Equity down under: How Australian startups can crack the US market

Today, we’re spinning the globe with not one but two interviews, thanks to our friend and colleague Rebecca Bellan, who’s been in Auckland, New Zealand for the past three years. She recently hopped across the Tasman to Australia to report on the startup scene in Australia, and is coming back to us with a temperature check on VC in the Antipodes. Rebecca spoke to two Aussie VCs: Dan Krasnostein from Square Peg and Gabrielle Munzer from Main Sequence. Rebecca and our guests dug into why early stage funding is popping off in the region, the government's role in growing a startup ecosystem, fintech, climate tech, and what it’s like to compete and collaborate with Silicon Valley. In addition to these conversations, Rebecca wrote a few deep dive stories from her time in Australia, including a look at its burgeoning climate tech scene and some of the people who are fighting to lift women up in the ecosystem. Rebecca also chatted with Canva — the SaaS darling of Australia — to learn how the company is embracing generative AI at its core and pursuing more B2B clients. We have one more episode to share before saying goodbye to 2023. It's a fun one and a tradition: Equity's 2024 predictions. Stay tuned! Connect with Equity on X and Threads @EquityPod, and keep up with all of TechCrunch's podcasts @TechCrunchPods on TikTok. For episode transcripts and more, head to Equity’s Simplecast website. Equity drops at 7 a.m. PT every Monday, Wednesday and Friday, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. TechCrunch also has a great show on crypto, a show that interviews founders and more! Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:10Speaker 00

  Hello and welcome back to Equity, a tech crunch podcast about the business of startups, where we unpack the numbers and the nuance behind the headlines. My name is Alex and this is our interview show where we sit down with a guest, think about their work and unpack the rest. Today, I am proud to say we have an absolutely jam packed show for you with not one but two interviews. You're welcome. So today we are spinning the globe with some help from our friend and colleague Rebecca Bilon, she's been on the show several times. And recently she's left New Zealand and gone over the Tasman to Australia to report on the startup scene in that country and to give us a temperature check on what's going on in venture capital in the antipodes. So for this episode of Equity Down Under, she spoke with several Aussie and Kiwi VCs

• 0:54Speaker 00

  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.

• 1:08Speaker 01

  Hey, I'm Dan, one of the partners at Square Peg. I've been with Square Peg since we started back in 2012. We are an early stage venture fund, typically investing seed, series A with a very strong commitment to keep investing in companies as they grow. We invest out of Australia, Southeast Asia and Israel with a real focus on fintech, B2B SaaS, AI and sort of growing focus in climate and healthcare.

• 1:39Rebecca Bellan?

  Excellent. Yeah. So one of the things you just mentioned that Square Peg really pays attention to is B2B SaaS and well, two of the things, B2B SaaS 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?

• 1:54Speaker 01

  Yeah, it's interesting. I mean, I think maybe just some context on Australia as in general and then I can dive into them. But the growth of Australia over the last decade 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 error or one large round. And you know, sort of fast forward 10 years and we're now at the many, many billions of dollars. You know, I think the tech sector in Australia accounts for about eight and a half percent of GDP, which is, you know, significant growth. I mean, again, relative to Israel, which is, it's about half of where Israel is. So there's still plenty of way to go till tech is a real driver of the Australian economy. But we're on a very

• 2:36Speaker 01

  good growth trajectory. Fintech and SaaS have been two really strong, clearly two really strong sectors for Australia. I think with fintech specifically, 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 are 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 startups is innovating and disrupting, you know, large profit pools. And I think being able to go after banks which are, you know, have in some cases incredible advantages, but in some cases incredible disadvantages in terms

• 3:20Speaker 01

  of the way they service their customers or customer satisfaction. And startups being able to go after these profit pools and delivering products that are meeting their needs in a much more efficient, effective, cost-effective way has been a really happy hunting ground 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 Palantir and YouTube and Tesla and, you know, the list and list goes on. It's a similar story in fintech, not exactly the story in fintech, because 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

• 4:03Speaker 01

  Great example of that where the founders came from from Westpac or Zella is another example where the founders came from Stripe. 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 where having an intimate knowledge of how the infrastructure works, where the problems lie, where there are any areas that you can innovate 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.

• 4:41Rebecca Bellan?

  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.

• 4:48Speaker 01

  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 SaaS is is a slightly different one. You know, it 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.

• 5:33Speaker 01

  In Southeast Asia, outstanding operational excellence, typically those founders are operating across multiple markets, multiple cultures, languages, et cetera, et cetera. 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 SaaS companies here. If you if you look at a Canva, you know, just world-class products, if you look at a Deputy, a Safety Culture, a Culture Ramp, Atlassian, obviously. And so we've just seen a history of really, really great product design, but also again.

• 6:13Speaker 01

  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 is, what is 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 two B SaaS, almost impossible to create a really large business in Australia only. And having those people that have been and ridden the wave and grown up in these great companies and understood what it takes to, to go and, to go and take and play on the world stage.

• 6:54Speaker 01

  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, and create the next companies.

• 7:06Rebecca Bellan?

  Yeah, yeah, definitely. It's interesting that you say that about the B two B SaaS 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. Interesting that fintech's not like that, but I guess, I guess that's more of a services platform, a lot of it.

• 7:28Speaker 01

  In some cases fintech is for sure, but there are a few markets in, within fintech, you know, the mortgage market in this country is, is absolutely ginormous. And so being able to create a business within, within mortgages focused 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 in Kiwi and Aussie businesses think global from day one. Kiwi for sure, and they always have. The Kiwi market is, is tiny. We see the same in Israel. There is, there is zero domestic market in Israel. It it hasn't always been the case that Australians have thought global from day one.

• 8:08Speaker 01

  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 five 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. If 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 building your go to market team for the local market. You start building out functionally your team here and moving that ship too late in the piece can be trickier. I I do think, though, as you say, that that has started to shift.

• 8:52Speaker 01

  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 then 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. And and to be honest, is is fantastic and a requirement to build a really large business.

• 9:36Rebecca Bellan?

  Yeah, definitely. I I wonder if, you know, early days Aussie startups 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 also almost have to do that. That a lot of startups are like, okay, if I crack it domestically first in the US, then I can expand. But, you know, we're we're dealing with vastly different numbers and population here.

• 9:59Speaker 01

  Absolutely. And in a lot of cases, you you don't need to expand beyond the US to have it 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 in Australia before going overseas is is not the right approach.

• 10:14Rebecca Bellan?

  Hmm, yeah, that's a good point. Now, you know, you say, and we're talking about Aussie startups kind of gearing towards being global from day one. In order to expand internationally and to scale. But one of the things that I'm also noticing is that Australian startups are dealing with 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, you know, some of the key Aussie founders are not out there repping it, maybe not providing the kind

• 10:54Rebecca Bellan?

  of representation to get, you know, people excited about the Australian startup space. If you could talk a little bit about that.

• 11:02Speaker 01

  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 into Australia. Maybe I'll start on the Australian market to start and then switch gears. I think what we're seeing the story of is maturation and that's starting to move. And we're seeing that accelerate in, you know, 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 Australian VC or Australian tech started 10 or 11 years ago. Yes, there was a dot com era with companies like Seek and Car Sales and Real Estate, but no venture market around then, you know, basically no venture, no venture, no Aussie

• 11:46Speaker 01

  venture was in those early companies. 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, but it's been, that's a small period of time for which to build a deep venture 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'd call out there. The first is just the volume of unicorns and then let's call them the stable of unicorns that are fast following them behind that are being built here. Just the sheer volume of the number of those is really, really large. We're talking about more than 35 unicorns and then a long list of other companies that are knocking on the door.

• 12:30Speaker 01

  So we've got a large number. The second. Second is that the scale of some of those businesses is incredibly large. We're not talking about just taking over into becoming a one or two billion dollar business. You know, you've got Atlassian at fifty billion dollars. Afterpay sold for thirty nine billion dollars. Canvas last valuation, you know, you know, was was was at twenty seven billion dollars. 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 in Airwallex or a Rockta 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 incredibly important. And the third and probably the most exciting is just the acceleration. If you think about when those companies were founded,

• 13:15Speaker 01

  we had a smattering, you know, in the early two thousands, we had some small growth instead of, you know, the the mid two thousands to early twenty teens, 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

• 13:58Speaker 01

  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 or 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.

• 14:40Speaker 01

  We're seeing some of the larger US funds become more active here. A16Z has been pretty active here. Lightspeed's been active here. TCV 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 five 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 and a smattering 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.

• 15:22Speaker 01

  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.

• 15:42Rebecca Bellan?

  Um, 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 Airwallex, when they raised last year, it was a hundred million dollars at a 5.5 billion valuation. That's the same valuation they got in 2021. Is this a reversal or is this just valuations coming back to life?

• 16:10Speaker 01

  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 heated, to its frothiest 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 it 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, Canva's growth. Incredibly high still, Airwallex's growth incredibly high still.

• 16:54Speaker 01

  And businesses like this that have, that are solving ginormous problems with very, very large TAMs with incredible business models that are still in high growth mode. Okay, they might have a short term 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.

• 17:20Rebecca Bellan?

  So, you know, in terms of kind of Australia's clearly reaching an inflection 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 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 dollars per year to Australia's GDP, and to see 1.2 million people in tech jobs by 2030.

• 18:03Rebecca Bellan?

  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 ecosystem?

• 18:16Speaker 01

  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.

• 19:00Speaker 01

  You know, ten years ago, best talent in Australia, they didn't go to startups. They went to become doctors or lawyers or engineers. Ten years ago, senior execs 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 ten 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 visa, making it easier for foreign skilled workers to come into this country.

• 19:44Speaker 01

  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 that looks like it's being smoothed out. So initiatives like that are fantastic.

• 20:06Rebecca Bellan?

  And that also helps, you know, with the experience scaling up, right?

• 20:10Speaker 01

  A hundred percent. 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. 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 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.

• 20:54Speaker 01

  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.

• 21:21Rebecca Bellan?

  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, agri-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, I believe in the third quarter, climate tech and clean tech dominated in funding and deal count, and it hit the top five investor favorites in Australia.

• 22:01Rebecca Bellan?

  They closed around eight deals worth a total of 116 million in the third quarter of 2023. 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 generation, specifically Australia. I mean, most of the country, it's a massive country, but it's not really populated. But then there's also 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,

• 22:42Rebecca Bellan?

  what is the unique Australian advantage towards producing world-class climate tech?

• 22:47Speaker 01

  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 ozone. 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 are able to solve them. We also have, as you talked about, amazing access to solar 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,

• 23:31Speaker 01

  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, save 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. There 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 Nira,

• 24:17Speaker 01

  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 to the network, can have a two X efficiency on the throughput of of power and 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 commas, the best

• 25:02Speaker 01

  conditions in Australia, the best happen to be in some cases the worst because of the flooding, 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.

• 25:22Rebecca Bellan?

  That was Dan Krasnostein from Square Peg Capital, finishing with a note on Australia's climate tech scene. To talk more about that, we touched base with one of the country's deep tech investors over at Main Sequence.

• 25:34Speaker 03

  Hi, I'm Gabrielle Munzer, 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.

• 25:52Rebecca Bellan?

  Hmm, 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?

• 26:08Speaker 03

  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 core to the business and gives it a competitive edge. From our perspective, you know, it 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 a 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.

• 26:48Speaker 03

  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.

• 27:13Rebecca Bellan?

  Would you say that a lot of your portfolio companies have been spun out from local universities?

• 27:19Speaker 03

  Yes, very much. So, in our case, about a third of our portfolio is proprietary. And when we use that term proprietary, what we mean is that we've helped catalyze a company into being. 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 sp- Been out of 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.

• 27:59Speaker 03

  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.

• 28:12Rebecca Bellan?

  And so what are some of those unique things, like aside from a big check?

• 28:16Speaker 03

  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 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.

• 29:00Speaker 03

  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 go to 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 milestones and then look to achieve big leaps in value.

• 29:42Speaker 03

  And those sorts of things can create a lot of acceleration in deep tech venture building.

• 29:48Rebecca Bellan?

  Yeah, there's a couple of things there that I wanted to touch on. I'll start from the sprinting at 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?

• 30:01Speaker 03

  Yeah, absolutely. We have about a half dozen of these venture science companies that we've created. And one that springs to mind is V2Food. 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 pool for this product in this region, we approached our National Science Agency and looked 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.

• 30:46Speaker 03

  The CSRO, our National Science Agency, which had the originating research, a CEO, Nick Hazel, who stepped in to lead the business and ourselves 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 zero to getting a product in market within 10 months nationwide through Australia's Hungry Jack's 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 five to seven years gestation,

• 31:29Speaker 03

  you know, before actually getting a product in market and substantially more capital.

• 31:33Rebecca Bellan?

  Wow. Okay. I wish I had known about this when I was in Australia last week. Because I don't eat meat and I would have loved to try that. I think Hungry Jacks is hilarious. I lived in Australia for a year and I think it's like really funny that it's called Hungry Jacks and not Burger King because some smart person like copyrighted the name Burger King back in the day and. So they settled on Hungry Jack's. Wow, I didn't know that. That sounds amazing.

• 31:54Speaker 03

  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 Cowan, who's known our team for many years and who came to us with that market pool, wanting to put a product, you know, on on the menu.

• 32:15Rebecca Bellan?

  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 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, et cetera. Another thing that VCs 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 scale up phase, to find an executive with scale up experience and global experience in Australia. It's not impossible, but it has been

• 32:59Rebecca Bellan?

  difficult, I think. Do you find that to be an issue in in the deep tech space?

• 33:03Speaker 03

  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 Organisation, CSRO. And so we live within it, if you like, and we spend all of our time, you know, truffle nose 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 fifty or so publicly funded research institutions here, particularly around what we call the Group of Eight or G eight universities. And so for us,

• 33:43Speaker 03

  the talent base is absolutely here and you've just got to seek it out across many fields of research. There's there are world class people based out of Australia. And so it's about understanding those communities of practice that are really at sort of the frontiers of scientific endeavour. 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 scale-up experience. So it's getting better, but I think as the ecosystem matures,

• 34:27Speaker 03

  we'll see more and more opportunity, you know, to to find candidates for those scale-up roles specifically. And there's quite a lot happening around that piece of the ecosystem maturing, um, notably with a lot of federal funding in the form of the National Reconstruction Fund that you may have heard about, the fifteen billion dollar federal government initiative, all around that scale-up phase. So fuelling the capital in, which in turn will attract the talent and so on.

• 34:54Rebecca Bellan?

  Um.

• 34:54Speaker 03

  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.

• 35:28Rebecca Bellan?

  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 seven-million-dollar quantum computing commercialization fund, which is part of the state's twenty-year R and D roadmap. Quantum seems to be an area where the government wants to put its time and money.

• 35:49Speaker 03

  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 a centre of excellence for quantum in the world. And we have many exciting companies. If you look, so Q Control, for example, for error suppression, Quantum Brilliance for diamond quantum accelerators, Quintessence Labs in quantum cybersecurity. It's actually a very significant and again world-class community in the quantum area,

• 36:33Speaker 03

  which is now, just as you identified, gaining a lot of support from various state and federal governments to build out the industry.

• 36:40Rebecca Bellan?

  Now, main sequence, are you early stage, let's say at any stage?

• 36:44Speaker 03

  So main sequence is multi-stage. Two thirds of our initial checks into companies are pre-seed 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.

• 37:26Speaker 03

  Because, you know, the nature of Australia being quite a small population means that in order to really be venture backable, all of our companies have to have global ambition from day one. And bringing in offshore co-investors can be really strategically useful in terms of opening up new geographies and new markets, et cetera, for our companies.

• 37:43Rebecca Bellan?

  Yeah, especially at that later stage. 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, et cetera. Is deep tech experiencing a similar trend?

• 38:07Speaker 03

  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 runway 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, this National 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.

• 38:51Speaker 03

  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.

• 39:14Rebecca Bellan?

  Yeah, I I'm curious about that. I mean, you you'd think that these kind of down-to-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 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?

• 39:58Rebecca Bellan?

  Or has it has it maybe remained kind of the same?

• 40:01Speaker 03

  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's strong sort of strategic alignment, if you like, around the early stage business that we are 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 described 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

• 40:45Speaker 03

  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.

• 40:55Rebecca Bellan?

  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 portcos that are climate directed or is that is that hard to, yeah?

• 41:15Speaker 03

  Yeah, so our big, we have six big thematics which are all around, you know, massive planetary challenges. Things like reaching humanity scale healthcare, 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 it 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 health.

• 41:59Speaker 03

  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 cli- you know, the call to climate is very strong. And and I would say our scientists, you know, they're 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 SaaS. We need our scientists, you know, to be pushing those frontiers.

• 42:44Speaker 03

  And we need to fuel them with that capital that's going to birth those next climate friendly industries.

• 42:49Rebecca Bellan?

  Hmm. Yeah, absolutely. Does Mean Sequence only invest in in Australian startups?

• 42:54Speaker 03

  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.

• 43:26Rebecca Bellan?

  Hmm. Yeah, I was 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?

• 43:36Speaker 03

  We'd love to be doing more. We certainly have good connection to the venture system there and um and 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 pond. And much like Australia, it makes sense that so much of the advantage is in deep technology there. Again, this really. 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 SaaS where it can be hard to compete for talent globally.

• 44:20Speaker 03

  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.

• 44:32Rebecca Bellan?

  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 are creating a meatless alternative that people start using and it and it creates less of a desire to eat meat, then you're probably less, you know, the cattle industry will suffer, but the planet will not.

• 45:06Speaker 03

  I think the the cattle industry may not even suffer. We need to double the amount of protein by 2050. That's how we took it, you know, when we, how do we feed 10 billion people? 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 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.

• 45:51Speaker 03

  So that is how you birth companies like Sun 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 countries, um, companies like Hygiene and Endure. There's quite a lot of work in thermal energy and an interesting company called MGA Thermal in that space. So there's certainly some, you know, energy transition activity that's that's very strong here and builds upon a sovereign industry that has a lot of natural advantages behind it, particularly around, as I said, the supply chain in renewables. Also in agriculture, more generally, if you looked at companies like Number Eight Bio,

• 46:33Speaker 03

  who are tackling room and methane emissions, or Regrow, who are helping to transform agriculture by measuring and monitoring regenerative practices, or Loam 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 decarbonisation theme is is very much of the reason for being for those companies.

• 47:03Rebecca Bellan?

  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 lending 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.

• 47:21Speaker 03

  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.

• 47:32Speaker 00

  A big thanks to Rebecca, who has been on the show and is absolutely terrific. We are going to have her on as often as time zones allow next year. She's just the best. And if you want more from us here at the TechCrunch Podcast Network, well, good news, we are now on the TikTok. Yes, we are at TechCrunch Pods over there if you want to see our excellent short form video content. And if you're not cool enough for that, well, we're still Equity Pod over on X and Threads. We'll see you around the internet. We'll see you back here soon. Hugs. Goodbye.

• 48:02Speaker 00

  Equity is hosted by myself, editor in chief of TechCrunch Plus, Alex Wilhelm, and TechCrunch senior reporter, Mary Anne Azvedo. We are produced by Teresa Locan Solo with editing by Kell. Bryce Durbin is our illustrator. And a big thank you to the audience development team and Henry Pickavet, who manages TechCrunch Audio Products. Thank you so much for listening, and we'll talk to you next time.