Techboard recently held its first virtual Roundtable on funding options for Aussie Startups in the Covid era. We had assembled a panel from across a variety of funding types to try to gauge how the current environment was impacting on a variety of funding types available to Startups.
Our coverage of the Roundtable discussion will be in two parts. In Part 1 we will cover what the panelists were experiencing in the market across the different funding types. In Part 2 we will be covering some super useful tips for founders.
Techboard Co-founder and CEO Peter van Bruchem was joined by a panel coming ‘representing’ a range of funding types:
Cameron Owens, CEO of Radium Capital - R&D Advances Cameron is CEO of Radium Capital which helps companies undertaking R&D get the right cashflow and capital mix.
Lynda Coker, Scale Investors - Angel Investment Lynda is an experienced angel investor, advisor to startups and also venture funds and also recently became the commercial director of Volt Bank.
Steve Torso, Wholesale investor - CRIISP- Investment platform Steve founded CRIISP, a SAS platform for raising capital. He also founded and runs Wholesale Investor, a platform for connecting High Net Worth and Professional Investors with Private, Pre-IPO, STO, Blockchain and Small Cap Listed Companies.
Nick Gainsley - Principal (Venture Credit) OneVentures Nick has a strong background in venture debt which he has brought with him from the United Kingdom and now runs the Venture Credit Fund at one of Australia’s oldest and largest Venture Capital firms.
Dr Jehan Kanga, KPMG High Growth Ventures, R&D Tax Jehan helps drive rapid commercialisation, particularly solving problems for startups within the emerging deep tech space across all industry sectors in Australia.
Jonny Wilkinson, Equitise, Equity Crowdfunding Jonny heads up Equitise which operates a crowdfunding platform in Australia and New Zealand.
What was clear from the Roundtable was that there is still funding available out there in a number of forms. Although there is a recognition that things will be getting tight and that founders are going to have to start to be more creative and strategic in how they fund their business, looking at funding from all available sources. While the Roundtable did not specifically target government grants, it was stressed by several panelists that founders should familiarise themselves with what is available including the new Jobkeeper funding especially noting that many programs have been modified or extended as a result of the pandemic.
Lynda Coker explained that “Scale hasn’t really seen a lot of attrition. We still have deals in flow and if anything quite surprisingly we have had a number of potential angels getting in touch maybe because they have time on their hands.”
Steve Torso was quite optimistic but did highlight some critical changes in what companies an investor would choose to back. He also saw that investor’s approaches now might be similar to what was seen before the recent boom in startup investment. “For investors this is something that some investors have been waiting for for a decade... this effectively becomes the investors prime time. We had the experience of launching during the GFC and that made a big difference. Up until 2013/2014 everything was strategic money so this is not new.”
Steve did however also highlight that it might be harder for founders now “It is just that the only difference is you are going to have 5 to 10 times the amount of companies going to raise money in the next 6 to 12 months than whatever has before. That is what is going to be the challenge.”
Steve observed that he had noticed that investors were tending towards more strategic investments as well as investments in companies they could personally assist and that what he called the gambling or ‘punt’ money where a High net worth investor would invest into a startup as a gamble would probably disappear and he saw this as potentially impacting the momentum of capital raises.
Jonny Wilkinson from Equitise indicated that the Covid impact on the investors that back equity crowdfunding raises was currently unclear. Jonny explained that the recent close of three deals on the Equitise platform was flatter than normal where the final 20% of the time period for the raise was about half as quiet as what they would normally expect possibly showing a loss of confidence by the investors .
“The single biggest impact to what we see is volatility in markets. When there is uncertainty and volatility people just hold off in making investments. They wait for it to die down. Which they are starting to, so, unless we have another spike in volatility we are going to go to market with a couple of companies in the next couple of weeks and get a bit of a sense as to where things are at.” Jonny Wilkinson, Equitise.
Jehan Kanga indicated he and his team at KPMG was seeing a difference in how companies were spending their money with a view to extending their runway by expanding the way they were using the R&D tax refund. “We are seeing a focus on product development, maybe a pivot away from marketing and sales and straight into product and validation and that obviously increases the quantum of R&D and the quantum that gets returned. Some companies have obviously done some financial modelling and figured that is how you can extend their runway by a couple of months.”
Cameron Owens also observed that the R&D tax refund is taking on a new significance. He observed, ”They value it even more than they have had historically. And one of the by-products for us is that actually getting an early payment of your tax refund is maybe more important than it once was. Particularly those businesses that are wanting to strengthen their balance sheets from a capital position. For us nothing has fundamentally changed and we are seeing a lot of people gravitating towards shoring up their position on their R&D tax refund as well as looking whether they can get an early payment. We are seeing growth in the market for our type of capital.”
Nick Gainsley said that OneVenture’s Venture debt fund is still really active in this market. “We are seeing some really good opportunities in this market and are happy to lend. You haven’t got to approach the difficulty around valuation which is the elephant in the room so taking debt you avoid that conversation.” (We will be exploring valuation in more detail in Part 2.)
“We are really happy to lend to cashburn businesses and we don’t have requirements that you must become cashflow positive in a certain period of time. Ultimately you want to see the business being a bit more resilient and if you are looking at the economics you want to see that the company is trending better and can survive through this, be leaner and have a longer runway. We look more deeper under the hood I suppose and be more selective in the sorts of businesses we want to lend to.”
“We are not looking to suddenly change our terms and suddenly price things much more expensive that is not our intention. Our facility has changed slightly in this market and founders may use the money as more of an insurance policy. What we can do is put in place a facility that is available and people can draw them down on them if they need them. Which can work quite complementary to a convertible note from an investor. But ultimately we will be more selective.”
Steve highlighted the need for companies to look broadly when looking to fund their business. “This is one of the rare times for a company's perspective where when they think about capital they don’t necessarily think about equity raises with access options like R&D financing, and the option for some companies to access debt finance and we have seen investors on LinkedIn being more open to convertible notes.”
The panellists were asked how the current environment has changed how they assess opportunities. For most, the general message was that companies need to be able to clearly articulate how their opportunity fits in the current climate, how the climate impacts on their opportunity, how they will manage cashflow and does it change their route to market.
Cameron Owens from Radium indicated “From our perspective nothing has changed at all for us. We are lending on the back of someone’s R&D tax refund and that program remains as is so if anyone is eligible for an R&D tax refund they are eligible for getting access to our funding so for us we are somewhat quarantined from the broad market challenges.”
There was an interesting discussion on the impact of the new way of working, with a massive shift away from in person face to face towards virtual meetings. There was a general consensus that this might to some extent become the new normal and many deals that would have previously been done in person will now be done online. The point was made that the larger transactions typically have a face to face component and those larger investments may be more impacted by a move to virtual rather than in person face to face meetings. One question which it was agreed remains open is how many large scale investors or VCs have made investments into companies they have never actually physically met before.