Funding

$85 million in four days: Why was the week before Easter so crazy for startup funding?

April 3, 2018

Source: That Startup Show.

Last Monday, four days before the business world was due to shut down for the Easter long weekend, I stared at my empty notebook, concerned the last days of March would be what we in the business call a ‘slow news week’.

Come Thursday afternoon, I was whirling through the finishing touches on an article about equity crowdfunding raises, in what felt like the 20th article I’d written about startups raising money in four days.

And while 20 may have been a touch of hyperbole, the final week of March saw a massive amount of fundraising activity from Aussie startups, ranging from $500,000 seed rounds to $20 million Series A raises. From Monday to Friday, nine different startups (that we know about) raised nearly $85 million in funding, although $40 million of that did come from a shares placement by listed Software-as-a-Service software company ELMO.

Comparative funding statistics for last March are limited, but a report from Techboard for the March quarter in 2017 revealed Australian startups raised $160 million over the three months, through venture capital funding, grants, listings, and crowdfunding. Further data gleaned from Techboard’s March milestones report showed approximately $64.7 million in funding for just the month of March.

Using these stats, the capital raises from the past week alone outstrip all disclosed raises from March 2017, and are more than half of the total amount raised for the second quarter of 2017.

The Christmas slowdown

This whir of funding activity goes a long way towards portraying the Australian startup scene as healthy and active, but the crush comes at an unusual time considering the typical slowdown usually associated with the Easter break. Speaking to StartupSmart, prominent investor and KPMG High Growth Ventures entrepreneur-in-residence Alan Jones believes it’s due to investors putting their feet up over the Christmas break.

Jones notes the majority of business deals usual happen in annual cycles in line with the financial year, with both VCs and companies globally typically lining up their announcements to coincide with the end of December or June. But in Australia, our love for a good holiday over summer means that’s not always the case.

“In my experience, the extended summer vacation period in Australia has a dampening effect on investor activity. Summer is a time for renewing business relationships over lunch, or taking time out to thank investors, shareholders, customers and staff,” Jones says.

“If you’re trying to raise a round in the last few months of the year it can be hard to get people to commit because they don’t want to hand over the money just before everything shuts down for the summer — they want to have their money working hard from day one.”

This leads to investors saying, “I’ll be back on deck in early January, let’s talk again then”, says Jones, but those conversations are then usually pushed back further as investors deal with a backlog of issues from the end of last year. And in the case of local investors, Jones says many of them would likely still be enjoying skiing holidays overseas during that time too.

This can leave money-hungry startups returning to conversations from late November in February the following year, which prompts a slew of announcements in late March as startups sign off on capital raises.

The other reason for increased funding activity at this time of the year is also due to March 31 signalling the end of the second financial quarter, and the first quarter of the calendar year. Right Click Capital partner Benjamin Chong tells StartupSmart a lot of funds and investors report quarterly and would be wanting to get their raises into the March quarter “if at all possible”.

“Easter is also, psychologically, a placemarker in people’s calendar. The beginning of the year has well and truly taken a leap once Easter comes; you can’t talk about the New Year, or summer, the year has well and truly started,” Chong says.

But there’s also a bigger backdrop to this funding success, what Chong calls the “renaissance of the Australian tech founder”. It’s well reported that the amount of capital available in the Australian startup scene has grown significantly, and this influx of money is representative of that, Chong believes.

“This shows there are venture capitalists, like us, who are really prepared to back company founders who are doing something big, ideally with a global ambition,” he says.

“It’s a bellwether for the Australian startup ecosystem; 2018 is going to be a very strong year for Australian founders building game-changing companies. It’s not dying down anytime soon.”

Too many cooks in the kitchen

One downside to this funding flurry comes for the startups themselves, as a juicy funding announcement on a slow news week is likely to get more media coverage than one competing with seven other million-dollar raises. This was clear last week, as some media outlets, StartupSmart included, didn’t cover every single capital raise.

For startups that may otherwise struggle to get their name in the press, a funding round is usually a pretty good shot at getting coverage.

Chong says this is an interesting dilemma for startups but says it’s impossible to pick your time for announcing financing as a startup founder. He believes founders should also consider if they need to, or want to, publicise the raise in the first place.

“You should only publicise the raise if it’s a benefit to your business. Raising money is a sign investors back you, but there can still be a long way to the top for a startup. Think about if getting publicity will help you get potential clients or customers, or make more sales,” he says.

Looking forward, Chong says founders with funding announcements coming up should perhaps reconsider their timing if the round is looking like being finalised at the end of June.

“You might be better off announcing it in early June or in the first few weeks of July. Also think about when reporting season is for the big public companies because if you have all the big banks announcing their profits, your capital raise might not get the same attention,” he says.