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There is no denying that market conditions have changed. Investment in established Australian startups dropped off substantially in the second half of 2022 and the "growth at all costs" mantra was replaced with a need for capital efficiency. 

What does this mean? The levels of due diligence will increase. Financial models and revenue forecasts will be challenged. This year will likely be difficult for many, especially those later-stage companies who may be burning too much cash. But it also presents a unique opportunity for founders who can act swiftly and focus on capital-efficient growth.

So how do you chart a path forward? After speaking with a number of VCs over the past 6 months, we've compiled 26+ insights to keep in mind right now. We’ll keep adding back to this list, so be sure to bookmark it and check back regularly. 

Who we spoke to:


1. Capital will be deployed, but it will be deployed patiently. Investors are being more cautious and risk-averse, and this will likely continue given there is still uncertainty about the future. Capital is out there, but founders should be aware that investors are stepping back a bit. (KPMG HGV Q&A: Investor Outlook: What’s in store for 2023?)

2. Talk to VCs about the angels they want on the cap table. Venture certainly has a position to support, but venture is going be way more cautious in the pre-revenue round. This is where angels are good. There are certain angel investors that VCs like to see come through when a company pitches. The most helpful thing you can do is chat with a VC at the pre-revenue stage so you’re set up when you do go to raise your first round. (Llew Jury, Sprint Ventures)

3. Your cheques may look different, especially at a pre-revenue stage. If you’re an amazing founder with a globally scalable, high-margin opportunity and you’ve already started to build an amazing team around you, that’s when VCs will be cutting those early cheques. However, expect cheques to be smaller and either tranche-based incentives or milestone-based cheques. (Llew Jury, Sprint Ventures)

4. VCs aren’t a bank – they’re there to fund “unnatural” companies. You're going to have losses before you have profits. VCs are designed to create some value that couldn't be created naturally at speed.
If you need capital to plug a short-term gap, there are other options such as debt, friends and family, or bank loans. (Paul Naphtali, Rampersand

KPMG High Growth Ventures tip: don’t forget about non-dilutive options, such as government grants and R&D tax incentives!

5. Get clear on what the VC wants out of the investment. Is it a pathway to future cheques? Is it a check that’s meaningful for that fund? Do they intend to, or expect to follow on, or are they comfortable? Are they a bridge to another investor or are they going to be there forever, provided you hit the top percentile? When thinking about raising in 2023, evaluate the VC’s intentions and requirements. (Paul Naphtali, Rampersand)

6. Look to previous investors to bridge the gap. If you're raising to survive and you don't really have much choice, potentially look at your existing investors to bridge the gap for a while, in order to demonstrate a bit more growth to put you in a better position to raise further external capital. (Rachel Yang, Giant Leap)

7. Consider: why are you raising, and why now? This seems obvious, but it’s critical you’re raising for the right reasons. This may not be the right market to raise for a launch, because acquiring customers can be more challenging in a down market. If you pump more money in, will it lead to customers in this environment? (Rachel Yang, Giant Leap)

8. Raising post-revenue? Make sure you do it for the right reasons. If you can get to a certain inflection point of a pathway to profitability without the need for VC, why dilute your cap table? Often raising post-revenue is for governance and advisors, or for growth and access into different markets. If this is the goal, then do it with the right investment partners and to extend as much runway as you can. (Llew Jury, Sprint Ventures)

9. Have a buffer within your cash flow forecast. The common goal for most founders is to raise at least 24 months runway in this sort of market. But many really good founders are showing a pathway to profitability within 18 months or 24 months to give a buffer of approximately six months within the cash flow forecast. (Llew Jury, Sprint Ventures)

KPMG HGV tip: Need help with your cash flow forecasting or understanding your pathway to profitability? Learn more about our flexible outsourced finance services

10. Look at your burn multiple, because your investors will. Think about things like your burn multiple (your net cash burn) and how much you’re eating in your bank balance over your net new annual recurring revenue (ARR). If you have a higher burn multiple, you’re burning more to achieve growth. When investors talk about what’s good and bad in terms of metrics, you want your burn rate to be under one. If you’re a bit above that, it’s ok, but when it’s 2-3+ then you’re on shaky grounds. (Rachel Yang, Giant Leap)

11. …but don’t fret if you have a higher burn rate in the early stages. Investors also accept that when you’re building out your team, you’re going to have a higher burn. This figure kicks in later on when you have more meaningful revenue, around the $1 million mark. However, VCs want to see that you have a pathway to get to that 1:1 burn multiple. (Paul Naphtali, Rampersand)

12. It doesn’t need to be a trade-off between high growth and capital efficiency. Investors will look at how much you are burning to actually grow. You're not trading off growth if you're doing it efficiently. You could grow really significantly in this kind of market and raise capital if you're doing it efficiently. (Rachel Yang, Giant Leap)

13. If you’re pre-revenue, come to the table with the global growth opportunity and customer validation. VCs want to see a combination of the whole of market validation, and customer validation, such as purchase orders and letters of intent. If you can demonstrate to a VC that your customers really want it, then they’ll know that it’s a good pre-revenue opportunity. (Llew Jury, Sprint Ventures)

14. At the post-revenue stage, VCs will be looking at your cost-to-acquire and retention rates. However, don’t be afraid of not having high retention rates if you’re in the early stages. What VCs want to see is the speed of learning: maybe you had a hypothesis that you were selling to agencies and had a high churn rate, but found out that CMOs in multinationals are really sticky. They want to see evolution and your capability to learn and adapt.

“As you are learning around your go to market, you will sell to the wrong customer and you will misprice it, so don't be afraid. Even these troubling times, don't be afraid to let the wrong customers churn.” (Paul Naphtali, Rampersand)

15. Safe notes and convertible notes are active, but VCs and LPs’ patience will run out. VCs want to see price rounds and an uplift in terms of the evaluation of their funds. Priced rounds give investors more certainty, and helps them show an increase within their funds to their LPs. When raising, think about what investors are going to accept and the acceptable instrument.

“Not every VC wants lots and lots of safe notes on their portfolio construction.” (Llew Jury, Sprint Ventures)

16. There is no clear-cut delineation between who’s deploying and who’s leading. In the past, it may have been easier to say that there were a subset of funds that were more prone to leading. However, it’s tricky to tell in this market. The key is to have lots of conversations to understand which markets and which investors will be able to lead. (Paul Naphtali, Rampersand)

17. Don’t just think of VCs as investors, particularly in the early stage. They can also open up opportunities for growth. Having LPs or investors that can actually be your first customer or a growth customer is really important. (KPMG High Growth Ventures Q&A: Investor Outlook: What’s in store for 2023?)

18. Run a reference check on investors. If you’re looking at an investor, call up their other portfolio companies to see what level of support they provide.

“It’s a two-way street. You're going into a relationship for potentially 3, 5, 7 years, so make sure you do your homework and don't be afraid to check in to see whether the VC is actually doing what they say they're doing when they're pitching to you.” (Rachel Yang, Giant Leap)

19. There are huge opportunities for startups tackling pressing issues. Climate tech, medtech and health tech, aged care, agtech, AI and automation will likely continue to see investment in this market, because these are huge challenges that are facing humanity, irrespective of what the market is doing. (KPMG High Growth Ventures Q&A: Investor Outlook: What’s in store for 2023?)

20. 2023 is going to be the year of the finance function. Financial acumen can be a real differentiator. It doesn’t have to be the founder or in the founding team, but it should be in the business.

“The product vision, the problem, the solution…that's table stakes and expected for an exceptional founder to be able to clearly communicate. But the real thing that sets a founder apart is where they're really solid on the numbers and the unit economics of their business.” (Jerry Stesel, OIF Ventures) 

21. Engage with investors at the beginning of the cycle. Look at capital cycles over six months, and connect with investors at the beginning of the process to build a relationship. They will be able to follow you, see that you said what you’re going to do, that you’ve made mistakes, and that you’ve been able to learn from things you’ve done in the past. (Grant McCarthy, Tidal Ventures)

22. Have a clear vision of where you want to be. This true North orientation helps get investors excited and gives them confidence that you have a big vision and know how you want to get from point A to Z, particularly if you're in deeptech. (Martin Duursma, Main Sequence).

23. Always be in the capital raise mindset, even in this climate. The idea of that you can wait until you're ready to raise, start raising and finish a raise when you want to, is less true now in tougher market conditions. Always be in that mindset and expect that you’ll be operating in different cycles to normal.

“Good companies especially will get funded, but the idea that you have the kind of same time cycle that you might have had before is one to challenge.” (Sarah Nolet, Tenacious Ventures)

24. It’s okay not to have all the answers right now (and in fact, VCs welcome it). It’s not all going to go according to plan. VCs know that everything is not going to go as planned. They’re more interested in how you think, and your mental resilience and adaptability.

“One of the interesting things about going through an investment process with someone is there are tough parts where you're negotiating about valuation or having a tough conversation about salaries. And that's when you really build confidence that this is someone you like, want to work with, would work for, and would refer all your best friends to go work for. That’s the kind of feeling you want to come out of it with.” (Sarah Nolet, Tenacious Ventures)

25. If an investor says you’re too early, it’s likely because they need more information. Don’t get discouraged – this just means you need to work on your numbers and demonstrate your pathway to profitability, and sustainable unit economics.

“What it really means is that they don’t have the telemetry and information around the business for institutions to go through the due diligence needed to form an investment view of the return they’re going to get on that portfolio company.” (Grant McCarthy, Tidal Ventures)

26. Don’t lose the ambition. Australia has typically had a ‘bootstrappy muscle’. This means we actually struggle in times of real capital injections, because we don’t have an abundance mentality. Our culture is to go for high growth but in a sustainable way. 

“We still want big vision, big solution, big impact companies – but also we don't want lose our sustainable soul. This means maybe growing 200% but with a better pathway to some kind of sustainability; to have good unit economics as a vision.” (Paul Naphtali, Rampersand)

“If you've got a good business, solid metrics, good founders and a global market, there's no reason you shouldn't be able to raise now.” (Rachel Yang, Giant Leap)

4 numbers that matter right now:

  • $1 million annualised recurring revenue (ARR). There’s a magic number for VCs, according to Llew, which is $1 million ARR, at which stage they may potentially cut a growth check out of their growth fund. This doesn’t mean doing $1 million right now, but it means being able to locate within your cashflow forecast that in 6 or 12 months, you’re going to hit $1 million ARR. (Llew Jury, Sprint Ventures)
  • 120% net retention plus. This means you start the year on $1 from a customer and by the end of that year you're at a $1.20 because you've expanded. That's what VCs are looking for once you've got some traction and once you’ve figured out who are the right customers for you. (Paul Naphtali, Rampersand)
  • < 1:1 net cash burn. Under one is amazing, above that is still acceptable, and in the 2-3 realm then you’re in questionable territory, (Rachel Yang, Giant Leap).
  • The rule of 40. It’s hard being a founder. One day the market rewards growth at all costs and the next day, it’s sustainable and efficient growth with a strong focus on the rule of 40 for more mature companies: growth plus profitability. If a company can show this, then they’ll be able to do really well because they have a lens on capital efficiency and a pathway to sustainability baked in from day one. (Jerry Stesel, OIF Ventures

Throughout this list, we've seen a lot of references to cashflow forecasting, ARR, sustainable unit economics, and pathways to profitability. What’s clear from all of our conversations is that VCs expect founders to have a clear picture of the numbers and be able to demonstrate clear pathways to profitability.

If you need support on this or you’re struggling to find these capabilities within your team, get in touch with us and we’ll be able to point you in the right direction.