Grants for Australian Startups

Raising seed capital can be a significant hurdle for the founders of a new technology company. The Simple Agreement for Future Equity, or SAFE note, offers a straightforward path to funding, standing as an alternative to traditional financing methods or a convertible note.

This article explores SAFE notes, how they function, their key differences from convertible notes, and why they might be a great option for your tech startup.

What Is a SAFE Note?

The SAFE note was first introduced by Y Combinator in 2013 to simplify the funding process for early-stage startups.

Unlike traditional funding methods, SAFE notes eliminate the need to value the business. This is particularly beneficial for entrepreneurs who may not be able to justify a short-term valuation to investors when the company has not yet found product-market fit.

SAFE notes also remove other complexities, such as interest rates, maturity dates, and loan obligations that come with convertible debt. Investors provide capital or services upfront in exchange for future equity in a startup, typically at a discount. The transfer of equity takes place only if a conversion event occurs in the future, such as a financing round of at least $1m, helping to avoid early equity dilution.

How Do SAFE Notes Work?

SAFE notes are designed to streamline the way early-stage startups engage with investors.

Here's a breakdown of how they work:

Initial Investment

Investors provide startups with capital or services upfront, but instead of receiving immediate shares in the company, they receive a promise of future equity. This is where the "simple" in SAFE note comes into play, as it cuts through the complexities of traditional investment terms.

Trigger Event

The note converts into equity only if a defined trigger event, also known as a conversion event, occurs. This event could be the startup's next priced equity round, an IPO (Initial Public Offering), a liquidation event, or another significant event. The conversion is based on a simple set of predefined conditions that aim to benefit the investor, acknowledging the early investor’s support with favourable terms.

Valuation Cap & Discount Rate

These are the two critical elements that dictate the conversion terms.

Valuation Cap

The valuation cap sets a maximum valuation at which a SAFE converts into equity, ensuring they receive a fair share of the company relative to their early investment, even if its valuation skyrockets.

Usually it will be set at the expected valuation at the time of the next trigger event. For example, if you believe you are likely to raise capital for your Series A round at a $20m valuation in 12 months, $20m might become your valuation cap.

Discount Rate

The discount rate is another mechanism that aims to provide investors with equity at a lower price than that offered to investors in the next round of financing. Again, this serves as a reward for the SAFE note holder’s early investment risk.

The most common discount rate used by startup companies in Australia and New Zealand is 20%. However this varies depending on factors such as founder experience, the industry, and whether the trigger event is expected to happen very soon or if it’s unlikely to happen for a long time.

Transfer of Equity

When a trigger event occurs, the notes convert into preferred stock or common stock depending on what was agreed. The conversion price favours the investor by converting at the more advantageous option between the valuation cap and the discount rate outlined in the SAFE agreement.

Benefits of SAFE Notes

There are several founder-friendly reasons SAFE notes make sense for early-stage startups, particularly those who have yet to establish a pre-money valuation, and their investors.

Benefits for Startups

Flexibility

Capital raising through SAFE notes offers the flexibility to secure capital without setting a pre-money valuation, streamlining the fundraising process.

Speed

SAFE notes enable faster closing of funding rounds. This speed allows startups to secure capital when needed quickly and helps new investors join your cap table efficiently.

Simplicity

With fewer complexities than convertible notes, SAFE notes reduce paperwork and legal fees.

Growth Focus

With no interest or maturity dates, startups can concentrate on scaling their business without the burden of debt repayment.

Solvency

Depending on the terms, SAFE notes are typically treated as equity on the balance sheet, rather than debt, thus removing their impact on the balance sheet solvency test.

Benefits for Investors

Early Access to Investment Opportunities

SAFE notes offer investors a chance to back startups early, by simplifying the process of making an investment.

Potential for High Returns

Given the discounted equity and potential for significant valuation increases, investors can achieve high returns on their initial investment if the startup performs well.

Alignment with Startup

The conversion of SAFE notes into equity links investors' success with the startup's growth. Pro rata rights also allow investors to keep investing in later rounds, fostering a partnership-focused approach.

Discounted Equity

Investors might benefit from a discount rate on future equity, enhancing potential returns as the company's valuation increases.

Disadvantages of SAFE Notes

SAFE notes present unique benefits to both founders and investors. However, they also carry specific limitations that founders and SAFE investors should seek professional legal and financial advice to understand fully.

Disadvantages for Startups

Equity Control

Using SAFE notes might result in unexpected equity dilution, reducing founders' ownership stake in their business.

Investor Misalignment

Differences in company valuation and equity conversion expectations can emerge, leading to potential conflicts between founders and investors.

Future Fundraising Complexity

Managing several different SAFE notes with varied terms can complicate later funding rounds.

Disadvantages for Investors

Ownership Dilution

Conversion of SAFE notes into equity can dilute an investor's stake, especially with subsequent fundraising rounds.

Valuation Cap Challenges

Valuation caps might not accurately reflect the startup's potential value, especially if its valuation significantly increases.

Indefinite Returns

With maturity dates, the timeline for realising returns on SAFE notes is predictable, which can complicate investment strategies.

Equity Dilution

Converting SAFE notes into company equity can dilute the existing capitalisation table, potentially deterring some investors.

SAFE vs. Convertible Notes

SAFE and convertible notes are both popular methods used by early-stage startups looking to raise pre seed or seed capital from investors. While similar, there are some critical differences in their structure and terms.

SAFE Notes

• Equity-like instruments; no valuation is required.
• Simple and flexible; ideal for fast cost-effective fundraising.
• Convert into equity during future financing.
• No interest or maturity dates, minimising direct financial pressure.

Convertible Notes

• Convertible notes work as debt instruments that convert to equity later.
• Convertible securities are generally more complex, with potentially higher legal costs.
• Have interest rates and maturity dates, increasing structure.
• Offer more protections to investors, like liquidation preferences.

How to Issue a SAFE Note: Step-by-Step Guide

1. Consult Legal Advisors

Imagine your Fintech startup (structured as an LLC) is looking to raise $100,000 Pre seed funding. Although not always necessary, you should ideally consult a law firm that specialises in startup finances and understands the nuances of your industry. They'll help you kick off the SAFE note issuance process by drafting a document tailored to your situation.

2. Define Key Terms

You and your legal team determine critical terms for the SAFE note. In our example, let’s imagine you opt for a $3 million valuation cap, and a 25% discount rate. It is obviously important to ensure these terms are attractive to investors while protecting your startup's future growth potential.

3. Draft the SAFE Note Agreement

Draft the SAFE note with legal guidance to include your chosen terms alongside the specified conversion or trigger event, such as an equity financing round of at least $1 million. You might also consider including milestones that, when achieved, adjust the valuation cap or discount rate.

For a practical starting point, we suggest utilising the SAFE Note template provided by Kindrik Partners.

4. Present the SAFE Note to your Investor

Offer this SAFE note to your potential investors such as angel investors, venture capital firms, or a venture studio. Naturally this needs to accompany a detailed overview of your business and growth strategy, usually in the form of a pitch deck. VCs and other investors must understand the investment vehicle and the vision they're investing in.

5. Execute the Agreement

Assuming your investor is happy with the terms you have presented, you would solidify this through a formal SAFE Note agreement and distribute the signed document to all parties to keep for their records.

6. Equity Conversion

Now let’s imagine 12 months later your startup raises a $1m Seed round of funding at a pre-money valuation of $5m from new investors. This causes an equity conversion to be triggered, as the capital raise meets the $1m trigger event.

To determine the valuation at which the SAFE note will convert at we take the lower of:

1. The discounted valuation; the seed round valuation of $5m less the 25% discount, which is $3.75m.
2. The valuation cap; which was $3m.

In this case the valuation cap of $3m is less than the 25% discount on the pre seed valuation of $5m, so this valuation will be used to determine the conversion value. This means the $100,000 SAFE note will be converted to the relevant number of shares at a $3m pre-money valuation.

The SAFE note would convert first, so the $3m pre-money valuation would become a $3.1m post-money valuation. The SAFE note investor would therefore get 3.23% of the company, this is calculated as $100k/$3.1m.

After the SAFE note has converted, the new seed investment capital would come in causing the SAFE note investor to take part in the equity dilution. The new investors would be investing in a $5m pre-money valuation which would become a $6m post-money valuation. For their $1m investment they would get 16.7% of the company, this calculated as $1m/$6m.

The Future of SAFE Notes in Startup Financing

Adoption

While SAFE notes are very common in Silicon Valley and more mature startup ecosystems they are not yet as common in New Zealand and Australia. We anticipate that SAFE notes will continue to gain traction in Australasia as our startup ecosystem matures. Their appeal lies in their simplicity and the benefits they afford both parties which is crucial for the tech sector which needs to prioritise speed and innovation.

Evolution

SAFE notes will likely continue to evolve. We expect to see new types of SAFE notes that address the changing needs of startups and investors alike, potentially incorporating more standardised terms and offering nuanced investor protections.

Alternatives

SAFE notes will likely inspire the creation of new financial instruments. These alternatives could refine or redefine the terms of engagement between startups and investors, providing more tailored solutions to industry-specific challenges. It will be interesting to see Blockchain technology's impact on startup fundraising.

Continued Relevance

At their core, SAFE notes embody the principles of flexibility, efficiency, and alignment of interests. These qualities are highly valued in the startup ecosystem and are likely to ensure their continued popularity and relevance.

Key Article Takeaways

SAFE notes have become an important funding tool, especially for early-stage companies. They protect startup founders from premature equity dilution and avoid having to value a business on day 0. They also provide an efficient mechanism for investors to invest in high return opportunities without upfront negotiation on valuation.

Read some key takeaways from this article:

• SAFE notes are legal instruments used in seed-stage financings that give investors the right to convert their investments into equity at a later date.
• SAFE notes offer advantages for startups, such as flexibility, streamlined processes, and no interest or maturity date. They also offer discounted equity and potential preference during asset distribution for investors.
• While SAFE notes have risks and limitations, conducting thorough due diligence and seeking professional advice can help mitigate potential drawbacks.
• SAFE notes differ from traditional convertible notes regarding interest payments, repayment, company valuation, and debt versus equity representation.
• The future of SAFE notes in startup financing looks promising due to their simplicity, flexibility, and investor-friendly features.

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In recent years, Australia has emerged as a thriving ecosystem for technological innovation. Amidst this burgeoning tech startup landscape, venture capital (VC) firms have played an instrumental role, catapulting forward-thinking startups towards success.

Despite the wealth of VC firms eager to invest in groundbreaking startups, the details surrounding Australia's venture capital landscape can be challenging to find and is often out-of-date, scattered, or hidden behind paywalls.

Recognising this gap, we present a comprehensive list of the top VC firms in Australia for 2024. These tech investors set the benchmark for innovation and are actively championing the development of Australia's tech startup scene.

AirTree Ventures

• Stage: Seed, Series A, Series B
• Focus: Technology, SaaS
• Notable Investments: Canva, Linktree, Employment Hero
• Location: Sydney (Australia)
• Website: airtree.vc

AirTree Ventures is committed to standing by founders from the outset, believing steadfastly in their audacious visions. As devoted long-term partners, they go beyond mere funding; they actively help portfolio companies with critical recruitment efforts, offering expert guidance on organisation design, employee experience, and compensation strategies. Additionally, founders gain access to an invaluable network of experienced individuals who understand the intricacies of scaling growth-stage startups.

Artesian VC

• Stage: Seed, Early stage
• Focus: Technology, Health and Life Sciences, Clean Energy
• Notable Investments: ingogo, Sourse, Everty
• Location: Sydney, Melbourne, Adelaide
• Website: artesianinvest.com

Artesian is a global alternative investment firm, focusing on early-stage venture capital investments. They employ a co-investment model to provide startups with seed stage capital, while providing investors with diversified exposure to the venture capital class of asset management.

Bailador

• Stage: Growth stage
• Focus: Information Technology
• Notable Investments: SiteMinder, Straker Translations, Instaclustr
• Location: Sydney, Australia
• Website: bailador.com.au

Bailador is a growth capital fund focused on private equity investments in the information technology sector. They partner with startup founders at the expansion stage, providing not only capital but also extensive operational experience to help businesses achieve international success.

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Blackbird Ventures

• Stage: Pre-Seed, Seed, Series A, Series B, Growth, IPO
• Focus: Technology
• Notable Investments: Canva, Zoox, SafetyCulture
• Location: Sydney, Melbourne
• Website: blackbird.vc

Blackbird Ventures, one of the largest and most active venture capital funds in Australia, focuses on supporting ambitious startups with a vision for global impact. They target technology companies that have the potential to generate over $100 million in annual revenue and have a strong track record of success. With a discerning eye for tech-driven startups with a lean capital requirement and high potential for rapid scaling, Blackbird Ventures commits to supporting founders from inception. They provide an exhaustive suite of resources, networking platforms, and programs to enhance startup success. Though they often lead investment rounds, they're also open to co-investment with other venture capitalists and making initial investments alongside angel investors.

Brandon Capital

• Stage: Early stage, Series A, Series B
• Focus: Health and Life Sciences, Biotech
• Notable Investments: Global Kinetics Corporation, Vaxxas, PolyActiva
• Location: Sydney, Melbourne
• Website: brandoncapital.com.au

Brandon Capital Partners is Australia's leading life science and biomedical venture capital firm. They manage the Medical Research Commercialisation Fund (MRCF), one of the largest life science investment funds in Australia, providing capital and expertise to support promising biomedical discoveries.

Carthona Capital

• Stage: Early Stage, Series A, Series B
• Focus: Fintech, AI, Marketplaces
• Notable Investments: x15ventures, Judo Bank, Athena Home Loans
• Location: Sydney
• Website: carthonacapital.com

Carthona Capital is a venture capital firm focusing on disruptive technologies and breakthrough medical research. They support founders/co-founders from the early stages of their venture and provide them with the necessary resources and mentorship to help them succeed.

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Ellerston Ventures

• Stage: Early stage, Series A, Series B
• Focus: Technology
• Notable Investments: Airtasker, Huddle, Different
• Location: Sydney, Australia
• Website: ellerstoncapital.com

Ellerston Ventures is a division of Ellerston Capital, dedicated to investing in early-stage businesses with significant growth potential. With an emphasis on the technology sector, they partner with entrepreneurs to offer strategic support and capital to drive growth and success.

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Flying Fox Ventures

• Stage: Pre-Seed, Seed
• Focus: B2B SaaS, Health, Education, Climate
• Notable Investments: Goterra, Skills Base, Safewill
• Location: Melbourne, Sydney
• Website: flyingfox.vc

Flying Fox Ventures injects early-stage capital to propel Australian & New Zealand companies across the globe. They look for amazing people who deeply understand the challenges around them and are breaking the mould on how to solve them. They also cultivate a robust community of early-stage investors while managing around $30M in funds across 50+ companies, aiding them in achieving their ambitious goals.

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GBS Venture Partners

• Stage: Seed, Series A, Series B
• Focus: Life Sciences, Healthcare, Biotechnology
• Notable Investments: Hatchtech, Spinifex Pharmaceuticals, Peplin
• Location: Melbourne
• Website: gbsventures.com.au

GBS Venture Partners specialises in healthcare and life sciences investments. They support early-stage companies in these fields, providing capital, strategic guidance, and access to a network of industry experts to help them navigate the complex landscape of biomedical innovation.

GBS Venture Partners specialises in identifying and supporting promising early-stage companies in the healthcare and life sciences sectors. With over $400 million in funds under management, they provide capital as well as strategic guidance and access to their network of scientific and industry experts to help portfolio companies commercialise innovative biomedical technologies and therapiesSince its founding in 1996, GBS has backed numerous successful life sciences startups in Australia.

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Giant Leap

• Stage: Pre-Seed, Seed, Series A
• Focus: Climate, Health, Empowerment & Education
• Notable Investments: Who Gives A Crap, Mindset Health, Hex
• Location: Melbourne
• Website: giantleap.com.au

Giant Leap is Australia’s first 100% impact venture capital fund. They invest in founders solving the most pressing global problems at scale across climate, health and empowerment & education. Through a blend of capital, network, and expertise, they strive to assist their portfolio companies in amplifying their impact.

H2 Ventures

• Stage: Series A, Series B, Series C
• Focus: Fintech, Data, Artificial Intelligence
• Notable Investments: Simply Wall Street, Equitise, Spriggy
• Location: Sydney
• Website: h2.vc
  

H2 Ventures is a venture capital firm helping early-stage entrepreneurs reinvent financial services. They offer alumni networks, mentoring, and operational guidance for early-stage entrepreneurs focussing on fintech, data, and artificial intelligence driven solutions. In addition, H2 Ventures provides companies with an in-house pre-seed program.

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Investible

• Stage: Seed, Series A
• Focus: Diverse Industries
• Notable Investments: QPay, Buzzy Games, Car Next Door
• Location: Sydney
• Website: investible.com

Investible is an early-stage investment group that provides high-potential founders with financial, human, and intellectual capital. They focus on supporting startups with global ambitions and have a methodology-driven approach to identify, invest in, and support the best founders.

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Kosmos Ventures

• Stage: Seed, Series A, Series B
• Focus: Technology, SaaS, AI
• Notable Investments: Bazaarvoice, Box, Cloudera
• Location: Perth
• Website: kosmos.vc

Kosmos Ventures is a venture capital firm specializing in investments in technology sectors, specifically software and AI. The firm supports talented founders and teams by providing them with the capital and resources they need to grow their businesses.

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Main Sequence Ventures

• Stage: Seed, Series A
• Focus: Deep Tech, SaaS, AI, Robotics
• Notable Investments: Baraja, Vow, Q-CTRL
• Location: Sydney
• Website: mseq.vc

Main Sequence Ventures invests in pioneers solving the world's most challenging problems. As the manager of the CSIRO Innovation Fund, they have a strong interest in deep technology startups that are based on high-quality research. Main Sequence Ventures' portfolio companies benefit from connections to leading global technology hubs, a strong advisory team, and resources to support their growth and market entry.

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Macquarie Group

• Stage: Seed, Series A, Series B, Series C
• Focus: Artificial Intelligence, Financial Technology, Renewable Energy
• Notable Investments: Aiera, Molo, Fervo Energy
• Location: Sydney
• Website: macquarie.com

Macquarie Group is a global financial services provider offering banking, financial advisory, investment and funds management services. With a focus on early and growth stage investments across various industries, Macquarie provides the capital and expertise necessary to help companies scale and succeed.

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OneVentures

• Stage: Series A, Series B, Series C
• Focus: Technology, Healthcare, Life Sciences
• Notable Investments: Vaxxas, Employment Hero, Qventus
• Location: Sydney, Brisbane, Melbourne
• Website: one-ventures.com

OneVentures stands as one of Australia's leading venture capital firms, with a focus on transformative businesses in technology, healthcare, and life sciences. OneVentures is known for its hands-on investment approach, helping companies navigate the complexities of growth with the aid of a team that has been through it all before. They offer extensive operational experience, global connections, and commercialisation know-how to propel startups to their full potential.

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OIF Ventures

• Stage: Seed, Series A, Series B
• Focus: Technology, SaaS, Fintech
• Notable Investments: Go1, Kasada, Instaclustr
• Location: Sydney
• Website: oifventures.com.au

OIF Ventures is a leading Australian venture capital firm that aims to back and build world-class businesses. They strive to create long-term partnerships with entrepreneurs and are committed to providing more than just funding. OIF provides guidance, strategic advice, and the operational expertise necessary to build successful companies from the ground up.

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Rampersand VC

• Stage: Pre-Seed, Seed, Series A
• Focus: Technology, SaaS, Fintech, AI
• Notable Investments: Sendle, UpGuard, Nightingale
• Location: Melbourne, Sydney
• Website: rampersand.com

Rampersand VC is an early-stage venture capital firm focused on helping the most ambitious Australian and New Zealand technology companies achieve their potential. They pride themselves on their founder-friendly approach and a deep understanding of the technology landscape. Rampersand VC provides investment capital, operational support, and access to networks and expertise to help their portfolio companies scale.

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Reinventure

• Stage: Seed, Series A, Series B
• Focus: Fintech, PropTech, Data and AI, RegTech
• Notable Investments: Athena, Basiq, OpenAgent
• Location: Sydney
• Website: reinventure.com.au

Reinventure is an Australian-based, early-stage venture capital fund that invests primarily in fintech and adjacent areas. Backed by Westpac, one of Australia's leading financial institutions, Reinventure Group provides entrepreneurs with access to capital, network, and a deep understanding of financial services. They aim to invest in companies that have the potential to reshape the financial services industry.

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Sapien Ventures

• Stage: Seed, Series A
• Focus: Fintech, Blockchain, Online Marketplaces
• Notable Investments: Airtasker, Curious Thing, Linqto
• Location: Sydney, Melbourne
• Website: sapienventures.vc

Sapien Ventures is a technology-focused VC fund investing primarily in early-stage companies. They leverage foreign capital, Silicon Valley know-how, local market experience, to help the next generation of Australian tech ventures become successful globally. They are heavily focused on fin-tech, marketplaces, and other software-driven tech disruptions that will change societies.

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Skip Capital

• Stage: Seed, Early Stage, Growth Stage
• Focus: Technology, Renewable Energy, Healthcare
• Notable Investments: Brighte, Flick, OpenAgent
• Location: Sydney
• Website: skipcapital.com

Skip Capital is an Australian private investment fund with a focus on the technology sector, renewable energy, and healthcare. They invest across all stages, from seed to growth. Their mission is to support entrepreneurs making a difference in their fields and having a positive impact on the world.

Southern Cross Venture Partners

• Stage: Seed, Series A, Series B
• Focus: Cleantech, ICT, Health and Life Sciences
• Notable Investments: Fulcrum3D, Morse Micro, Enlitic
• Location: Sydney
• Website: sxvp.com

Southern Cross Venture Partners is focused on creating and growing world-class tech companies. They partner with entrepreneurs with the drive and talent to take their innovations global and offer them funding, networks, and mentorship, with a particular focus on clean technology, ICT, and life sciences.

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Square Peg Capital

• Stage: Pre-Seed, Seed, Series A, Series B, Series C
• Focus: Technology, SaaS, Fintech, Online Marketplaces, Enterprise Software
• Notable Investments: Canva, Fiverr, Airwallex
• Location: Melbourne, Sydney
• Website: squarepegcap.com

Square Peg Capital is a leading venture capital investor that has made its mark by backing extraordinary founders who are solving hard problems in large markets. Since its inception in 2012, they've been ardent supporters of startups in Australia and Southeast Asia. Their investment strategy is centered around understanding the unique strengths and visions of founders, and they provide more than just fundraising support – offering strategic guidance, market insights, and extensive networks.

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Telstra Ventures

• Stage: Series B, Series C, Later stage
• Focus: Technology, Telecommunications
• Notable Investments: Box, DocuSign, Skillz
• Location: Sydney, Melbourne
• Website: telstraventures.com

Telstra Ventures is a strategic growth investor in lighthouse technology companies that are shaping the future. They leverage the power of their trusted brand, strong balance sheet, and global reach to give the companies they invest in an unparalleled advantage.

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Ten13

• Stage: Seed, Series A
• Focus: Fintech, PropTech, SaaS
• Notable Investments: Super, Beforepay, DingGo
• Location: Brisbane
• Website: ten13.vc

Ten13 is a syndicate-style VC platform that focuses on investing in early-stage tech startups, particularly in the fintech, proptech, and SaaS sectors. It stands apart due to its syndicate model, which allows high-net-worth individuals, family offices, and institutional investors to co-invest in startups. Ten13 offers a streamlined investment process and support to founders to help them realise their business vision.

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Tidal Ventures

• Stage: Early stage, Series A
• Focus: Software, Consumer, Technology
• Notable Investments: FrankieOne, Shippit, search.io
• Location: Sydney
• Website: tidalvc.com

Tidal Ventures is an early-stage investor focused on leading seed and Series A rounds. They back exceptional teams with global ambitions and provide them with the capital, network, and expertise needed to realise their vision.

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Summary

Australia's tech startup scene is booming, with investment opportunities and high-growth valuations like never before. The government's dedication to fostering entrepreneurship, as seen with the Early Stage Venture Capital Limited Partnerships (ESVCLP) program, coupled with the availability of VC funding for early-stage startups (as well accelerators and incubators – new article on this soon), makes it an appealing destination for tech startups.

Remember, the fundraising journey is about more than just securing funds from the venture capital industry.Iit's about finding fund managers and partners who believe in your vision and can provide the support you need to succeed in your target market. With the right help to align with your business model, you can navigate the entrepreneurial journey and leave a lasting impact on the world.

If you're a tech startup in Australia, this is a reminder that you don’t need to be reaching out to foreign investors in New York or San Francisco! Connect with your local venture capital firms mentioned in this article, present your ideas, and unlock the potential of your business!

Building a technology company from the ground up is a challenging endeavour. From raising your first round of venture capital to assembling a world-class team, there are myriad challenges, especially for those lacking industry expertise. Given that 90% of startups fail, exploring ways to increase your chances of success is essential.

Enter the venture studio; a collaborative working model first adopted by Idealab in 1996. By combining industry expertise, resources, hands-on support, and valuable learnings from success stories and failures, venture studios offer more than traditional funding avenues. They provide a supportive environment for tech entrepreneurs on a tight budget, facilitating capital raising and collaborative approaches to launching new ventures successfully. Across Aotearoa New Zealand and Australia this model is gaining traction, helping startups achieve higher valuations and sustainable growth.

What is a Venture Studio?

A venture studio (or startup studio) collaborates closely with founders and founding teams to build new companies and help them find product-market fit. They often assist in assembling the founding team of early-stage startups to scale the business. Unlike traditional venture capital funds, a venture studio embeds itself within the startup's operations and strategic decision-making, acting as a co-founder actively participating in the company's expansion.

The venture studio business model, popularised in Silicon Valley, leverages deep industry know-how and a financial model designed to yield a higher success rate. This approach can result in an increased rate of successful startups compared to traditional venture capital methods. By integrating resources, expertise, and hands-on support, venture studios offer a comprehensive framework that nurtures startups from inception to market success.

How do Venture Studios Work?

The venture studio model offers a unique approach to turning innovative ideas into successful businesses, distinguishing themselves from traditional startup support systems through an active, holistic process.

Here's a general overview of how they work:

Ideation & Investigation

• Process: Venture studios serve as hubs for creative ideas to be challenged and evolve further. These ideas might be sourced from within the studio itself, come from founders and startup teams outside the studio, or external collaborators. Ideas undergo meticulous evaluation for market potential, feasibility, and alignment with the studio's expertise.

• Outcome: A well-defined concept with a clear understanding of the target market, potential challenges, and opportunities. Concludes with a comprehensive concept ready for further exploration and market validation.

Validation

• Process: Ideas undergo rigorous testing against market realities. This involves in-depth competitor research, user interviews, business model consideration, and feasibility studies to assess the viability of the proposed venture toensure the concept holds promise and aligns with real user needs and market opportunities.
• Outcome: The outcome of the validation phase is to gain a better understanding of whether the idea can meet genuine market needs before further time, energy, and resources are committed. This helps a new startup de-risk itself and increases the likelihood of success for the venture.

MVP Design & Development

• Process: The venture studio (or venture builder) will shift into execution, prioritising key components of a first release based on a defined budget and desired timelines before bringing the idea to life. Founders collaborate with in-house experts across product design, product development, marketing, and strategic planning to refine an MVP solution and launch strategy, establishing a solid foundation for future growth.

• Outcome: A tangible MVP – a digital product or service ready for market entry, like the first version of a generative AI mobile app designed to translate Kiwi slang for newcomers and tourists. By leveraging the expertise of the studio and focusing on core features, the MVP is designed to address user pain points and provide immediate value to the target audience. Choice as.

Launch

• Process: Once an MVP is built, venture studios assist in preparing the startup for market entry. This may involve branding, development a marketing website, and social media presence. Some startups will opt for a soft launch, conducting closed beta trials with potential customers while others will launch to the public from day one. The goal is to create a compelling market presence and generate initial traction for the product.
• Outcome: The outcome of the launch phase is market entry. The venture studio aims to position the product for maximum impact and user adoption when the product steps onto the market stage, ready to captivate its audience.

Scaling

• Process: As the venture gains traction and demonstrates scalability, venture studios will typically play a role in supporting its continued growth. This can involve support securing additional funding, evolving the MVP into a more polished solution based on user feedback, and expanding the team. It's important to note that venture studios typically don't accompany ventures to the point of an IPO; rather, they facilitate growth until the venture is independently flourishing.
• Outcome: The outcome of the scaling phase is to facilitate new opportunities for growth and success. By leveraging established networks and industry connections, the studio aims to open doors for the venture that might otherwise be inaccessible. This could include opportunities for acquisition, strategic partnerships, or other avenues for expansion.

Off-boarding

• Process: Off-boarding marks a pivotal moment for a startup, transitioning from venture studio-supported growth to a thriving independent company. This milestone reflects the venture's readiness to navigate the market confidently with the support of an internal team, embodying the culmination of a successful partnership that has equipped the venture for sustained success.
• Outcome: Achieving independence is a testament to the entrepreneurial venture's potential and the value of the guidance provided by the partnering venture studio. This phase celebrates the venture's journey from concept to a competitive market leader.

Benefits of Venture Studios

Venture studios offer a number of key benefits that are particularly valuable to founders navigating the complexities of launching and growing a successful technology company.

Here’s a breakdown of some of these key benefits:

Risk Reduction

Venture studios help mitigate the risks inherent in starting a tech company. Leveraging their collective experience, they validate new business ideas and provide valuable guidance to startups through the early stages, ultimately increasing the likelihood of success.

Achieve More for Less

By leveraging their expertise and often accepting sweat equity (through mechanisms like SAFE notes), venture building with a venture studio can reduce the effective hourly rate of your startup’s development. This means that with a given budget, startups can accomplish more extensive outcomes or achieve a higher quality minimum viable product (MVP) compared to traditional funding avenues.

Essentially, startups can expand their resources further, unlocking the potential for greater innovation, new business opportunities and market readiness without sacrificing equity or quality.

Easier Access to Funding

With their established networks, venture studios can make fundraising less daunting. They connect startups with outside investors, facilitating the financial backing necessary for continued growth after launch. Depending on the venture studio, they might also be able to position the new venture in a way that is more attractive to external investors; resulting in the ability to raise more from venture capitalists for less equity.

Access to a Collaborative Ecosystem

Partnering with a venture studio helps you enter an environment where collaboration is the norm. Entrepreneurs get to rub shoulders with experienced mentors, software experts, industry insiders, and fellow founders and portfolio company teams, creating a rich environment for knowledge exchange and support. Venture studios are often able to intro you to who you need to speak, like the ideal mobile app developer just when your team needs them.

Shared Resources

One of the practical perks of venture studios is their provision of shared resources. These can include but are not limited to office space, equipment, market research and essential services like marketing support or software development. This helps to not only cut down operational costs in a startup’s early stages, but also allows founders and co-founders to focus more on the strategic aspects of their business.

Accelerated Market Entry

The path from idea to go-to-market can be significantly shortened with the support of a venture studio. Thanks to their expertise and streamlined processes, startups can navigate the process of early-stage validation and product development more smoothly, to ensure a faster, more confident launch.

Types of Venture Studios

Not all venture studios are the same. They come in various forms, tailored to the unique needs of the startups they seek to support. Understanding what makes each unique can help entrepreneurs feel confident in their decision of who to partner with.

These are some of the most common types of ventures studios:

Industry-Specific vs. Industry Agnostic

Industry-Specific Venture Studios

Industry-specific venture studios, also known as niche venture studios, concentrate solely on a particular sector, such as Healthcare, Fintech, SaaS or EdTech. They choose to only offer their deep industry knowledge, insights, and specialised support to startups looking to operate in their area of expertise.

Industry-Agnostic Venture Studios

Industry-agnostic venture studios take a broader approach, welcoming startups from various sectors and industries. They focus on providing support and resources to startups with innovative ideas, regardless of the industry they operate in. This flexibility allows them to cater to a diverse range of entrepreneurs and business concepts, fostering wide-reaching innovation.

Corporate vs. Independent

Corporate Venture Studios

Established by large corporations, corporate venture studios will typically invest in and incubate new business ideas that align with their corporate goals. These startups often come from ideas generated in corporate hackathon events. While not always successful, corporate studios seek to combine the agility of startups with the resources and reach of well established companies.

Independent Venture Studios

Unlike corporate venture studios, independent venture studios are stand-alone businesses that are not affiliated with a large corporation, and operate independently - often within a credible agency that specialises in a particular field such as technology, or brand. They invest their resources into entrepreneurs and ideas they believe strongly in. These venture studios have an experienced entrepreneurship team and highly-skilled team members with a wealth of experience helping build and scale tech startups.

Hybrid Venture Studios

Hybrid venture studios combine elements of both corporate and independent venture studios. They have a strategic partnership with a large corporation or venture capital firm, allowing them to leverage resources and networks. These studios might evaluate investment opportunities independently, but typically have an investment committee that will make the final decision on partnerships.

Expertise-Led Venture Studios

In addition to the defining characteristics mentioned above, it’s not uncommon for a venture studio to have a specific area of expertise that influence their partnership decisions.

For example brand-led venture studios will support startups they believe they can help succeed by taking a brand-centric focus, embedding their expertise in brand strategy and identity capabilities into the business.

On the other hand, a technology-led venture studio will carefully select innovative new business ideas (such as those that utilise artificial intelligence) that they believe will have an unfair advantage if the business correctly balances it’s focus on innovation and usability; crafting world-class interfaces that encourage value delivery and retention.

The Difference Between Venture Studios and Traditional Startup Growth Methods

Of course, venture studios are not the only option available to founders looking to build and scale a successful technology company. Below we compare venture studios to some of the more traditional startup growth methods; venture capital firms, angel investors, startup accelerators, and incubators.

Venture Studios vs. Venture Capital Firms

Venture Studios offer a blend of investment (through rounds like pre-seed, seed funding, series A and so on), strategic guidance, and operational support, often actively participating in daily management. Unlike Venture Capital Firms, which primarily provide financial backing and mentorship, studios invest expertise and resources, accelerating startup growth in exchange for more equity. This model contrasts with VC firms' focus on financial investment and strategic advice, appealing to founders desiring substantial capital with minimal day-to-day external involvement.

Venture Studios vs. Angel Investors

Angel investors, investing their personal capital, often provide larger sums like venture capital firms but typically adopt a passive approach, allowing startup founders to retain management control. In contrast, venture studios actively assist with guidance and support, offering a distinct advantage for startups seeking hands-on operational help alongside investment.

Venture Studios vs. Startup Accelerators

Venture Studios differ from Startup Accelerators in their engagement depth and investment approach. Venture studios provide in-depth, long-term involvement, often co-creating businesses from the ground up, offering substantial resources, a small to medium sized equity stakes. Whereas Accelerators typically offer short-term programs with mentorship and small capital injections, focusing on rapid growth and networking opportunities, and usually require less equity.

Venture Studios vs. Incubators

Venture Studios differentiate from Incubators by offering extensive operational support and funding, often taking a larger equity stake due to their active role in startup development. Incubators, while providing a nurturing environment with mentorship and resources, usually don't involve direct funding or hands-on management. Similar to startup accelerators, this can be appealing to founders who seek support with greater autonomy.

In choosing between venture studios and traditional methods, founders should consider their specific needs, startup stage, and preference for equity and operational support, recognising each model's unique contributions to the startup ecosystem.

Venture studios can work alongside traditional VC firms and angel investors to complement financial investments with operational support, while accelerators and incubators prepare startups for further development and scaling.

Is a Venture Studio Right For Your Startup?

Having explored the concept of venture studios, you may be wondering if partnering with a venture studio is the right path for you and your new venture.

Here's why this model could be pivotal for your startup:

Early Stage Partnership

Venture studios excel in nurturing ideas from scratch. Their involvement from the ideation phase means you get more than just funding; you receive a partner who's invested in your vision and success from day one.

Hands-On Operational Support

Unlike traditional investors, venture studios offer active, hands-on guidance. They're your strategic partners, involved in daily decision-making and operational execution, providing an invaluable support system for navigating the startup landscape.

Ideation & Validation Support

Venture studios are invaluable for entrepreneurs who have a promising concept but seek expertise in evolving it into a market-ready venture. They provide a blend of resources and hands-on guidance, to rigorously validate ideas against market realities. This helps to ensure that startups they partner with are not just launching a product but addressing real user pain points and market gaps.

Access to Extensive Resources and Networks

Venture studios open doors to a wealth of resources and industry connections. This network is crucial for startups seeking to establish themselves and scale in a competitive tech ecosystem.

Risk Mitigation

With the high stakes of launching a tech startup, venture studios offer a strategic partnership to that mitigates risks. Their collective experience and support framework significantly bolster your chances of success, steering you through the complexities of the startup world.

Market Fit & Product Development

With their expertise, venture studios guide startups through the critical stages of market validation and MVP development. They ensure that your product enters the market with a strong value proposition and fit.

Operational Involvement

For those who prefer an immersive support system, venture studios offer a unique advantage. Their active role in the early and crucial stages of your startup, from developing an MVP to accelerating your path to  They can help you make key decisions faster and significantly expedite your journey to market resonance.

For those who prefer an immersive support system, venture studios offer a unique advantage. Their active role in the early and crucial stages of your startup, from developing an MVP to accelerating your path to product market fit, includes leveraging a proven playbook. This playbook helps you make key decisions faster and significantly expedites your journey to market resonance.

Access to Resources

If you would benefit from shared resources such as office space, marketing expertise, and a collaborative ecosystem of industry experts, a venture studio can offer you tailored infrastructure to help facilitate your growth.

Risk Mitigation & Increased Success Potential

With the high stakes of launching a tech startup, venture studios offer a strategic partnership to that mitigates risks. Their collective experience and support framework significantly reduce the inherent risks of starting a tech company and amplify your chances of success.

It's important to note that joining a venture studio requires a certain level of commitment, flexibility, and openness to collaboration. While venture studios provide powerful support, they also expect founders to actively engage and contribute to growing a successful venture.

Whether as a simple fee-for-service or a combination of both fee-for-service and sweat equity, working with Edition offers your startup a unique opportunity to leverage our expertise, resources, and collaborative ways of working to propel your venture. With a track record of nurturing early-stage and high-growth ventures, and a commitment to driving innovation, Edition provides a dynamic and supportive environment for ambitious founders and technology teams ready to bring their ideas to life. From our studio in Auckland to Sydney and New York, we support global growth and success. If you'd like to discuss a potential partnership, let's talk.