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VC Survey Finds Almost Every Startup Founder Thinks The Current Funding Climate Is Affecting Their Plans

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Australian startup founders remain optimistic about the future despite challenging circumstances, but an overwhelming 97% say the current fundraising environment is affecting their business strategy, according to a new survey from law firm Herbert Smith Freehills (HSF).

Despite failed start-ups, withdrawals from the Australian market by some global companies and downward rounds in capital raises, local founders remain positive about their prospects, with many expecting even higher valuations in 2023, the HSF survey found.

There is more focus on the pursuit of profitability, but those with enough capital just keep working.

The key findings in the questionnaire of Australian startup founders at all stages of their growth cycle, from pre-seed to pre-IPO, are:

  • 81% believe the current fundraising environment is more challenging than it will be in 2021 and 97% say it affects their business strategy;
  • 76% remain optimistic about the long-term prospects for Australian start-ups;
  • 76% expect to raise capital within the next 12 months;
  • 85% believe their next raise will be higher than their last post-money valuation; and
  • 31% said they have a lot of confidence in a higher valuation.

Elizabeth Henderson, co-head of venture capital at HSF Australia, said the outlook for local VC remains promising.

“We see current strategy and decision-making on the environment, particularly startups moving from growth to profit, with a much stronger focus on reducing cash burn — 72% of our survey respondents said Australian startups are more likely to achieve profitability,” she said.

“However, for startups with a comfortable cash job, it’s largely business as usual.”

With Australia’s three largest VCs, Airtree, Square Peg and Blackbird, having collectively raised $2.5 billion in fresh capital for new funds by 2022, Henderson’s co-head of VC Clayton Jame said there is good reason for optimism .

“Australian funds are at significant levels of dry powder and continue to bet it, especially in early stages of increases where there is some competitive tension. We expect this to pick up more in the new year,” he said.

“There may also be opportunities for private equity to get involved in later stage and pre-IPO fundraising given the current positioning of the equity capital markets.”

Nevertheless, the research found that current conditions are leading some founders to consider bridging rounds between raises, James said.

“While almost all of the founders in our survey don’t expect to leave early, half said they’re not sure they’ll need bridge financing, and 27% expect it will be needed,” he said.

“This reflects what we see in the market and we advise customers to protect their business appropriately.”

The survey also indicates founders want more government support, with 92% believing governments can do more to support startups, with founders saying they want it to be easier to raise capital and spend employee capital.

“Founders recognize that there are good government programs in the pre-commercialization phase, but more flexibility and hands-on assistance would support further commercialization and potential international expansion beyond the startup phase,” said Henderson.

HSF has partnered with companies such as Atlassian, Mr Yum, Culture Amp, SafetyCulture, Linktree and Who Gives A Crap on VC deals.

More about the survey responses is available here.

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