Expert view: Here are 3 key trends in private markets for the Australian tech and media landscape
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As a principal at corporate advisory firm TMT Partners, Hugh Richards has had a front row seat to many of the key trends in local tech and media.
And over the past decade, Australia’s technology, media and telecoms landscape has had its share of hits and misses.
During that period though, one sector has established itself as a clear standout: business-to-business (B2B) software platforms.
Atlassian is the main success story, but there are plenty of growing companies in the space that still exist in private markets.
A look at the portfolios of most Australian venture capital firms would show at least a couple of successful investments in local B2B software startups.
As a result, the sector has also come into the sights of private equity (PE) firms, who see value in making late-stage investments in local tech firms that have firmly established their model.
Speaking with Stockhead earlier this week, Mr Richards highlighted private equity involvement as one of three key recent trends in the sector for tech, media and telecommunciations.
“If you go back five years ago, you could probably name half a dozen companies only that were privately held within the tech landscape. And you wouldn’t have found any PE firms in Australia that were focused on the TMT space,” Mr Richards says.
“Now you have a growing group of PE firms who are focused on TMT — especially software — or at least inclined to invest in that sector in the Australian market.”
It doesn’t take a rocket scientist to figure out why PE capital is starting to flow. And in that sense, Mr Richards reckon the Aussie tech scene doesn’t always get the credit it deserves when compared to more traditional tech hubs on the global stage.
“There’s actually been a huge raft of tech success stories in the Australian market. 10 years ago, the number of runaway success would’ve been a tiny fraction of what it is today.”
“Inevitably when you get that track record of success, investors are more prepared to back it,” he says.
As steady as the ascent of B2B platforms has been, so too has been the decline among companies who made the best-laid plans to take over the brave new world of digital advertising.
“Five years ago, there was a huge amount of interest in ad-tech generally,” Mr Richards says.
Amid the hype, a number of companies went public as investors took bets on who was best placed to cash in.
“Everyone looked past the existence of some major players and went ‘there is a massive global opportunity in online advertising revenue’,” he explained.
Problem was, everyone got “way ahead of themselves”.
Ultimately, “what I think a lot of investors overstated was the ability of minnows to challenge the dominance of the Facebook’s and Google’s of the world”, Mr Richards explained.
“You’ll see that if you look back five years ago, a lot of digital media companies had values which were out of kilter with the financial position, and they’ve all come to grief. That whole sector has shrunk dramatically.”
As a broader sector, the field of financial technology is an area that “everybody’s talking about”.
But Mr Richards says investors should be wary, particularly of the revolving door trend which has become evident over the last two or three years.
“Within the whole fintech space, companies go in and out of favour very rapidly,” Mr Richards says.
For example, “right now consumer fintech is on the rise with the local emergence of neobanks. But if you look at the experience of the US or the UK, you’d see that there are a range of challenges to this kind of market.”
However, “it doesn’t seem to be stopping a lot of capital being raised by those companies,” he notes.
Prior to neobanks, there was a similar level of excitement for peer to peer lenders such as Prospa and Society One.
It’s not as if each businesses in these sectors is a write-off once some the hype has died down. In fact, they may still have the potential to be long-term success stories.
But Mr Richards says that it’s helpful to have some awareness the broader in and out trend that’s in play as the broader sector matures.
In recent years “we’ve seen Bitcoin come in and out, small business lending, payments platforms. Within fintech you have 5/6 sectors that have gone in or out,” Mr Richards notes.
“Then you’ve got retail banking and neobanks, which right now is a sector that’s really hot. Whether they’ll say in favour remains uncertain.”