Blackbird and Airtree reveal six VC funding insights for 2023

The last 12 months have been a mixed bag when it comes to venture capital investment in Australia. While much of 2022 saw a drop off in big capital raises, we did see the market rally in the last quarter of the year. But what does that mean for 2023? We spoke to AirTree partner Jackie Vullinghs and Blackbird Ventures principal Michael Tolo for their thoughts on what startup funding might look like this year.

There’s still capital for top-quality startups

Despite a turbulent 12 months, Michael Tolo says there’s absolutely still cash available for impressive and high-performing startups.

“You know, the capital exists certainly for substantial investment. And the very best companies in a cohort will continue to attract it at scale,” Tolo said.

“How do you take agency over your budget and your plan to ensure that you are in that top quartile or top decile of companies? If you can do the things that we need to make meet those metrics, meet those benchmarks and build a product roadmap. that’s vivid enough to capture the imagination, then you earn the right to that capital.”

Jackie Vullinghs agrees, seeing good prospects in Australia despite the turbulence of the last 12 months.

“The economic backdrop is challenging and we expect this to continue in 2023. However, Australia is still one of the most capital-efficient creators of billion-dollar businesses in the world, and our VC sector is 4x smaller than the US as a percentage of GDP, so we are optimistic about the long-term prospects for the local VC market,” Vullinghs said.

Efficient growth over growth at all costs

Tolo believes we’ll see a natural progression from what we saw across 2021 — growth at all costs — and 2022, where the economic climate resulted in a cut, burn and survive mentality.

“I think the third act in that play is ‘Now that we’ve survived now that, we’ve probably grown more slowly but it’s been more efficient growth. Can we ensure as a company that we’re efficiently growing fast enough to continue to access venture capital?'” Tolo said.

Different types of capital

Tolo also says that startups should prepare for a world where venture capital might not be their only cash resource due to changes in the landscape.

“The full spectrum of what was venture capital — everything from pre-seed, mid-stage and late-stage markets — is condensing in a way that it hadn’t traditionally condensed,” Tolo said.

“You had these top decel companies with a path all the way through to IPO. I think now what we’ll see is materially increased activity from  mid-market tech buyout firms, or what you would call traditional growth equity shops.

“For those companies that don’t quite have that path through to accessing late stage venture and IPO,  a real question for founders will be how do they readjust in a world where venture capital might not be the only buyer of their equity? 

“VC investors will require particular things and marketing to them is one exercise. But a mid-market tech buyout firm looks for different things. So for founders, how do you understand what those different sources of capital are after?”

Tolo suggests working out who the most sensible funder for your business is and then ensuring that your budgets and plans match up to that particular fundraising cycle.

Tech, tech and more tech

When it comes to sectors that will be getting a lot of attention in 2023, both Airtree and Blackbird have tech on their minds.

Are there any particular startup sectors that Airtree is keeping a particular eye on in 2023?

“We’re particularly interested in cybersecurity, which is a board-level issue as attacks become increasingly sophisticated, as well as data infrastructure startups helping enterprises embed data-driven analysis and predictions in their core operations,” Vullinghs said.

What is Airtree‘s focus for 2023?

“We’ll continue to back startups at the earliest stages of their journey, mostly Pre-Seed and Seed. We focus on entrepreneurs building global technology businesses from Australia and New Zealand, but within technology we’re sector-agnostic,” Vullinghs said.

“Sustainability continues to be a top priority for investors and companies so we anticipate there’ll be more funding into companies working in this area, especially software opportunities like FairSupply, which enables investors and companies to understand sustainability risk in their supply chains.”

What is Blackbird’s focus for 2023?

“There’s been a consistent theme over the last four or five years of Blackbird that deep tech or frontier tech is emerging,” Tolo said.

“A big part of me coming back to Australia to join Blackbird was this belief that we had technical academic talent in particular in domains like quantum computing, molecular biology and robotics, among a whole range of others — especially as it relates to medical research and medical device development.”

According to Tolo, the pathway for these startups was full of friction, ranging from IP arrangements to a lack of funding for these types of businesses.

“There is really a lack of historical success cases. And you know, we’ve seen B2B software like Atlassian and Canva… you have this progression where success begets a faster rate of more success for the next generation of startups — whether it’s Dovetail, Linktree, etc.

“I think we are on the precipice of seeing our first generation of successful frontier tech companies in Australia. Just in our portfolio we’ve got wonderful, world-beating companies: PsiQuantum, Fleet Space, Gilmour Space, Inventia.

Tolo says these companies, and others like it, are now five or so years into their journey and able to showcase the meaningful progress they’ve made.

“That makes me believe this is the moment for frontier tech… I think this will be the year of doubling down our confidence in that talent.”