Plenty to love about venture capital in 2022

Oct 19, 2022
Dirk Steller

With so much doom and gloom in the global media at the moment it’s easy to get the impression that the venture capital and startups scene in Australia is collapsing around us. But in fact, that couldn’t be further from the truth. 2021, with its huge valuations and the ‘bull market of everything’ was an anomaly – what we see today is not much more than a return to normal conditions.

The froth and bubble of 2021

The froth and bubble of 2021 brought some massive benefits to our local market as well. We saw much more interest from international investors in Australia, and now these lines of sight are open, they will stay that way.

It also kicked the cohesion and professionalism of our market up a notch, providing valuable scaffolding that we can build on now the hype has calmed down. And finally, the huge inflows from 2021 – over $10B – made the Government really sit up and take notice, giving us some powerful policy levers, we can pull to help create a better ecosystem.

The Albanese government has shown promising interest in the sector so far, beginning with an election commitment to build over one million new tech jobs in this country. Last month, Steven Jones announced a world first ‘token mapping’ project that aims to discover and document every digital asset currently in Australia, to better inform regulation, licensing, and consumer safeguards.

Recently, the Government announced they would support a Digital and Tech Skills Compact between government, unions, and tech employers to address the tech skill shortage. 2021 brought great news for the seed space as well. According to The State of Australian Startup Funding in 2021 report from Cut Through Venture, the size of seed deals was up over 110% on 2020 with record inflows into early-stage companies.

Valuations are changing

Fintech was the darling of all deal sizes, with 25% of all investment deployed to fintech companies. And these early-stage companies are also bucking the valuation downgrade trend, with valuations up a global average of 18%. Valuations are also changing in Australia following last year’s APRA report that found unlisted revaluation frameworks were generally inadequate.

A growing global trend to value assets more regularly, rather than only when a new round or other material event takes place, is starting to catch on. This will be positive for those looking to track the performance of early-stage investments more meaningfully over time.

The future is bright

Of course, it’s not all good news – VC funding has fallen this year and VCs are looking more critically at both existing and new investments now that the FOMO effect has dissipated. However, there are plenty of great new companies in Australia, as well as those who have been able to maintain their paths to profitability through these more turbulent months. In particular, where we have had the opportunity to work alongside founders in Board or Advisory roles, we have seen great results.

Helping founders to manage their capital and companies prudently in the seed stage pays strong dividends as companies mature.

While this year’s market is unquestionably more difficult than last year’s, we have an extremely positive view of the opportunities on offer in Australia and those that lie ahead in 2023.