Web start-ups urged to focus on supply chain

Online start-ups looking for investment must demonstrate strong supply relationships, according to a new study.

According to a new report by Deloitte, traditional Australian retailers are of far less interest to international and private equity investors amid the rapid rise of online sales.

Damien Tampling, national leader of Deloitte’s technology, media and telecommunications industry group, pointed to a number of local online retailers that have attracted investment.

“The evidence is in the transaction environment of late in the sense that, if you look at Catch of the Day or DealsDirect, they have all had transactions occur in the last 18 months or so,” he says.

“The proof is in the pudding in the fact that traditional retailers aren’t participating in those transactions.”

“The fastest, most successful start-ups at the moment happen to be online retailers, and they can turn on a dime.”

For online start-ups looking for investment, Tampling says they must demonstrate a clear view of their growth path, solid financial analysis, reference points for previous deals, and a good understanding of risk.

“In retail, one of the most important ones is what their produce strategy is,” Tampling says.

“Are they dealing with one niche, with a view to extending it to other niches and, if so, why? What are the pros and cons of that?”

“[Start-ups also need to focus on] supply relationships and their supply strategy. Are they sourcing from local suppliers or offshore suppliers, and how are they importing?”

“Some brands are starting to white label their own products, so they manufacture versions of a product in Asia and then bring it down here.”

Tampling says while local investors continue to support homegrown ventures, foreign investors are “very active” in Australia at present, particularly in the tech scene.

“A lot of Australia’s early-stage tech stuff has offshore venture capital in it – Atlassian does, Ozsale does, Catch of the Day does,” he says.

Tampling says there are ways in which start-ups can “reassure” foreign investors of their market viability.

“Often, if you’re looking at your customers, some of your customers may be offshore. This is really good to be highlighting and pointing to,” he says.

“The experience of the management team [is also important]. Make sure someone has credibility when it comes to talking about another market.”

“If you’ve got someone who’s worked for eBay Asia or China Mobile or someone in Asia – where they’ve shown they understand the way the market works – it gives investors a lot more confidence.”