TLDR:
Key Points:
- American venture capital firms are seeking Australian investors as the industry faces a cash crunch.
- Local VC firms are struggling to raise new funds, leading to a “cleansing” in the asset class.
American venture capital firms that used to look down on Australian investors are now seeking their cheques as the industry faces a cash crunch after the start-up bubble burst. Local VC firms are struggling to raise new funds, leading to what some investors describe as a “cleansing” process in the asset class. Figures from the US VC sector show a sharp drop in fundraising in 2023 compared to the previous year, setting a six-year low. While there is no equivalent data for Australia, it is clear that investors are cooling on the sector, even as more funds are seeking investment.
Smaller new funds in Australia, such as Side Stage Ventures, AfterWork Ventures, Black Nova VC, Galileo Ventures, and Flying Fox Ventures, are facing challenges in raising capital. These funds are now competing against larger players with better-known brands and track records of success. Despite the difficulties faced by many VC firms, some, like Black Nova and Tidal Ventures, are still on track to raise new funds this year.
The challenges in fundraising for VCs in Australia are creating a two-speed local sector, with bigger firms still receiving institutional backing while smaller firms struggle to establish themselves. The downturn in the VC sector is giving start-up investors a taste of the challenges faced by their portfolio companies, with many having to offer more generous terms to attract investment. The drop in fundraising could lead to fewer people working in venture in Australia by the end of the year, as the industry looks to separate the lucky from the talented.
The boom in venture capital that was fueled by increasing IPOs came to an almost abrupt halt in 2022 when interest rates rose, causing a market downturn for unprofitable technology stocks. This downturn has put pressure on VC firms that struck investments at inflated prices in 2021. Despite the challenges, newer funds like Tennis Australia’s AO Ventures are still trying to raise capital, with promises to distinguish investments in sport, entertainment, and health start-ups.
