For Zip and Afterpay, going public was about ensuring survival. What’s changed for startup founders today?

The founders of both Afterpay and Zip have suggested their respective buy-now, pay-later businesses may have listed on the ASX before they were truly ready, in order to ensure their very survival.

But in the years since, the ecosystem has evolved. There’s more VC funding around, more angel investors spreading their wings, and more successful entrepreneurs reinvesting their wealth.

So, have we moved past a time where startups feel pressure to embark on a significant liquidity event? Or, are there other options for the Anthony Eisens and Larry Diamonds of today?

Speaking at an STK business network lunch last week, Afterpay co-founder and co-chief Anthony Eisen reportedly noted that, in hindsight, the fintech probably went public too early.

Now, it’s a multi-billion dollar Aussie success story. But, back in 2016, listing on the ASX was a way to secure vital funds, and to keep Afterpay in business.

“We had to list before Easter, otherwise it was going to get really tight,” Eisen said.

And his story is not unique. In fact, speaking to SmartCompany, Larry Diamond, co-founder and chief executive of Australia’s other leading BNPL provider Zip Co, said his business ended up listing in 2015 “by accident, not by design”.

Diamond and his team pitched between 60 and 100 investors, to no avail.

“We couldn’t get moving,” he said.

The founder sees a lack of funding as a significant barrier to Aussie startups. Historically, there’s been a power imbalance at play, he notes.

“The power, seven years ago, was always in the hands of the investor. It should be with the founder,” he explains.

Whatever the business plan is, it’s unlikely to pan out exactly as planned. And when things go awry, success comes down to “the passion, the hunger and the ability to endure the journey”, he adds.

“There’s not enough supply side … to get people out of these corporate jobs and give them a go.”

Success breeds success

Now Diamond is doing his part to help plug the gap, investing in up-and-coming startups such as share-trading and superannuation fintech Superhero.

We often hear that successful Aussie tech companies breed more success — and Diamond is not the only local billionaire investing back into the ecosystem.

But he sees it as more than a maturing of the local tech sector, and thinks of reinvesting into it almost as a duty of successful founders.

“We all want to see Australia become the heartland of innovation and productivity, and you’ve got to foster that culture,” he says.

Personally, he says he would rather invest his considerable wealth into a tech founder than on the stock market.

Of course he wants to see returns. But, he also wants a clear view of the management team on the other side of the table.

“It could be a Larry,” he says.

“But it could be someone completely different who isn’t building the right culture, values or ways of working.”

An evolving ecosystem

Matt Allen, a long-time angel investor and chief executive of Tractor Ventures, agrees that the Aussie investment landscape has changed considerably in the past five years alone.

There is certainly more later-stage capital available, he tells SmartCompany.

While even the biggest Aussie VC firms will still struggle to write a $100 million cheque, they will often co-invest in large rounds with an overseas VC, or with an institutional partner. This means we’re less likely to see more founders feeling forced into an IPO.

Seeing angels like Diamond reinvest into the ecosystem is also a positive step, he says.

“If you’ve been through that process and you’re able to help founders with capital and advice to move their company as far down the line as possible before they have to raise more money … that can be so impactful,” Allen explains.

It also sets the business up to attract better investors later, he notes. Good investors want to invest in startups that are solid and growing fast, not those that are desperate for cash.

This is also what Tractor Ventures is designed to foster. It offers debt funding to startups that aren’t ready to raise venture capital just yet, thereby “pushing the raise conversation down the line” and creating a stronger proposition for the founders.

“We definitely see Tractor being able to exist because there’s a maturation of the ecosystem.”

Looking back, Diamond says the Aussie tech sector has come “a hell of a long way” since Zip went public.

“But there is a lot more that can be done.”

VCs, early-stage investors and angels alike should be looking for the next BNPL-style trend and the next game-changing innovations. And they should be willing to bet big on them.

“You’ve got to invest ahead of the curve,” Diamond says.

“It’s not just for Israel and the Valley to produce this stuff. We’ve got a great place to do it right here.”