Ms Kendall pointed to Atlassian which boot strapped for eight years before raising capital.
“I actually think the startup community has become a bit too funding obsessed,” she said. “It’s always about networking and investors and raising money.”
I’ve had some heartbreaking meetings where the founder just didn’t realise after they’ve done that exercise they don’t really own that much of the company at all.
Ms Kendall said the indie movement put the focus back on making products and serving users.
“It’s not always about money, money, money.”
Kylie Frazer of angel investor syndicate Eleanor Venture said investment by angels meant a deal could be tailored to meet the specific requirements of each business.
“One of the things that we always encourage people to do is is not raise any more than they need,” she said.
“Because dilution is real and cost of capital is usually more significant than what founders realise. You are selling parts of the company, and you don’t want to give up more than you need to.”
However Ms Frazer said businesses usually need to have a product or some early signs of traction before seeking angel investment.
“There’s just not that many angels in Australia who are willing to invest in a team and an idea,” she said.
Paul Naphtali of venture capital fund Rampersand said founders should look to venture capital when there was a milestone they had to achieve and were not able to do by self funding.
“I think venture suits very few companies in the way we think about venture,” he said. “They have to be prepared to go on a fast-paced journey,” he said.
Mr Naphtali said a business suitable for venture capital was one that was going to go on multiple rounds of capital raising with milestones along the way and which was prepared to sell some of its business in exchange for the ability to reach those milestones alongside other value that might come with the investment.
Mr Naphtali said Rampersand was “not a passive investor” and its job was to find the best founders for solving the biggest problems and to remove the friction from that journey.
“Sometimes that’s ‘let’s get the hell out of the way’,” he said. “And sometimes that’s opening a whole bunch of doors that might not be open to them already.”
James Posnett, senior manager of listings at the Australian Securities Exchange, said the listings that capture the public imagination are the multi-billion dollar ones, but these are rare and most listings are at growth stage.
“Australia has a great, unique position in the sense that we have been listing startups for 150 years in terms of junior mining companies,” he said. “So that sort of risk tolerance is already there in the public market investor and that’s translated quite deep into other sectors like tech over recent years.”
Mr Posnett said businesses looking to list should be at scale up, rather than startup, stage.
“So that really sort of means you’ve got product market fit, you’ve actually got revenue, and you’re really ready to press the accelerator button and go … you’ve got a proven business model and the technology is proven. Let us prove it,” he said.
While Xero listed at a pre revenue stage and Afterpay listed when it had $250,000 in revenue, Posnett said he would normally guide companies to only list if they had about $10 million to $20 million in annual recurring revenue.
Mr Posnett said listing on the ASX was not an exit strategy although it may create some liquidity for founders.
“The reality is, you’re going to list on the market, you’ve got to be sticking around if you want to be backing yourself, and you want to be in that company for years to come and build, if not a billion-dollar company, a large company, and that’s really the philosophy,” he said.
“It’s not an exit in most cases.”
Mr Posnett also warned about the dangers of dilution and said one of the “biggest failings” he’d seen was IPO prospects which think they are worth a certain amount pre-money but have a preference stack, which is money that needs to be paid to shareholders in a predetermined order.
“That doesn’t really translate into ordinary shares,” he said. “So when I collapse the preference stack, what does that actually mean? I’ve had some heartbreaking meetings where the founder just didn’t realise after they’ve done that exercise they don’t really own that much of the company at all.”
Cara is the small business editor for The Age and The Sydney Morning Herald based in Melbourne