Queensland ecosystem is high and the problems Queensland-based startups are trying to solve are big, real-world problems. The next 10 years will see a resurgence in talent, with really interesting people from diverse backgrounds and experiences, returning to Queensland and the next generation of companies coming through. 

While the cloud of the current state of the market looms overhead, it’s certainly not all doom and gloom. Parts of the ecosystem are thriving and ample opportunities continue to exist. Strategy over frivolity seems to be the flavour of the pulse taken at Venture Downunder. So buckle up! 

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