Australia remains one of the most capital-efficient producers of ‘unicorns.’ As the tech world continues to struggle, we have the emergence of a ‘post correction’ herd.
The technology industry has been under intense scrutiny for the past 18 months since historically low interest rates came to an end.
The NASDAQ Composite fell 36 per cent to a bottom of 10,213 in October last year, and if you took out the so-called “Big 7” tech companies, the results for the rest of the industry looked much worse.
Canva remains the flag bearer for the Aussie start-up scene, despite global valuation headwinds.Louie Douvis
The Bessemer Cloud Index, a much-watched group of emerging public software companies, was off 69 per cent over the same period.
Global venture capitalists, who finance private companies hoping to one day make it into that index, followed suit, marking down their portfolios accordingly. It was no different here in Australia.
The most successful Australian software companies,like AtlassianandCanva, tackle global markets and “look and feel” the same as many others in the Bessemer Cloud Index. It was reasonable to assume the global slowdown would equally impact local companies.
The big question was whether the much-vaunted herd of Australian unicorns were “real” or simply the stuff of venture capital fairytales.
If we look at the data, global tech valuations for Series D and beyond companies have experienced a sharp 60 per cent decline year-on-year, as unicorn valuations have not stood up to post-correction scrutiny.
But a group of Australia’s tech unicorns are defying this trend, suggesting either that our unicorns are of disproportionately high quality compared to the global average or that perhaps valuations did not get quite as crazy locally as offshore.
Post-correction unicorns
Lately, we have seen the emergence of “post-correction unicorns”: a herd of world-class private software companies founded in Australia with sound economic fundamentals that continue to flourish in the new interest rate environment and in the face of global trends.
ICONIQ Capital and Coatuebought secondary shares in Canvaat a $39 billion valuation in August, validating its position as one of the most sought-after private companies in the world.
In October, Employment Heroannounced a $263 million raiseled by Technology Crossover Ventures at roughly a $2 billion price, materially higher than its 2021 valuation. Similarly, Go1,SafetyCultureandPet Circlehave all announced funding rounds led by international groups at or above their 2021 marks.
Success factors
Interestingly, these Australian start-up software success stories share no common sector. Nor do they participate in industries where incumbent Australian companies are typically strong.
But their business models and management teams have a lot in common: a hyper-focus on capital efficiency, high-quality recurring revenues, and a low-friction sales model.
This stems from the historical absence of growth capital in our market. By necessity, Australian start-ups learned to do more with less and this DNA has benefited the new herd of post-correction unicorns.
Despite the growth of a local venture capital industry in the past decade, Australia remains one of the most capital-efficient producers of unicorns, with 1.5 being produced per billion dollars of capital invested compared to 1.1 in the United States and 0.8 in the UK.
About 20 months on from the beginning of the market correction, the rate of growth capital deployed globally isbeginning to accelerateas companies adjust their operating rhythms and continue to focus on business model efficiency.
So far, the data suggests that a group of Australia’s software success stories are leading the way.
https://www.afr.com/technology/australia-s-tech-unicorns-are-defying-the-global-odds-20231120-p5el8n
