Dale accepts that there is a “dead zone” for Australian businesses looking to raise more than $2 million, but less than the megabucks shelled out by venture capitalists.
For a fast-growing start-up, the lure of the US is stronger if you are beyond the seed funding stage but are still small fry for VCs looking to make big returns on their large investments. Despite the rapid emergence of a funding environment around early-stage businesses, entrepreneurs continue to struggle to raise money in this middle ground.
One local business that did manage to beat the odds is online customisable shoe retailer Shoes of Prey, which secured $3 million earlier this month.
The business did this by cobbling together a group of nine investors, seven of them hailing from Australia, including Atlassian co-founder Mike Cannon-Brookes.
Michael Fox, co-founder of Shoes of Prey, says that the process was a long one but one that didn’t disillusion him.
“We pitched to about 80 investors in 18 months, so we had a pretty good hit rate with the investors we got,” he says.
“The feedback from the US investors was ‘we love what you’re doing but you’ll need to move here to make it worth our while.’ We couldn’t justify that, so we had to try to get together a group of investors.”
“It was a bit like herding cats, but once you get one like Mike Cannon-Brookes on board, it really helps. All of the US investors contacted us, while we had to chase all of the Australian people, but it was all worth it.”
“There are good benefits to being in Australia. You can raise money here, there are big government incentives to stay here and you have your network around you. Plus, we like living in Sydney.”
Even if you are set to expand your horizons beyond Australia, you might want to question any automatic preference for the US.
With the rapid growth of cashed-up consumers in Asia, Australia’s geography could become a boon rather than hindrance for the next generation of businesses.
Willie Pang, CEO at Asia Pacific sales specialist ViDM Group and former managing director of Yahoo! Search Marketing, says that Australian start-ups should start looking north rather than just east for investment and business opportunities.
“The US market is large, there’s lots of capital and there isn’t a language barrier,” he says. “But I tend to think of it as similar to actors who move to Hollywood and hope to become the next Eric Bana. The chances of success are very slim.”
“In the digital and tech space, Asian markets look to Australia as a thought leader. We are a little ahead of south-east Asia and start-ups can take advantage of that.”
“There are digital businesses being bought in China for 60 to 100 multiples of revenue and I know there are plenty of VCs looking to buy up Australian talent.”
“It isn’t that hard to connect with investors and organisations like AusTrade can help with those kinds of connections. There are great opportunities in Asia.”
But what of the oft-repeated fear of “brain drain” as entrepreneurs flee Australian shores?
“The whole idea of a brain drain from Australia is terribly overblown. But all the talk of losing Australian start-ups to the US has at least raised awareness that there’s this nebulous area of funding from $2 million upwards. I think that we’ll see some of the big guys, such as PwC, concentrate on setting up smaller funds to address this market.”
