IS THE VENTURE CAPITAL PROBLEM ‘SOLVED’?
It’s worth asking the question - does having more capital in the system translate into bigger round sizes for Australian startups?
The data suggest that the answer to that question is a clear ‘yes’. In the last 5 years, the average size of a substantial growth round (Series A and beyond raising US$2 million or more) has grown steadily, from an average of US$9.73 million in 2015, to US$18.89 million in 2019 (Figure 5).
When we control for the age of the companies doing the raising, the results are also encouraging. Companies under five years old at the time they raised have consistently been raising bigger rounds over the same period (Figure 6). This analysis suggests it is not just a few successful companies hoovering up all the extra capital - new firms are seeing a windfall too.
CAN AUSTRALIAN FOUNDERS RAISE ENOUGH TO BE GLOBALLY COMPETITIVE?
The signs are encouraging for startups looking to go global from an Australian base - the data suggests that in the last five years Australian businesses have nearly doubled their average raise size for growth rounds. The question remains: is this enough? Are Australian founders able to raise enough funds to genuinely compete with their global peers?
Comparing, in aggregate terms, the biggest rounds raised by founders around the world is a relatively simplistic way to approach this question, but it helps paint a picture of the overall landscape we’re working in. After all - there’s no special reason why an Australian startup looking to rapidly take on global markets would need less funding in absolute terms than a US startup in the same position.
On this most basic of metrics, Australia still lags (Figure 7). The fact that the biggest rounds raised in Australia in the last three years are substantially smaller than the US is perhaps not surprising, so we have excluded US figures from this analysis. But Australia remains behind other peer ecosystems.
Given the amount of dry powder being held by Australian venture firms, the rise in average deal size across the sector, and the rapid growth in size and number of more mature tech businesses, this disparity should shift in the years ahead. If it doesn’t, it may indicate a more serious structural problem stopping the most successful Australian tech companies from raising very large rounds of private funding.