Paloma is the leading venture studio in ANZ. Our 100+ team has forged an AUD $250M+ Venture Portfolio, and helped steer firms like Afterpay to billion-dollar acquisitions.
Do you ever feel like the startup world is stuck on repeat? Playing by the same tired rules and holding Australia back from true innovation?
Perhaps you’re a non technical founder who’s stuck in the chicken and egg situation of trying to build a product with no money or trying to raise a round with no product. Or you’re a founder in a non obvious industry that is difficult to grasp at first glance.
VCs are understandably playing by a set of rules. There are certain criteria that ventures must meet in order to be fit the profile a good investment with a potential for return. Potential for returns are often heavily influenced by successes of the past, but is that lens really suited to finding the next big thing? Are there heuristics that don’t hold water and are holding the Australian startup scene back? Let’s put them to the test.
🤔 Technical founders make the best founders
Traditional Opinion: The core of venture building is technical capability. Without in-house technical capability, the venture is too risky. Non-technical founders may have the ideas but can’t launch a product into market.
Challenge: In 2013 90% of unicorn CEOs had a technical degree but times have changed and in 2023 40% of unicorn founders were non-technical. Without sounding too crass, technical skills alone are no longer a moat for your business. It’s very likely that there are thousands of other people who could build the exact same tech tool as you. What we look for at Paloma is deep domain expertise. The real differentiator is in how well you know your industry, customer and market.
We don’t think it matters if your tech talent is in-house or not, as long as you’ve done your DD to make sure their work is quality. In fact, we’d go as far as to say sometimes in-house tech talent is the riskier option as you concentrate risk in a single point of failure. If you are a non technical founder you often have no way of validating whether the person in the CTO role is the right person to make these decisions. The consequences are existential, and problems are likely to be a lagging indicator. Meaning you’ll have burned time and capital and may have to start again, (if you even have the capital to do so) not to mention having to deal with dead weight on your cap table.
🤔 The Australian VC scene is too risk adverse
Traditional Opinion: Lots of VCs will list themselves as early investors keen to support founders from day 0. But founders will commonly find themselves being rejected and told to come back when they have traction/revenue/product. There’s the guise of a high risk appetite but it seems it falls apart in reality.
Challenge: There are a subset of early stage investors in Australia and New Zealand. Paloma being one of them; we deliberately look for pre-product, pre-revenue businesses as our ideal investment. There is also an undercurrent of angels, HNWIs and Family Offices that will come in early. Some of the bigger VCs will also write generous cheques early on. Australia does have this capability but the ecosystem here is relatively new compared to markets like the US.
The reality is that Australian VCs have to be a little more conservative; if they don’t get the returns in their first few funds then they might not be able to attract LPs to their subsequent funds.. and fewer big wins means fewer exits… which means less money distributed down to the ecosystem… less successful founders becoming second time founders... It’s called an ecosystem for a reason.
As the category grows and we see more exits and more capital, then appetites for risk will grow and early stage founders will be better served by a wider array of funders that include more of the big VCs. The problem we often see with the situation right now is time wasted. Fundraising takes time. A lot of time. Which is time that would be better spent building product and finding customers. Time wasted speaking to the wrong investors who have no intention of backing you is frustrating both practically and emotionally. The best thing that all funders can do for founders and for our ecosystem to to be transparent about where they’re comfortable investing and if that isn’t right now, then let the founder move onto the next one.
Photo credit: Gener8Media
🤔 A venture should be a founder’s life mission
Traditional opinion: A founder must prioritise their business above all else, be willing to sacrifice everything and aim for success at all costs. Of course it’s not totally black and white… most will agree that you should listen to the pull of the market and not take ridiculous personal financial risks to stand up something that has no market validation, but the overarching vibe is that you should be breathing, eating and dreaming this idea and nothing should get in the way of your success.
Challenge: A successful venture is hard work, there’s no denying that. But the old age demand that you should focus blindly on your startup without coming up for air is pretty outdated. Imagine for a second the person who is able to spend 15 hours a day working on their pre-revenue startup… It swings heavily to a rich demographic with no or few family commitments and the personal wealth to support themselves with no salary. If we really want to surface great founders and ventures, we need to be realistic about what it takes from the founder- not just in grit and determination but also in terms of finances, mental health and other life commitments. Should you be slightly obsessed with your venture? Yes. Should you be penalised for having a family and a income stream? No. By over indexing for life stage or socioeconomic background, we risk bedding in more inequality into our system, and miss out on some really exciting founders with diverse backgrounds and skillsets.
Photo credit: Gener8Media
🤔 Your venture needs to be global from day one
Traditional Opinion: Australia is not a big enough market to build a venture scale business. Founders must be looking further afield from day 1 if they want to build anything but a lifestyle business.
Challenge: Australia’s population is in the realm of 26m, compared to 333m in the USA, 66m in the UK… and 1.6b in India. So yes, it’s fair to say we’re relatively small. Whilst there are some businesses that can thrive in this country based on their industry and business model, it’s likely you’ll be looking to expand globally at some point. Does it have to be day 1? Probably not. There are plenty of examples of ventures which have been built for the Australian market and expanded once they get enough pull. Keep your eye on the (global) prize, get to know your expansion markets and learn some hard lessons from your experience in Aus.
Got thoughts on the VC scene in Aus? Slide into our DM’s, we’re here for the debate.
%20(1).jpg)
