Building a new business from scratch is one of the most rewarding things people can do, but it’s also one of the most difficult. Business owners pour their heart and soul into their craft, working tirelessly to turn a great idea into a functional, profitable reality.
That’s especially true of startups with lofty goals or industry-defining products and services. These businesses change their industries – and often the world around them – by solving a profound problem.
But startups face a challenging investment climate in 2024 that’s inhibiting their ability to bring products and services to the market. KPMG data shows that total investment in Australian startups dropped to just over $3.8 billion this year from roughly $8.2 billion in 2022, due to a range of significant economic and geopolitical challenges.
Despite these macro challenges, there are still plenty of opportunities for a good idea to get the funding it deserves. It may just require startup owners to rethink their business strategies and strategically re-evaluate growth plans.
At a recent American Express Business Class hosted panel session led by leading business journalist Jennifer Hewett, we heard from two of Australia’s most esteemed entrepreneurs – Adam Jacobs, co-founder of THE ICONIC and employment platform Hatch; and Stevan Premutico, founder of me&u and Dimmi – who talked about the early stages of their businesses and how they’ve seen the funding climate evolve.
Despite a challenging business and investor climate, Adam and Stevan say the right attitude, strategy and vision will help get a startup the traction it deserves.
Believing in your vision
When Adam Jacobs co-founded THE ICONIC in 2011, he faced an uphill battle in convincing people that an online-only retailer could work in Australia. As crazy as it sounds today, investors and business leaders showed great scepticism and worried about Australians’ appetite for online shopping.
“You had some of our biggest business leaders saying that the internet’s a fad, or that they ‘tried that online thing and it didn’t work’,” Adam says. “You heard investors saying that no Australian would ever want to buy online when they can go down the road to the shops on the weekend.”
Adam and his team knew this wasn’t true. Overseas – especially in Europe and the United States – the percentage of online sales was skyrocketing, and Australians were already showing a big appetite for global, online-only brands.
THE ICONIC saw a clear gap in the market for an Australian brand to provide an even better online experience for local customers. One of the ways it differentiated itself was with ultra-fast, three-hour delivery, which was unheard of at the time.
"About four or five months into THE ICONIC, a small courier company CEO turned up unannounced,” Adam says. “She led a company that had a bunch of people riding bikes delivering documents and doing urgent three-hour medical deliveries. I didn’t think people would need shoes or shorts that fast. But I was wrong. We gave it a shot and found within a couple of weeks that people wanted it very much.”
While fast and cheap delivery services required extensive investment in warehousing and logistics, the organisation successfully scaled to nationwide services. It wasn’t long before this success drew investor interest. THE ICONIC closed significant funding in its first two years to become the market leader within 18 months.
Putting great people around you
Stevan Premutico’s first experience of raising funds was with Dimmi, which grew to become Australia’s largest restaurant booking network. He started the company in 2009 and raised roughly $50 million over six years before Dimmi was acquired by TripAdvisor in 2015.
“I found the experience of running a high growth start-up and getting investor funding incredibly challenging with Dimmi,” he says. “I pitched the idea 34 times before I secured my angel investor. Over time, it grew to become a complex network of investors, including high net-worth angel investors and venture capital firms. When I exited Dimmi, I said I’d never start another startup, but sure enough, I was back in the same space with me&u a year later.”
When Stevan and his team started looking to raise capital for me&u, he quickly realised the value his existing contacts could provide. Finding investors was far easier, as people immediately started buying into his vision.
“It was much easier the second time around because I had built trusted relationships with people over many years,” he says. “Many of my Dimmi investors invested again and several key customers became investors. All Dimmi board members invested again and, funnily enough, so did my biggest competitor.
“The trust had been established and they could clearly see the vision that I could see. We raised over $100 million as part of the me&u journey.”
One of the biggest learnings that Stevan says he’s taken from both businesses is the importance of putting the right people around you.
“Being in charge of a startup is brutal,” he says. “I think the thing that no one appreciates is how challenging and lonely it can feel to be a sole founder. The importance of a good board, some good advisors and good mentors that you can trust – and confide in – gives you so much confidence. They encourage you to keep going when you just want to throw in the towel.”
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Attracting the right investors for your brand
Despite starting two incredibly successful businesses, Adam says his experiences attaining investment varied wildly between THE ICONIC and Hatch.
THE ICONIC quickly attracted institutional investment, mostly from Europeans taking a bet on the Australian market. For Hatch, he received angel investment from several private individuals including former Australia Post CEO Ahmed Fahour, who Adam had built a relationship with while he was at THE ICONIC.
In both instances, the investors understood the vision of the company and were bought into the strategy. Hatch raised some venture capital again last year but encountered a very different, more difficult environment.
“Last year was an incredibly challenging time to raise money,” he says. “Over the course of a six-month raise, we talked to 140 funds across three continents and about 25 to 30 of them went into due diligence, which was super time-consuming. We were eventually successful given our growth, but it was exhausting work!”
Stevan agrees that a more difficult operating environment is forcing startup founders to rethink their business strategies from demonstrating revenue potential to securing a path to profitability as quickly as possible.
“Right now, the things that matter the most are capital, vision and growth,” he says. “That’s such a different world to two years ago when the only thing that mattered was the revenue story. Now, investors want to know, not whether you’ll be profitable, but how soon you’re going to be profitable.
“In that scenario, cash flow and conserving cash become far more important. You need to rethink your business model to focus on achieving those profitability outcomes.”
Stevan identified three key considerations for attracting investors:
- Vision Alignment: entrepreneurs should ensure that investors share their vision for the company's future to avoid conflicts. If they see a different world, it’s important to have that conversation sooner rather than later.
- Value Alignment: investors should align with the company's values and culture, with a tight and productive working relationship that helps entrepreneurs navigate the best times and the biggest challenges.
- Value Addition: entrepreneurs should seek investors who can offer strategic advice, industry connections, and other non-monetary benefits. They should also provide connections with the right people and build on the business’s vision.
Every good business starts with one great idea
Businesses across all industries face a complex series of strategic challenges, but that doesn’t mean that there isn’t scope for a new venture to gain some serious traction. All great businesses start with one good idea and a lot of hard work and that’s still true today.
For those startups that are right at the beginning of their journey, Adam has a surefire test to see if an idea has legs.
“I learnt this from Fred Schebesta, the co-founder of Finder.com.au,” Adam says. “He said that if you think you have an idea for a business, tell it to 10 people in your life who love you more than anyone else and want you to succeed.
“Then, a week later, check back in with them to see how many people they told. If each of those 10 people told another 10 people about the idea, you’re onto something. If they forgot about it or didn’t tell anyone at all, it’s time to go back to the drawing board.”
Similarly, Stevan advises aspiring entrepreneurs to start by identifying significant problems within their industry.
“Always start with big problems in a space you’re passionate about,” he says. “I focus on hospitality because that's the industry that I love, and I know the problems it faces so intimately. Then, think about how technology and innovation could help solve that problem and speak with experts to validate the solution.”
With a strong vision, the right people in the right positions and a practical business strategy, entrepreneurs will find it a lot easier to get the funding they need.