Funding for the tech sector is drying up. What does that tell us?
I’ve caught a few pieces recently highlighting how hard it is for tech start ups to get funding now.
(Boo-hoo, cry me a river crypto-Chad.)
But whereas there was money for literally anything a year ago, it’s much leaner times for start-ups trying to get funding:
Cut Through Venture’s latest statistics show that venture capital investment in Australian tech firms fell anew in June, down 52 per cent from the year-earlier month and almost 10 per cent lower than in May, as local and international start-up investors bunker down for a prolonged downturn.
OIF Ventures partner Laurence Schwartz told The Australian Financial Review investors across the spectrum were tightening the purse strings.
“There is a period of price discovery at the moment in the market. Valuation is both an art and a science and some of the market comparables and multiples have materially rerated in 2022.
“Growth at all costs is no longer being rewarded by investors and there is a shifting mindset towards businesses that have strong growth, but that are also capital-efficient, with strong underlying metrics like gross profit, sensible customer acquisition costs, lifetime value, retention and engagement.”
“Late 2021 was a period that was completely out of step with normality – a lot of companies got funded at elevated levels and the demand was high. We have reverted back to the norm except that a lot of non-VC money has disappeared,” Mr Dorrell said.
Let me get this straight. Now your business has to have “good underlying metrics” in order to get funding? Unbelievable.
And while funding is drying up, some of Australia’s most recent tech successes are now starting to bunker down:
Heavily backed parcel delivery start-up Sendle has made 12 per cent of its workforce redundant in a move its chief executive described as a “pre-emptive step” to hunker down in the face of global market volatility, with other local tech firms including listed jobs marketplace Airtasker, also shedding staff.
Sendle’s Australian shipping business had doubled during the pandemic, as its small business-focused deliveries cut into Australia Post’s dominance. The company trademarked the advertising phrase “post without the office” in 2017.
It was observing the dramatic fall in US tech markets that encouraged the decision for redundancies.
“We’ve seen up-close the impact of increasing capital market volatility, and like many large technology companies, felt we needed to take pre-emptive steps to ensure we can continue to grow, while being able to withstand any continued market uncertainty over the next two years,” Mr Chin Moody said.
It joins a growing list of tech-related start-ups and more established firms to cut back on staffing levels. Last week health tech start-up HealthMatch jettisoned half of its workers and neobank Volt closed down, with 140 people losing their jobs.
Residential solar power buy now, pay later financier Brighte laid off 15 per cent of its workforce last month and 5B Solar, made 25 per cent of its workforce redundant.
Meh. What are we talking about here? 12% of Sendle’s workforce is just 25 people. Whatever.
Still the point is, tech was the froth on the top of the money printing bubble. Now the NASDAQ has sold off, and venture capital says that it wants to invest only in businesses that make sense.
This is a return to normal.
Central banks messed with markets in a major way. Tech funding was the frontline of that.
Good riddance to all that craziness, I reckon.