It’s a special occasion when we get the opportunity to listen to someone with half the experience of Benjamin Chong, let alone ask questions regarding the current Australian Venture Capital landscape to the man himself.
Just briefly, Ben is a:
- Partner at Right Click Capital
- Director at Founders Institute Sydney
- Founder & General Partner at Sydney Seed Fund
We’ve handpicked a few standout points from Bens Q&A but for the full hour, we suggest you check out the video from the day.
The Current State of the Australian Venture Capital Landscape
“What are the key milestone you look for within a startup before you invest?”
“We look for three things before we invest in a startup. We look for a great founding team. We look for businesses that are chasing large markets and we look for a level of traction.” – Ben Chong
A Strong Founding Team
As a pre-revenue, early-stage business, there’s not going to be too much in the way of numbers that investors will be able to look at to make an informed appraisal of your business. So, in this case, the old adage “We can expect an A-Team to execute a B-Plan but not a B-Team to Execute an A-Plan” will come into play. At this early stage, a business may pivot a number of times so an investor is really banking on a strong founding team to steer.
Within a founding team, Ben looks for a mixture of technical, commercial and domain experience. Technical and commercial experience is quite straightforward you need someone to be able to build the product and you need someone to make sure the product is viable.
Domain experience is also a necessity if you’re starting a new business.
For instance, if you’re working in the insurance market but no one on your team has any previous insurance expertise investors will certainly lose confidence. That’s not to say that your business won’t be successful but Ben believes that it’s less likely to be then a team that has previous domain experience.
Businesses Chasing Large Markets
When it comes to market size Ben likes to think in the Billions of dollars.
Right Click Capital takes money from Superannuation funds as part of their investment fund and naturally they need to ensure that the market size is large because the return they’re expected to make for their investors is large.
The T-word – Traction
When it comes to traction it really depends on what stage your business is in.
If you’re pre-revenue then it may come in the form of a prototype, letters of intent/interest from potential customers saying they would use this if it could be produced.
If you have a product or revenue then Ben wants to know how sticky your customers are? Are they going to rave like a fan when if he called them or would they say they could easily replace your product with someone else’s?
“Whats the biggest challenge Australian-based startups face?”
“The big thing in Australia is we need to work out how we get a quick product-market fit – and once we have that fit we need to extrapolate that into other markets” – Ben Chong
In Ben’s opinion finding a quick product-market fit is the biggest hurdles any new business faces within the current Australian Venture Capital landscape.
The next hurdle is scaling that product globally because, at the end of the day, Australia is a relatively small market of around only 24 million. So, being able to show that your business has the potential to be scaled globally is crucial when seeking investment. Ben made the point that if you can demonstrate some traction in the Australian market don’t focus on fixing problems for 3-5 years without ever exploring overseas options.
“What are your thoughts on the recent changes to equity crowdfunding laws?”
Ben emphasised that the new allowances were a good thing for businesses and investors but that the issue lay in sorting the wheat from the chaff when it came to Equity Crowd Funding.
We couldn’t agree more with Ben on that point, as consenting adults, we should be able to choose how and where we invest our money.
The success of our investments should come down to our own decisions and be based upon our level of financial education. However, this raises an issue with Equity Crowdfunding because it’s often seen as the equivalent of walking while looking at your phone.
You’re not actively paying attention to the road ahead just navigating with your peripheral vision by following the feet of people or ‘crowd’ in front of you.
If we want more active investors there needs to be more education for people to understand what constitutes traction, a good team and a good market fit.
Otherwise, we get these Crowd Funded products that are flashily marketed and raise huge amounts of investment but never actually deliver in the end.
“Is there a case for super funds to be a part of Venture Capital funds?”
As a whole, Ben was sceptical about the possibility of any Superannuation funds being interested in early-stage Australian Venture Capital investments. Coming back to a metaphor he’d called upon throughout the day, namely the idea that Australian Startups don’t have the ability to “move the dial” for large investors just yet.
Having liaised with large fund managers he made the point that the cost for them to write money into a small investment such as an Australian startup is relatively high and that the minimum check a Superfund would be willing to write is around $200 million.
Funds will only write checks around this size otherwise it doesn’t have the potential to move their dial in terms of investment.
Therefore it’s unlikely that we will ever see super funds take an active role in early-stage Australian Venture Capital investments.
However, as more of these funds begin to take their investment decisions in-house, we should see them take a more active role in later stage business, pre-IPO businesses (series C & D) who are on a track to liquidity.
Still want more…
Really this was just a taste of what Ben had to offer in terms of his experience in the Australian Venture Capital landscape, if you haven’t watched the full video yet then we suggest you give it an hour of your time.
Also, if you’d like to be kept up to date with industry news, insights and interpretation of the key events impacting Australian finance Ben curates a daily newsletter called InvestorDaily.
If you’d like to see a more methodical approach to mapping the startup investment journey we’d suggest you check out our presentation from Investible’s Head of Investment, Hugh Bickerstaff.