Could AFCA’s Datacube tool help vulnerable startups avoid funding traps?

The Australian Financial Complaints Authority (AFCA) has launched a new tool that could help startups avoid unsuitable financial partners, allowing them to easily find out whether firms that claim to help with fundraising have any complaints outstanding against them.

Launched in November, the AFCA Datacube tool includes information about the number of complaints a financial firm has received, how long those complaints took to resolve, and the number of times firms did not respond to a complaint at all.

In a statement at the time of the launch, AFCA chief executive and chief ombudsman David Locke said the tool is intended to provide “a much deeper level of detail about the issues and products that consumers and small businesses are complaining to us about”.

AFCA was already required to publish data on the complaints they handle. However, the new tool is designed to make that information available in a more accessible way

For startups, the Datacube could prove to be a lifeline, providing an additional tool for vetting firms that offer services to help startups with the capital-raising process.

The announcement followed the collapse of Tauro Capital amid claims, reported in The Australian, it had misrepresented the figures it had raised for startup clients, and failed to do the work promised to others.

Speaking to StartupSmart, M8 Ventures founder Alan Jones says the new AFCA capability “sounds like a helpful thing”.

When it comes to disputes like this, “it’s important that complaints are investigated and verified, as much as anything,” he says.

Any kind of consulting relationship has the potential to end badly. And, when relationships turn sour, it’s helpful to have someone look into the claims, document them and share the findings in an official capacity.

“You only need to go on a startup industry Facebook group to see pretty regularly somebody will have a bit of a rant,” Jones says.

But, he doesn’t believe the behaviour Tauro allegedly engaged in is commonplace in startupland.

“There’s bad behaviour in every industry. I don’t think it’s a reflection that’s limited to the sorts of companies that raise money,” he says.

And if there’s something sketchy going on, it will, ultimately, be found out, he adds

“We’d all like to think that bad behaviour catches up with people and companies. You can’t let people down forever without getting found out,” Jones says.

“But, that’s cold comfort for the people who’ve been disappointed along the way.”

One such disappointed founder is author and entrepreneur Rhondalynn Korolak.

In July last year, Korolak was one of the entrepreneurs who went on record in The Australian about her dealings with Tauro. She said she paid $60,000 for an information memorandum to be sent out to prospective investors, but that only two emails were sent.

She claims she later found there were “material discrepancies” regarding what Tauro claimed it had raised for others, and what it had actually delivered.

Now, Korolak tells StartupSmart the AFCA tool goes some way in preventing the same thing happening to other founders.

Capital and cashflow are “fundamental issues for small businesses”, she says.

“Unfortunately, there is no other way really, to do due diligence on a lot of these companies.”

The AFCA tool will allow startup founders to run a quick search on any firm they’re engaging, to find out if they have any outstanding complaints against them.

A search for ‘Tauro Capital’ today, for example, shows six complaints — something Korolak says would have sounded alarm bells for her at a much earlier stage.

For many time-poor startups, due diligence can be limited to Google searches and testimonials, which they don’t think to question.

If there’s no apparent cause for concern, they won’t necessarily dig any deeper, Korolak says.

“Not everybody is an honourable operator either,” she adds.

“In the case of some of these companies, they could also hide a lot of this stuff, and there is no other way to find out.”

All of this, she notes, is within the context of the challenging Aussie investment space as a whole.

“Startup capital is hard to get for tech businesses anyway,” Korolak says.

“Australia isn’t known to be the place to go and get startup capital. It’s known as a place where it’s difficult to find seed and angel money.

“And a lot of people, once they get past that, go to America looking for next rounds, because there isn’t sufficient funding here.”

For her, a resource helping early-stage startups avoid financial pitfalls could be invaluable, she says.

“It’s good to see that there’s some kind of reporting mechanism,” she adds.

“This is tangible.”

NOW READ: “Where did the money go?”: How Appster went from riches to ruin

NOW READ: The complete guide to startup capital: 12 ways to fund a new venture in Australia