Innovation minister Christopher Pyne claimed this week that 4500 Australian startups miss out on equity funding each year. If so, it’s important to know what venture capitalists are looking for when investing.
Seek founder and former CEO Paul Bassat, who currently runs Square Peg Capital took to an AMA session this week and spoke about what makes a great startup.
When looking for a startup to invest in and work with, Bassat said the first thing you need to look at is what problem is being solved by it.
“Is it a real problem and is it being solved in a unique way,” he wrote. “Most importantly, who are the team solving the problem?”
“A good example in our portfolio is Vend, which is a cloud-based point of sale software business.
“It is really clear that small retailers will move to the cloud and the incumbents are at massive risk of disruption.”
On top of that, Bassat added many other interesting insights into his time with Seek and the startup industry.
Here’s what he said about the differences between Australian and Israeli startups:
“There are lots of similarities, but also lots of differences.
Many of the Israeli entrepreneurs we are backing are a bit older than their Australian peers and have been involved in previous start ups, either as founders or members of the team.
They are also typically more focused on deep technical problems whilst in Australia there are a few more businesses asked around the business model differentiation, rather than the technical differentiation.”
Here’s what he thinks of as using an ASX listing to raise capital for a tech startup:
“There are a lot of challenges associated with being a listed company. We saw this week a good example with Surfstitch when its share price fell by more than 50% overnight.
A company should only list when it’s business model, team and processes are sufficiently mature.”
And here’s what role he thinks the Australian government will pay in the success of startups:
“I think government can play an important role in providing the platform and framework for a successful tech ecosystem.
Equally folks like Square Peg and Blackbird are important, as are accelerators and incubators.
However the key ingredient are smart and passionate entrepreneurs and management teams. That is the most scarce ingredient and we need to encourage and back those men and women.”