Gift from above? Insights on angel investing in the Australian startup ecosystem
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As managing director at Giant Leap venture capital fund, Will Richardson has a front-row seat to Australia’s startup ecosystem.
The Melbourne-based fund has differentiated itself in the Australian market with an ethics-focused business model, only investing in startups that offer social or environmental benefits which can be tangibly measured.
As a relatively nascent sector, Australia’s startup scene lacks the depth of capital seen in more mature markets such as the US. Despite that, the tech scene has actually produced its fair share of winning companies.
But like any ecosystem that’s still developing, there are certain aspects that leave room for improvement. And one such area Richardson highlighted is the local network of angel investors.
An angel investment — sometimes referred to as a pre-seed round — is typically the first layer of external capital for a startup, and is often used by companies in the product-development stage of their business.
It’s by no means a foreign concept in the domestic market — networks such as the Sydney Angels have been in operation for more than 10 years. But Richardson says continued improvement in the space is “critical” to the health of Australia’s startup ecosystem.
“I think there’s probably a shortage of experienced angel investors in the Australian market at the moment,” Richardson tells Stockhead.
“You need to have someone who’s experienced the problems the founders are facing in order to advise them correctly. Otherwise you just create heaps of work. So I think having a more mature angel network is critical.”
One group aiming to bridge that knowledge gap is the Wade Institute for Entrepreneurship, founded by travel entrepreneur Peter Wade.
Institute director Georgia McDonald says it was established as a way to put the “light on the hill” that a career in entrepreneurship is a viable and realistic pathway.
“Our basic vision is to be the leading institute for entrepreneurship education in the southern hemisphere,” McDonald told Stockhead.
Like Richardson, she says the road to a more robust angel network is to establish a convergence in how investors think about business. For example, what works for an established company won’t work for a startup, where “ideas and experiments” are more important.
“People have grown their wealth through a pro career and it’s a different set of skills that’s needed to be really successful in that arena,” McDonald said.
“You’re got different risk profiles and how you view risk. And you’ve generally got a different mindset for how business works.”
The address that chasm, the Wade Institute last month ran its first VC Catalyst program — a one-week executive education course on how to invest in startups, followed by a six-month mentoring program.
The course included four speakers from New York and Silicon Valley, along with 16 experts from the local VC industry. 25 investors attended (split equally by gender), comprised of a broad mix of active angel, venture capitalists, family offices and high net-worth individuals.
McDonald said a key feature of effective angel investing is to think about how your involvement in the business will affect its future life-cycle.
“From the ecosystem perspective, it’s really getting everyone to understand – from angels to VC – where do I play in the spectrum, and how do I play so that I’m not mucking it up for people investing before or after me?” she says.
“Instead of thinking about ‘this is just my deal for me at this particular time’. If you don’t structure your deal in a way that thinks about who it is that comes in after you, you can make that company un-investable pretty quickly.”