{"id":38780,"date":"2023-10-20T14:58:54","date_gmt":"2023-10-20T14:58:54","guid":{"rendered":"http:\/\/startupsmart.test\/2023\/10\/20\/hunting-for-dragons-why-the-second-valley-of-death-is-the-biggest-problem-facing-the-australian-startup-ecosystem-startupsmart\/"},"modified":"2023-10-20T14:58:54","modified_gmt":"2023-10-20T14:58:54","slug":"hunting-for-dragons-why-the-second-valley-of-death-is-the-biggest-problem-facing-the-australian-startup-ecosystem-startupsmart","status":"publish","type":"post","link":"https:\/\/www.startupsmart.com.au\/uncategorized\/hunting-for-dragons-why-the-second-valley-of-death-is-the-biggest-problem-facing-the-australian-startup-ecosystem-startupsmart\/","title":{"rendered":"Hunting for dragons: Why the second \u2018valley of death\u2019 is the biggest problem facing the Australian startup ecosystem – StartupSmart"},"content":{"rendered":"
\"\"<\/div>\n

The later-stage funding gap is now the second \u2018valley of death\u2019 for Australian startups and poses a serious risk for the entire ecosystem, OneVentures <\/a>CEO Michelle Deaker says.<\/p>\n

While most of the government\u2019s $1 billion innovation statement<\/a> focused on encouraging investors to back early-stage companies, Deaker says the attention now needs to turn to making sure startups with a proven product and defined market opportunity can find the necessary funding to grow within Australia.<\/p>\n

This is the \u201cmost critical\u201d stage in a startup\u2019s life, Deaker says.<\/p>\n

\u201cThere\u2019s a yawning gap with later-stage funding in Australia,\u201d Deaker tells StartupSmart<\/em>.<\/p>\n

\u201cThat\u2019s when a startup is looking to scale rapidly. There\u2019s market opportunity to capture and if they just grow organically they\u2019re going to miss it.\u201d<\/p>\n

With the government\u2019s tax incentives for early-stage startup investors soon to come into effect, it\u2019s important that later-stage funding is also available when these companies grow, Deaker says.<\/p>\n

\u201cWe\u2019re going to have a groundswell of young, exciting and innovative companies and it\u2019ll be about the next market gap,\u201d she says.<\/p>\n

\u201cThere\u2019s a lot of activity at the lower end of the market with angel funding. We\u2019re able to provide a lot of support for young companies but what happens when they grow up.\u201d<\/p>\n

A lack of competition<\/h3>\n

OneVentures, with its $100 million Innovation and Growth Fund II launching\u00a0last year, is one of the few VC firms in Australia offering large later-stage funding between $5-20 million to local startups.<\/p>\n

\u201cThere are very few places to get that sort of funding,\u201d Deaker says.<\/p>\n

\u201cWe don\u2019t see a lot of competition.\u201d<\/p>\n

OneVentures has just closed a near-$20 million investment in an Australian biotech company, a move which Deaker says ensures that vital and lucrative technology is commercialised onshore.<\/p>\n

The capital injection is in Clinical Genomics, a company set to launch proprietary next-generation blood-based diagnostic tools for detecting cancer. The funding will be used to advance the commercialisation of the technology which was developed in conjunction with the CSIRO.<\/p>\n

\u201cIt\u2019s an example of us funding to help companies get through this second \u2018valley of death\u2019,\u201d Deaker says.<\/p>\n

\u201cThey needed to raise a bigger round of funding to be able to take new products or expand services into new markets or geographies.<\/p>\n

\u201cOneVentures fills that gap and provides companies with a serious amount of capital.<\/p>\n

\u201cIt\u2019s a great outcome for Australia. This is a company that\u2019s achieving the objectives in Malcolm Turnbull\u2019s innovation statement.\u201d<\/p>\n

Increasing the brain drain<\/h3>\n

The much-talked about brain drain of Australian startups relocating overseas will only worsen unless more large rounds like this are available locally, Deaker says.<\/p>\n

\u201cThis is when we see companies go offshore and become US companies,\u201d she says.<\/p>\n

Not having the adequate funding readily available will also mean many local startups may never reach their true potential, she says.<\/p>\n

\u201cIf a company grows organically and slowly then it will never really achieve what it could have achieved,\u201d Deaker says.<\/p>\n

\u201cThe sad part about Australia is we often don\u2019t get the outcomes we should out of the technology we create.<\/p>\n

\u201cWe don\u2019t understand the value of the technology we have.\u201d<\/p>\n

To combat the lack of funding, some companies may choose to list on the ASX before they\u2019re ready, with very real consequences, Deaker says.<\/p>\n

\u201cThat looks great initially but they will become a company in the land of the walking dead,\u201d she says.<\/p>\n

\u201cThey won\u2019t be able to raise more capital and they won\u2019t have any analyst support.\u201d<\/p>\n

And she says that there\u2019s a role for government to play in fixing this problem.<\/p>\n

\u201cThe government used to provide matching capital to help firms raise additional capital and those programs are really worthwhile for the country,\u201d Deaker says.<\/p>\n

\u201cIt\u2019s about helping new venture firms get off the ground and helping them raise and expand funds.<\/p>\n

\u201cThe role for government is to fill that quantum gap. If Treasury gets their money back then I can\u2019t see the country having any issue.\u201d<\/p>\n

Deaker also says the government could relax the eligibility criteria for the tax incentives that were revealed in last year\u2019s innovation statement to include larger, later-stage companies.<\/p>\n

Hunting for dragons<\/h3>\n

While most of the discussion around startup investment is centred on finding the next billion dollar unicorn, Deaker says it really should be about finding the next \u201cdragon\u201d.<\/p>\n

\u201cEveryone talks about unicorns \u2013 companies worth more than a billion dollars even if they\u2019re not sustainable,\u201d she says.<\/p>\n

\u201cBut from a fund manager\u2019s perspective, one day you might love to get a unicorn so long as it can be beneficiary for you, but as an early investor you can get crushed when the unicorn gets big.<\/p>\n

\u201cWhat we really want are companies that can potentially return the whole of the fund. We invest, we back them heavily and the amount of capital you get will pay back all of the fund \u2013 that\u2019s a dragon.\u201d<\/p>\n

And OneVentures has already hunted down its first dragon, with an investment from its first fund into biotech startup Hatchtech seeing a near-$280 million exit that paid back the entire fund.<\/p>\n

There\u2019s more to come too, Deaker says.<\/p>\n

\u201cWe may well have another company that could also do that,\u201d she says.<\/p>\n

\u201cThat\u2019s simply a fantastic outcome.\u201d<\/p>\n

Follow StartupSmart on<\/em> Facebook<\/a>,<\/em> Twitter<\/a>,<\/em> LinkedIn<\/a><\/em> and<\/em> SoundCloud<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

The later-stage funding gap is now the second \u2018valley of death\u2019 for Australian startups and poses a serious risk for<\/p>\n","protected":false},"author":2,"featured_media":61529,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/38780"}],"collection":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/comments?post=38780"}],"version-history":[{"count":0,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/38780\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/media\/61529"}],"wp:attachment":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/media?parent=38780"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/categories?post=38780"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/tags?post=38780"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}