Here’s how startups can crack the US market, according to Australian VCs | Equity Podcast

[Music] Hello and welcome back to equity Techcrunch's Flagship podcast about the Business of startups I'm marann aavo and This is our Wednesday show where we hone In on a single topic and dive deep today We're listening back to a pair of Interviews from the other side of the Globe thanks to our new co-host Rebecca Balon who spent three years in Auckland New newand lucky her late last year Rebecca hopped Across The Tasman to Australia to report on the startup scene In the region and came back to us with a Temperature check on VC and the antipa Rebecca spoke with several Aussie and Kiwi VCS to learn more about why early Stage funding is popping off in the Region how Founders down under are great At Capital efficiency and what it's like To compete and collaborate with Silicon Valley let's Listen hey I'm Dan um one of the Partners at squarepeg I've been with Squarepeg since since we started back in Uh 2012 we are an early stage Venture Fund typically investing seed series a With a very strong commitment to keep Investing in in companies as they grow We invest out of Australia southeast Asia and Israel with a real focus on Fintech B2B SAS Ai and sort of growing Focus in in climate and and Healthcare Excellent yes so one one of the things

You just mentioned that square peg Really pays attention to is B2B SAS and Well two of the things B2B SAS and Fintech which I've noticed are they seem To be two of the biggest industries in Australia can you tell me a little bit About why yeah it's interesting I mean I Think maybe just some context on Australia as in general and then and Then I can I can dive into them but the Growth of Australia over the last decade Has been has been really exceptional I Mean when we started there was I think The number was $127 million invested Into startups which is either a rounding Era or one large round and you know sort Of fast forward 10 years and we now the The many many billions of dollars you Know I think I think the tech sector in Australia accounts for about 8 a half% Of GDP which is you know significant Growth Ian again relative to Israel Which is it's about half of where Israel Is so there's there's still plenty of Plenty of way to go till till Tech is a Real driver of the Australian economy But we're on a very a very good growth Trajectory fintech and Sass have have Been two really strong clearly two Really strong sectors for Australia I Think with fintech Specifically uh there's there's a few Reasons there you know we have a very Very profitable Financial Services

Industry in this country I think the Four of the banks in Australia amongst The 30 most profitable in the world so There are very very very large profit Pools to attack and you know I think the Story of the story of startups is Innovating and disrupting you know large Profit pools and I think being able to Go after Banks which are you you know Have in in some cases incredible Advantages but in some cases incredible Disadvantages in terms of the way they Service their customers or customer Satisfaction and startups being able to Go after these after these profit pools And delivering products that are that Are meeting their needs in a much more Efficient effective cost-effective way Um has been has been a really happy Hunting ground for for Australian Businesses and I think you know we know The story of the PayPal Mafia where PayPal alumni went on to found other Great businesses like SpaceX and paler And YouTube and Tesla and you you know The list and list goes on it's a similar Story in fintech not not exactly the Story in fintech cuz it's not so much The founders that have gone on to build The next wave but it is we are seeing Many great companies come from execs That have been at these businesses so Constantinople is is a great example of That where the founders came from from

Westpack or zela is another example Where the founders came from Strike Athena the founders came from from NAB And so you're seeing these stories of Senior execs that understand financial Services and and fintech particularly is An industry that is very very complex And it is an industry we're having uh an Intimate knowledge of how the Infrastructure Works where the problems Lie where there are in areas that you Can innovate and and and and disrupt on Can be can be incredibly powerful as as A founder and we are seeing that story Of these senior execs go out and and and Solve some of those problems yeah Getting that like second wave third wave Of startups that are that are coming From some of the more Legacy tech Companies in Australia exactly right Exactly right so I think that's been a a Story of fintech you know so The quick Summary is huge profit pools big areas For disruption a lot of senior people With great knowledge who who are then Attacking that and innovating and Disrupting I think the story with with SAS is is a slightly different one you Know it's interesting our one of the one Of the benefits we get of investing Across multiple GEOS is is we really get To see different Founders and and what They look like and what their strengths Are across across geographies and again

This is a huge generalization where Where there are clearly exceptions to The rule but if you know if I use a Generalization Israelis are unbelievable Technological expertise engineering Expertise in Southeast Asia outstanding Operational excellence typically those Founders are operating across multiple Markets multiple cultures languages etc Etc I would say the area of strength for Australians is is product design we've Just had a long history of having really Really great products be built in this Country and and that has been a a key Winner of some of the great SAS Companies here if you if you look at a Canva you know just world-class product If you look at a deputy a safety culture A culture amp at lassan obviously uh and So we've just seen a history of really Really great product design but also Again and this is more more I guess akin To the PayPal story where you are seeing These people who have grown up in these Great companies understand what it takes Not just to build great great products But then what does the go to market look Like what does what does Internationalization look like again Within fintech fintech's one of the few Industries in Australia where you can Attack just the local domestic Market That's quite rare there aren't many Markets where the Australian Market is

Big enough B to be s almost impossible To create a really large business in Australia only and having those people That have been and ridden the W and Grown up in these great companies and Understood what it takes to to go and to Go on take and play on the world stage We are seeing that story play out so We've just got a great depth of talent In those areas great product design Great understanding great depth of Talent we're seeing as you said the next Wave of Talent come out and spin out and And create the next companies yeah yeah Definitely it's interesting that you say That about the BWB Being Global from day one that's usually When I've talked to investors in Australia and also in New Zealand they Say that you know Aussie and kiwi Startups because their markets aren't Large enough they have to be Global from Day one um interesting that fintech's Not like that but I guess I guess that's More of a Services platform a lot of in Some cases fintech is for sure but there Are a few markets in within fintech you Know at the mortgage Market in this Country is is absolutely ginormous and So being able to create a business Within within mortgages just focus on The Australian Market is really large Within Insurance there are some Businesses that you could attack just

The Australian market and have have a Really large business so there are there Are a few again I would say you know you Mentioned kiwi and Aussie businesses Think Global from day one kiwi for sure And they always have the Kiwi Market is Is Tiny um we see the same in Israel There is there is zero domestic Market In Israel it hasn't always been the case That Australians have thought Global From day one and if I could you know if I would say there's a weakness that we Are starting to see disappear which is Fantastic is you know if you go back 5 Or 10 years ago I think it was quite Typical for Aussie Founders to say I'm Going to start in Australia I'm going to You know build for Australian customers First I'm going to get to a certain Scale and then I'm going to think about How do I you know how do I move to the US that that can be that can be Problematic it if you're thinking about Moving too late you know you're thinking About designing your product for the Local market you're thinking about you Go to market team for the local market You start building up functionally your Team here and moving that ship too late In the peace um can be trickier I I do Think though as you say that that has Started to shift and more and more we Are seeing Founders that are saying no No I'm building a Global business from

Day one sure I'm going to use design Partners in Australia why wouldn't I Have great networks I can I you know I Can I can get to some early beta Customers early and and for sure that's A fantastic idea and using your networks And pulling on them but but what they Are thinking about in terms of vision And how they're building from very early Is okay how am I going to attack the Global market now typically that's the US it's not always but typically that's The US so them thinking about okay what Are the what are the problems I'm Solving for the US market not what are The problems I'm solving for the Aussie Market how do I think about building go To market over there how do I think About building a product for over there Uh is is is something we see um and and To be honest is is fantastic and a Requirement to build a really large Business yeah definitely I I wonder if You know early days Aussie startup saying we're going to Build it domestically first and see how It scales I wonder if that's kind of Taking a page out of the US Playbook Because in the US you kind of can do That and you ALS almost have to do that That a lot of uh startups are like okay If I crack it domestically first in the US then I can expand but you know we're Dealing with vastly different numbers in

Population here absolutely and in a lot Of cases you you don't need to expand Beyond the us to have have a really Large business and and yes I would say There you need to prove you can win There before thinking about going Overseas I think saying I need to prove I can win an Australia before going Overseas is is not the right approach Yeah that's a good point um now you know You say now we're talking about Aussie Startups kind of gearing towards being Global from day one in order to expand Uh internationally into scale but one of The things that I'm also noticing is That Australian startups are dealing With not not exactly a lack of funding In later stage but we're in a maturing Startup ecosystem and it's becoming a Bit difficult to get to scale up and Whether that's because of a lack of Funding or sometimes a lack of Experience or even just a little bit of You know tall poppy syndrome where um You know some of the the key Aussie Founders are not out there repping it Maybe not providing the kind of Representation uh to get you know people Excited about the Australian startup Space if you could talk a little bit About that yeah so I think there's Probably two things there there's one on The Australian Market in general and Then there's one on sort of foreign

Investment in to Australia so maybe I'll Start on the Australian Market to start And and then and then switch gears I Think what we're seeing the story of is Is maturation and that's starting to Move and we're we're seeing that Accelerate in in you know quite a quite A fast fashion I think it's important to Realize building a venture ecosystem Takes time for all intents and purposes This version of of Australian VC or Australian Australian Tech started 10 or 11 years ago yes there was a com ERA With iies like seek and car sales and Real estate but no Venture market around Them you know basically no Venture no Venture no Aussie Venture was in those Early companies uh and then there was Some Venture came back and then there Was the GFC and sort of disappeared Again so we're really in the third Iteration um but it's been that's a Small period of time for which to build A deep fenter ecosystem I think if you Think about what Australia is doing Today it's hard to say that we're not Punching above our weight and I think There's sort of three things that i' I'd Call out there the first is just the Volume of of unicorns and then let's Call them the stable of sunic corns that Are that are that are fast following Them behind that are being built here Just the Sher volume of the the number

Of those is is really really large we're Talking about more than 35 unicorns and Then and then a long list of other Companies that are knocking on the door So we've got a large number the second Is that the scale of some of those Businesses is incredibly large we're not Talking about just ticking over into Becoming one or2 billion business you Know you've got at lass in at $50 Billion afterpay sold for $39 billion Canvas's last valuation you you know was Was was at $27 billion these are not Companies that are that are you know These are very very meaningful Global Businesses and then you've got the next Wave like an air wallx or a rock that Are that are fast following and becoming Really really large businesses so you've Got a large number you've got and the Scale of them is is is incredibly Important and the third and probably the Most exciting is just the acceleration If you think about when those companies Were founded we had a smattering at you Know in the early 2000s we had some Small growth in sad of you know the the Mid 2000s to early 2010s but we've just Seen this massive growth over the last Five or six years and it's really really Hard to overestimate just how important Those companies are for building a Really really important ecosystem those Companies put Tech Up In Shining lights

They attract Talent into the industry They become training grounds for the Next generation of Founders they create Liquidity so more capital is available They attract more domestic Capital they Attract more foreign Capital it really Starts you know an ecosystem takes a Long time to build but then becomes a Flywheel and I would say for a long time In Australia we have been slowly hand Cranking that flywheel and just and just Sort of turning it over and turning it Over but now that flywheel is really Starting to spin so I think the future Of Australia is is incredibly bright From from that perspective so I think That's sort of the first point about Australia and where we're up to I would Push back slightly on the point that There's not enough growth Capital though All these companies aren't being able to Hit significant scale we are seeing Businesses hit you know really really Large sizes and become globally relevant So that's that's kind of the first thing In terms of then I guess access to Growth Capital Access to foreign Capital Again we're seeing that start to change As well we're seeing some of the larger Us funds become more active here a16z Has been pretty active here light Speed's been active here TCB has put a Person on the ground here and so that Wheel again is also starting to turn and

Again it's a sound like a bit like a Broken record but this is just a sign of Maturity these are things that haven't Existed in Australia they are all Required to have a really thriving Ecosystem we didn't have Venture debt in This country 5 years ago we now have Three or four or five really high Quality Venture debt providers uh when We started we had some early stage VCS In this mattering of of angels we now Have a thriving Angel Network we have a Lot of early stage VCS we have other VCS That can continue to grow like us Through seed a b and now we're seeing The the offshore investors get to come On top of that and so we've had some Great success we've probably battered Above our average up until now but I Have a feeling we will look back on this Point and say that these years were the Inflection point from Australia where Where we've really grown into and and Really going to continue to accelerate In a meaningful way yeah you know you Mentioned some unicorns I believe that 2022 saw six new unicorns join Australia's ranks but I wonder if you're Worried about kind of a reversal of this As valuations come back down to life I Mean when you see canva their last round Was a Down Round I think and air wallic When they raised last year it was $100 Million out of 5.5 billion valuation

That's the same valuation I got in 2021 Is this a reversal or is this just Valuations coming back to life yeah look This is this is a global phenomenon Clearly this is not an Australian Phenomenon um you know we clearly the Market got you know to its heat to its Froest and and I think I think we can Only say overheated point in 2021 that That's without doubt um but I think if You think about if you look at a Trajectory on a long-term scale we Haven't crashed back to 2012 or 2013 or 2014 levels we've come back to 2019 Levels or 2020 levels and at the end of The day the businesses that we're Talking about have very very strong Fundamentals have very very large Markets the businesses are performing Well you know canvas's growth incredibly High still air Wall's growth incredibly High still and businesses like this that Have that are solving ginormous problems With very very large TS with Incredible Business models that are still in high Growth mode okay they might have a Shortterm hit from what was highs in 2021 but they they will still continue To grow and and still continue to be Incredibly valuable businesses so I Think this is more of a short-term Impact but the long-term Outlook Still Remains incredibly positive so you know In terms of kind of Australia's clearly

Reaching an inflation point but that's Not all because of VCS foreign or Domestic right there's also been a lot Of government initiatives to get Australia to the state that it's in Today and to get it to where it's going You know technology as an export I I Think it would be one of the top three If it were counted as its own export in Australia and I believe the government Has a goal to help the tech sector's Economic contribution grow to deliver 250 billion Australian dollars which is Around 164 billion US doll per year to Australia's GDP and to see 1.2 million People in tech jobs by 2030 are there any initiatives that are Going on you know either in Victoria or You know on a national scale That you can point to that have been Really helpful in bolstering the startup Uh ecosystem yeah sure I mean I I think There's been a bunch over the years and The government clearly has a role to Play here across various aspects they Have a role to play in creating an Environment where it is attractive to For investment and that is either Domestic investment or foreign Investment and it has a role to play Particularly Around Talent and actually Of all the things we've been talking About you know you made the point that The growth in Australia is not just

Because of venture that that is clearly True we are an enabler but but we are Not the hero of the story the hero of The story here is the founders and the Hero of the story of the the talent that Joins Founders and and for me the most Exciting Trend over the last 10 years Seeing Australia grow is seeing how much Talent is now being attracted into the Market you know 10 years ago best talent In Australia they didn't go to startups They went to become doctors or lawyers Or or Engineers um 10 years ago exec at Great companies on great salaries didn't Give up those salaries to go and found Other companies they they stayed where They were so just want to make sure that Point's not lost that I think the single Greatest and most exciting Trend that We've seen in this industry over the Last 10 years has been talent coming Into the market so government's role Making that Talent pathway even even Easier and even better I think is Something that's going to be incredibly Incredibly valuable they last week was Just launched a new skilled worker um Visa making it easier for foreign Skilled workers to come into this Country and particularly one of the Elements of that was around startups That have been backed by VCS being able To sponsor skilled workers it was always Much more challenging for startups to be

Able to attract and allow to sort of get Through that foreign Visa process which Could take years lots of paperwork and And that looks like it's being smoothed Out so initiatives like that are are Fantastic and that also helps you know With these experience scaling up right Uh 100% I mean we are clearly The Lucky Country it is a it is an incredible Place to live we have a great economy we Have a great lifestyle we have great Security um we are the Envy of a lot of People in the world when you know when As as an Australian who who has been Fortunate enough to travel you know you Don't meet many other people that don't Say oh Australia you're so lucky to live There so yes we are we are an attractive Destination and if we can make it easier And simpler for the best and brightest People to come here and And the flip side of that is if anything We can do to stop a brain drain of the Best and brightest going elsewhere uh is Going to help at the end of the day People drive this industry if we get the Best and brightest people working in Startups the capital follows you asked About Victoria specifically there are a Bunch of initiatives and a bunch of Groups in in Victoria worth pointing out Launch Vic does a great job breakthrough Victoria has a huge budget to invest in Victorian startups and so programs like

This that are driving an ability to get More capital in more smoothly to attract More talent to keep Talent here I think They're the things that the government Can do to to Really help this this Industry for those listening the Breakthrough Victoria fund is I think It's a $2 billion fund that's driving That's working towards driving Commercialization of Ip in Victoria Which is one of the states in Australia Focusing specifically on health and Life Sciences agre food clean economy Advanced manufacturing and digital Technologies One thing I did want to ask you about Before I let you go is I've noticed and I'm interested in climate Tech in Australia in the third quarter according To cut through Venture their quarterly Report uh I believe in the third quarter Climate Tech and clean tech dominated in Funding and deal count um and it hit the Top five investor favorites in Australia They closed around eight deals worth a Total of 116 million in the third Quarter of 2023 it it interests me Because I've lived in Australia I live In New Zealand now neither country Really has an ozone layer and you really Hear a lot about both countries being Great for solar and wind Generations Specifically Australia I mean most of The country it's a massive country but

It's not really populated uh but then There's also the the need right Australia is dealing and has been Dealing with bushfires what we call Wildfires for years it's just a fact of Life in certain parts of Australia Flooding the flooding last year was some Of the worst ever seen in the country so I wonder if you could just touch on a Little bit what is the unique Australian Advantage towards um producing world Class climate Tech I mean I think you Touched on a bunch of the things there That impact Australia you talked about Bushfires you talked about floods you Talked about no oone um at the end of The day the founders that are solving Problems in this world generally the Best Founders are typically Founders That have experienced these problems Firsthand and then and then are able to Solve them we also have as you talked About amazing access to solar and and And wind and so you talked about the Growth in terms of climate Tech and some Of the numbers there you know I think That I think it's about 550 million Invested in the last 12 months which is Which is a significant increase on Periods before that and I think there's There's a couple of reasons for that if You think about what our job is as VCS Or if you think about what a Founder's Job is more importantly it is to go and

Solve the world's biggest problems and It's hard to think of many problems more Important to the world than you know sa Saving the planet from from climate Disaster for a long time though a lot of The solutions that were attacking the Climate problem were solutions that your Typical software investor was you know Wasn't in their skill set it was Heavy Hardware it was very scientific and we Are now seeing a lot of these a lot more Climate Solutions look like look much more like Your typical software business and Software solutions that are that are That are driving some of those Solutions So one of the businesses we've invested In called Nera they they do Infrastructure modeling that uses AI to Create 3D models of networks for for Utilities and through the use of those Models are able to increase the Efficiency dramatically of of the Networks in some cases with no change The network can have a 2X efficiency on The throughput of of power running Through them and so if you think about The benefit that has with it without a Need to go and replace wires to replace Poles to create new infrastructure is Incredibly important so these Solutions Are being built they look much more like Software businesses than than Historically we have like you said all

The problems we've dealt with firsthand And Founders going out to solve them and We have some of I I use inverted commers The best conditions in Australia the Best happen to be in some cases the Worst because of the flood and because Of the ozone but in some cases they are Legitimately the best because we have The best access to wind and to solar and To create these Solutions so we are Pretty uniquely placed in in that in That sense to go and create businesses That are going to solve these Global Problems moving Forward that was Dan kenin from square Peg Capital finishing with a note on Australia's climate Tech scene to talk More about that we touch base with one Of the country's deep Tech investors Over at main Sequence hi I'm Gabrielle Manza a Partner at main sequence Ventures we're A deep technology Venture Capital fund Based in Asia Pacific out of Australia And our thesis is all around how the Next generation of commercial Giants Will rise from the planetary challenges Of today and we manage about a billion Australian dollars a billion dollars wow That's a lot so deep tech means like What exactly right like there's a lot of Like deep Tech can be anything it can be Software it could be robotic right it Can just be biotech like can you explain

A little bit to our listeners like what You're looking for as a deep Tech firm Yeah sure well deep Tech to us means you Know novel science and engineering Innovation so it's really around Investing in companies where that is the Thing that's CAU of the business and Gives it a Competitive Edge from our Perspective you know it's really stems Out of a research ecosystem which down Here in Australia is like an Aladdin's Cave you know sort of dripping with Opportunity because it leverages a very Strong education sector that's major Export for this country and a Connectivity to some really strong Sovereign Industries like renewable Energy supply chain and food production And Manufacturing for example so deep Tech investing is exciting when it comes Out of a research sector that's very Highly ranked and we're fortunate to Have that in Australia over many decades The scientific institutions here rank in The world's top 1% in more than 15 Fields of research and when it comes to Deep Tech venturing you're drawing from What we would often describe as a fire Hose of opportunity in the research Sector here would you say that a lot of Your portfolio companies have been spun Out from local universities yes very Much so in our case about a third of our Portfolio is proprietary and and when we

Use that term proprietary what we mean Is that we've helped catalyze a company Into being um and we have two ways of Doing that one is spinouts and usually That takes the form of maybe a couple of Researchers who might have been working On something for a decade or two and They actually want to spin out of a a Research institution such as the National Science agency or the Universities and lead a company and then The other way that we create that Proprietary deal flow is what we call Our Venture science method of company Creation which is a very specific design Around how you inject a whole lot of Advantage in a company and give it you Know the unique things it needs to Succeed as a deep Tech Venture business And so what are some of those unique Things like aside from a big check yeah I think the unique aspects of of the Model where we use this Venture science Approach to create companies is first Around the originating cap table so it's All about who is co-founding the Business to um Pile in Advantage from The get-go there's always a venture Founder and that's ourselves and we Bring all the initial capital and the Business building skills there's always A scientific institution and they bring The research but also labs and Equipment You know you can't build a deep Tech

Business in a garage we need to fuel our Science with you know with all the Infrastructure that it needs and there's Always an industry co-founder and the Role of that industry co-founder is to Act as first customer you know pulling Product through the supply chain and Accelerating the goto market and then we Find a CEO with domain expertise so Across those four areas Venture Co-founder science co-founder industry Co-founder and CEO that we will be able To as I said inject a whole lot of Benefits into the company before you Even start and then the other big piece Around how we seek to build our Companies is essentially around setting Very specific Milestones to get to step Changing valuation so we'll Sprint at Dedicated stones and then look to Achieve big leaps in value and those Sorts of things can create a lot of Acceleration in deep Tech Venture Building yeah there's a couple things There that I wanted to touch on I'll Start from the sprinting it dedicated Milestones bit can you give me a for Instance like is there a specific Company that you've worked with recently That you can point to as meeting certain Milestones recently yeah absolutely I we Have about a half dozen of these Venture Science companies that we've created and One this brings to mind is V2 food

That's our plant-based Meat Company That's now the leading plant-based meat Producer across Asia Pacific in their Case when we were aware of Market pull For this product in this region we Approached our national science agency And look to find the plant texture Science the plant flavor science that we Could productize and it was all there And it had been sitting there for many Years but no one had thought to make it In the shape of a burger and so we Co-founded a business with the owner of What's called Hungry Jacks in Australia It's essentially the Burger King Franchise in Australia the csro a National science agency which had the Originating research a CEO Nick Hazel Who stepped in to lead the business and Ourselves as as Venture founder and we Were able to by virtue of all the Advantage in that cap table and that Industry co-founder acting as first Customer go from um zero to getting a Product in Market within 10 months Nationwide through Australia's Hungry Jacks Quick Service retail chain and It's now a product that's in all of our Grocery retail stores in Australia and Up into Asia and so that company leapt In valuation just over that 10-month Period and the equivalent for some of The large offshore plant-based meat Companies would be more like 5 to seven

Years gestation you know before actually Getting a product in market and Substantially more Capital wow okay I Wish I had known about this when I was In Australia last week cuz I don't eat Meat and I would have loved to try that I think Hungry Jack is hilarious I lived In Australia for a year and I think it's Like really funny that it's called Hungry Jack and not Burger King because Some smart person like copyrighted the Name Burger King back in the day and so They settled on Hungry Jacks wow I Didn't know that that sounds amazing That's that's exactly right and and for Anyone listening who happens to be Passing through Australia or based here It's the rebel Whopper and we're very Fortunate to work with Jack Cowan's team So Hungry Jack's obviously named after Founder founder Jack cow who's known our Team for many years and who came to us With that market pull wanting to put a Product you know on on the menu yeah Having that industry kind of connection Is really important for Pilots I find That a lot of startup Founders have a Hard time making those connections and Getting in and getting their foot in the Door something else that you said though Was about having you know certain like The certain correct mix of Founders Right ones who are industry backed ones Who have the research Etc another thing

That VC's and Founders in Australia have Told me is that there's so much talent There but it's sometimes difficult for a Founder who's got the why and has got The idea to find a technical founder or It's often difficult once you start Getting to that scaleup phase to find an Executive with scaleup experience and Global Experience in Australia it's not Impossible but it has been difficult I Think do you find that to be an issue in In the Deep Tech space so on the Technical side we're fortunate to have The advantage of actually being a fund That's embedded in the research Ecosystem we were co-founded you know by Our national science agency which is the Commonwealth scientific industrial Research organization csro and so we Live within it if you like and we spend All of our time you know truffle no Sniffing around the corridors to figure Out the most exciting stuff that's Happening and who's working on it and Mostly our relationships are directly With the scientists both in the science Agency and across the 50 or so publicly Funded research institutions here um Particularly around what we call the Group of eight or G8 universities and so For us the talent base is absolutely Here and you've just got to seek it out Across many fields of research um There's there are world-class People

Based out of Australia and so it's about Understanding those communities of Practice um that are really at sort of The frontiers of scientific Endeavor so That piece I think is all around Community and just a depth of Understanding of of the talent base here And who's working on what um on the Executive leadership side I think it is Fair to say that whilst it's improving Yes we still have a way to go as the Ecosystem matures around executive Leadership with specifically with high Growth scaleup experience so it's Getting better but I think as the Ecosystem matures we'll see more and More opportunity you know to to find Candidates for those scaleup roles Specifically and there's quite a lot Happening around that piece of the EOS System maturing um notably with a lot of Federal funding in the form of the National reconstruction fund that you May have heard about the $15 billion Federal government initiative all around That scale up phase so fueling the Capital in which in turn will attract The talent and so on so I think there Are a number of policies that are coming To bear that you know the spirit of Which is all around trying to build out An ecosystem of experienced people and Make the capital available you know to Fuel that next maturing and you know

There's also a number of state-based Initiatives in addition to what's Happening federally with a number of State-based governments such as in Victoria and Queensland putting Significant Capital again to work you Know Behind These deep technology next Let's say next Generation industry Companies yeah I think there was I mean I remember reading about New South Wales New South Wales is the state where Sydney resides by the way listeners There's I don't know if this is super New but it's a $7 million Quantum Computing commercialization fund which Is part of the state's 20-year R&D road Map Quantum seems to be an area where The government wants to put its time and Money for sure um there's many Initiatives Nationwide around Quantum And a very strong community of quantum Physicists here in Australia it's it's a Bit of a quirk of History because some Decades ago there was research funding Secured and a whole again community of Practitioners in Quantum computing Quantum sensing began to build and it's Now we would regard it as you know a Center of excellence for Quantum in the World and we have many exciting Companies um if you look so Q control For example for error suppression Quantum Brilliance for Diamond Quantum Accelerators quintessence labs in

Quantum cyber security um it's actually Yeah a very significant and again World-class community in the quantum Area which is now just as you identified Gaining a lot of support from various State and Federal governments to build Out the industry now main sequence are You early stage like say any stage so Main sequence is Multi-stage 2third of our initial checks Into companies are preed and seed and They're through our core funds and we Also have opportunity funds that we Raise that can continue investing into Companies as they scale so we tend to a Very typical pathway for our companies Is that we will invest at pre-seed or Seed initially and then we'll reserve For several rounds hence and when we Make those initial Investments often We're leading often we're sole investor And then come the next round we'll Usually be you know bringing to the Round a strategically important Co-investor from offshore usually out of The US because you know the nature of Australia being quite a small population Means that in order to really be Venture Beable all of our companies have to have Global ambition from from day one and Bringing in off Co investors can be Really strategically useful in terms of Opening up new geographies and new Markets etc for our companies yeah

Especially at that later stage I'm not I Mean I assume that you're seeing this in Deep Tech I'm seeing it generally in Australia's Venture space that early Stage funding is quite robust at the Moment late stage a little less so than Previous years and you know some of that Is a product of this past year and Recession fears and inflation Etc is Deep Tech experiencing a similar trend I Think part of it is that a lot of Companies you know were actually Securing funding rounds in those strong Times and so have some runways still They haven't had to come back to Market And it certainly is a more sober Market More Discerning I think with late stage Investors definitely you know applying a Strong quality filter for you know for What they look to fund I will say you Know as a Counterpoint that with all of These initiatives coming to Bear if you Think about what NRF will mean thisal Reconstruction fund of $15 billion that That is a step change of available Capital for scale up stage in this Region and so you know all of that as a Tailwind is is certainly going to be Very supportive for the sector and look On the whole I'd say we're very Fortunate here to have you know what I Think globally would be regarded as Quite sensible valuations so in the best Of times the Australian sort of

Valuation environment never got quite as Heady perhaps as offshore and in these More difficult times I think again Things might have leveled out but you Know the Peaks and troughs are not as Extreme yeah I I'm curious about that I Mean you you'd think that these kind of Downto Earth Valuations would be very attractive for Investors overseas because you still get Amazing talent it's just like at a Discount so I have also seen that um Offshore funding has dropped this year Which makes sense again when recession Fears are happening when there's just You know Strife in the macroeconomic Climate I think that a lot of Risk-taking goes down and a lot of Investors kind of focus on their home Markets deep Tech seems to be a sector That really requires that kind of Offshore funds because you need to get Those you know the big checks and the Big Partnerships have you noticed a drop Off in deep Tech in offshore funding or Has it has it maybe remained kind of the Same I think from our perspective it's Remained fairly consistently you know Supportive actually I think also in our Case Many of our LPS so so many of the Investors that sit behind our capability Are from offshore and are specifically Interested in us as lead gen for their

Later stage portfolios so there's you Know there strong sort of strategic Alignment if you like around the early Stage business that we're writing and Their intention to then invest directly With us as our companies scale and help Take those companies offshore so that's Where I think the phenomenon perhaps of Tourist style investors that you descri Cribed is not so much the case for us There's Sovereign wealth funds there's Corporates from offshore and and some of The major climate funds who sit behind Us as investors in in the strategy at The level of the portfolio and then who Want to you know directly follow on into Many of the companies as they scale yeah Interesting that you mentioned climate Funds you know a lot of the time when I Look at some of the deep Tech startups That are doing really well a lot of them Are climate related it seems to be the Big backing of that I mean this is Probably not an easy question to answer But is there like a percentage of of Your Port CES that are climate directed Or is that is that hard to yeah yeah so Our big them we have six big thematics Which are all around you know massive Planetary challenges things like Reaching Humanity scale health care Feeding 10 billion people Bridging the Gap to space you know the next Intelligence leap and supercharging

Industrial productivity but first among Equals if you like on those big Thematics is decarbonizing the planet And runs like a thread under most of our Portfolio so I'd say yeah the majority Of our companies do have some sort of Climate focused problem that they're Looking to solve and that's because the Planet's Hurting wild weather swings and polluted Oceans and the destruction of natural Like you can go on and on there's so Much to fix and really as deep Technology Venture investors in addition To delivering commercial returns there's Also a responsibility piece you know in Having the privilege of of being Stewards of capital and you know having Some influence over where you fuel the Next industries of course the CL you Know the call to climate is very strong And and I would say our scientists you Know they our luminaries here they are Absolutely the ones that push the Boundaries and in a very existential Sense you know they're the the great Hope because we can't fix climate change With cess we need our scientists you Know to be pushing those Frontiers and We need to fuel them with that Capital That's going to birth those next climate Friendly Industries yeah absolutely does mean Sequence only invest in in Australian

Startups actually we have some Investments offshore as well so we can Invest globally albeit the majority of Our portfolio is based here because our Investment team is based here and the Key criteria for our mandate is that Each company has a connection to Publicly funded Australian research so Where we do invest offshore we always Help form a connection somehow to the Australian research ecosystem and if a Company is truly deep Tech usually That's quite straightforward to do Because there's such richness and Breadth in the the science ecosystem Here yeah I was just I was wondering That because deep Tech is really big in New Zealand obviously just across the Pond wondering if you do any work with Kiwi companies as well we'd love to be Doing more more we certainly have good Connecting to the Venture system there And um in high regard for a number of Our colleagues based out of New Zealand But yes as we embark on our third fund That we've recently raised we're Absolutely you know looking with Interest across the bond and much like Australia it makes sense that so much of The advantage is in deep technology There again this really rich education System and you know strong government Support for the science sector and so Out of that naturally should come

Advantage in deep technology companies It's a little bit unlike say more Traditional SAS where it can be hard to Compete for talent globally down here in Australia where there are again you know Communities of scientific practice that Are regarded as very strong that Attracts the best talent and then you Know is the foundation of of those next Deep Tech startups and just you know I'm Just noodling as you speak about how a Lot of the or most of the portfolio Companies that you invest in they have Something to do at least in the climate Tech sphere have something to do with Decarbonizing the planet and just Thinking back at that example you gave Of the the rebel Whopper right that I Mean that's not a direct decarbonizing The planet but I guess it is right if You uh creating a meatless alternative That people start using and it and it Creates less of a a desire to eat meat Then you're probably less you know the Cattle industry will suffer but the Planet will not I think the the cattle Industry may not even suffer we need to Double the amount of protein by 2050 That's how we talk about you know when We how do we feed 10 billion people um So we need a lot of protein in addition To how we've made it traditionally and And to your point there's absolutely you Know a sustainability story that

Underpins a lot of our novel food Investments such as in the plant-based Meat space we also make animal free Dairy through our company Eden brew and Ferment lipids uh through our company Nourish which is helping to make all These things taste delicious but in the Climate space more generally there's Also a number of investments in energy Transition so you know we have really High density of solar for our population And many of the input materials here so That is how you birth companies like Sund Drive who have the world's most Efficient solar cell also there's a lot Of commercialization activity underway In hydrogen you can see that in um Companies like hygiene and endure There's quite a lot of working thermal Energy and an interesting company called MGA thermal in that space so there's Certainly some you know energy Transition uh activity that's that's Very strong here and builds upon a Sovereign industry that uh has a lot of Natural advantages behind it Particularly around said the supply Chain in Renewables also in agriculture More generally you looked at companies Like number eight bio who are tackling Rumin methane emissions or regrow who Are helping to transform agriculture by Measuring and monitoring regenerative Practices or Lan bio and that's really

Around sort of high quality carbon Removal at scale like turning the World's crop lands into sort of giant Soil carbon sinks in all those aspects Of the portfolio as well the Decarbonization theme is is very much at The um reason for being for those Companies Great it sounds like there's a Lot of really really amazing companies Coming out of Australia and I think that Investors globally should be paying Attention it was so nice having you on The podcast thank you so much for Letting us your time and your expertise And telling us more about deep Tech in Australia really looking forward to to Hearing more of what your companies are Doing Rebecca thank you so much for Having me I've loved it it's really Exciting to have this conversation with You and the opportunity to share What's Happening Here really appreciate It Equity is produced by Teresa Lo cons Solo with editing by Kell Bryce Durban Is our illustrator and we'd like to give A big thanks to our audience development Team and Henry pet who manages Tech Crunch audio products thanks so much for Listening and we'll talk to you next Time

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