Should you Consider Investing in Startups?
As a vibrant ecosystem of early-stage high-growth businesses continue to emerge in North Queensland, so too is a new form of investing which is having numerous economic benefits for the local economy, all the while providing the critical capital required for regional talent to thrive.
Off the back of recent success stories like SafetyCulture’s unicorn status and JESI’s $4.5 million raise, startup investing has been gaining a great deal of momentum in the North, with more people wanting a slice of the innovation emanating from the region. While this style of investing is higher-risk, owner of Townsville’s Evolution Financial, Brad Stewart, says startups have the potential to yield higher and quicker returns compared to traditional types of investments.
“Startup investment is more focused on how people can invest available funds into several businesses to multiply their return of investment beyond traditional passive returns – targeting returns such as 10 times your capital over a 3-4 year timeframe,” Brad explains.
“It’s a higher risk but high reward strategy if successful, with investors cashing in during a subsequent capital raise, a public listing on the stock market or a direct sale to a larger competitor.”
Despite this still being a relatively new market in Australia, North Queensland businesses are at the forefront of such developments, with Townsville investors making up 25 of the 30 Evolution Financial clients who provided $3.5 million of investment capital for Brisbane based company XPotential Technologies. The company, which uses AI and digital data to modernise marketing and customer experience for its clientele, will list on the ASX in November and is set to provide extraordinary returns for those local investors.
“In the past 12 months XPonential Technologies has grown recurring revenue by well over 100%, has offices in Brisbane, London and Vietnam, and has been valued at around $60 million for when it lists on the ASX in November,” explains Brad.
“Our local economy has been hit hard over the past decade and this investment provides a new avenue for North Queensland investors to regain lost capital from events such as the financial collapse of Storm and low property market growth, and then reinvest those profits back into the region to benefit all.”
While startup investing is economically lucrative, Intellectual Property Lawyer and founder of the local investor network NQ Angels, Donna Patane, says the space also enables investors to play a key role in guaranteeing the future of the region is bright and integrated with technology and innovation.
“Investors can be directly involved in markets or solutions they care about; startups aren’t banks and they don’t build apartments, rather they are solving specific real-world problems with cool intellectual property and investors get a front row seat to that,” says Donna.
“They also offer more flexibility since the investment lifecycle starts with smaller stages and cash can be exchanged for shares, preference shares, options or convertible notes.”
Over the next five years, startup investing is set to enter the fold of mainstream venture financing which Donna says will be the key to supporting the region’s best talent and ensuring equity, revenues and jobs remain local and not lost abroad.
“The regional startup ecosystem has been slowly building over the past decade and it’s getting to the point where there is a basic understanding of the processes and the lingo, and now talented people with ideas and experience are coming together to connect and share and learn,” she continues.
“Our local success stories really confirm that big businesses can be born in regional towns and ought to serve to build confidence.”
Donna says education is crucial to minimise risk and enable an early-stage business to succeed. She advises potential investors to connect with the local startup ecosystem for advice and guidance on weighing up the risks associated with this form of investment.
“While early stage investors can make a huge return as the startup gets traction and momentum, not every startup makes it, so choosing carefully is key and even then, a well spread portfolio is likely to have some non-performers,” she says.
“There are support networks available in North Queensland that are designed specifically to help provide that advice, education and bridge the gap between potential investors and startups.”
By Georgie Desailly.
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SOURCE: NQ ANGELS