Funding for budding Australian start-ups has slumped by two-thirds in a year and lags well behind other advanced economies, a new report has found.
Data into the angel investing landscape found investment in seed-stage deals dived from $280 million in 2016-17 to less than $90 million the following year, despite more money going into venture capital.
Released on Wednesday by Victorian state-government funded body LaunchVic, the report also indicated the level of angel investment per capita in Australia was low on a global basis at $3.60, compared to $5.14 in New Zealand and $12.01 in the UK and $25.44 in the United States.
Speaking to The Australian Financial Review, LaunchVic chief executive Kate Cornick said the amount of money being received per deal by startups had increased, but this was leaving a gap for younger companies needing smaller amounts of money.
"The challenges associated with angel investment highlights a missing link in Australia's startup funding landscape which is inhibiting early-stage startups from scaling and realising their economic potential," she said.
"We know that successful founders who have experienced scaling companies and creating wealth for themselves will typically give back to the start-up sector by investing in other start-up companies as angel investors. [But] while we’ve already seen signs of this happening, we need to accelerate the amount of angel capital in market so it is keeping pace with the growth in the number of startups."
The reduction in the number of local angel deals comes despite the venture capital sector taking up an increasingly larger chunk of the total amount spent in the private capital market, according to the Australian Investment Council.
The LaunchVic commissioned study by Bella Private Markets showed that venture capitalists were focusing more on later stage funding rounds, with 57 per cent of global venture capital dollars going to rounds above $US100 million in 2018.
To help plug the gap in early stage funding, LaunchVic is giving local women-focused angel investor network Scale Investors $300,000, which will keep the six-year-old not-for-profit organisation operating.
Scale Investors chief executive Ariane Barker said the organisation provided education for angel investors, as well as facilitating and structuring deals.
She said the current gap was likely cyclic, as the next batch of angel investors were only just coming into the ecosystem.
"There were a few people who wrote big cheques in the beginning who are now tapped out, but we have another wave of investors coming in behind them," Ms Barker said.
"At Scale, some people wrote bigger cheques in the beginning and had mixed outcomes in their portfolio because you don't get the smoothing effect you would with a fund manager. These same people... won't keep writing until they get some exits.
"This is about creating a continuous cycle of new angels. At Scale we're trying to help ensure we're building more and more, educating and understanding about how angel investing works and how to activate private capital in the sector."
The network, which is also open to male investors, only backs companies which have at least one female co-founder, with Ms Baker saying these start-ups had a track record of delivering better returns.
LaunchVic is also calling for an expression of interest for aspiring angel investors, with the intention of growing the number of formalised networks in the state.
"While Victoria is home to some of Australia’s best angel investors, the number of angel investors and angel networks is substantially below global benchmarks," Dr Cornick said.
Yolanda Redrup / WEDNESDAY 25TH SEPTEMBER 2019