“Where we are now is nowhere near as bad as what it was back then. I think the whole industry will find an equilibrium, as it has done through history many times.”
Koertge says valuations for new start-up deals are down about 25 per cent, although there are notable differences between the strong interest in seed funding rounds for new businesses and less enthusiastic interest in later-stage ventures, particularly those related to pandemic-driven demand.
Are we bottoming out?
But he says the Telstra Ventures portfolio, which has a skew towards start-ups selling to the enterprise sector, is holding up reasonably well.
The majority of fundraising rounds conducted in the past six months for companies in the firm’s portfolio have been at higher valuations, although Koertge says there has been a notable reduction in the multiples these fundraising rounds have been struck on.
“The real question is, is the market going to deteriorate further or are we bottoming out? Nobody knows the answer to that. So what we are doing is making sure that the lessons from the previous corrections we are applying to our portfolio companies,” he says.
Lesson one: cash is king. Like many in the venture sector, Koertge and his team are analysing portfolio companies to ensure they have the balance right between growth and cash. Do they have enough funding? Are they doing what they can to contain costs?
“Even if the market deteriorates, hopefully we’ll be reasonably well prepared.”
But lesson two is to keep hunting for good deals, despite the tougher environment.
“One of the learnings in the history of venture is it’s really, really hard to time markets. The groups that have performed the best are the groups that have invested consistently over time,” he says.
Koertge does not see a funding drought emerging in the venture sector and says Telstra Venture will still need to scrap to get on the best deals.
“There’s just a higher and higher bar for venture firms to differentiate themselves for entrepreneurs. The best entrepreneurs are always able to raise money,” he says.
The backing of Telstra could be a helpful way for the firm to stand out from its VC rivals. Telstra Ventures portfolio companies have sold about $500 million of goods and services to about 1300 enterprise customers on Telstra’s platform; being able to help portfolio companies generate sales could prove even more valuable in the current climate.
Telstra Ventures is also turning its data science team to hunt for potential customers for portfolio companies. The firm has invested heavily in its data science capability in the past five years, building a platform that uses 30 data sets to hunt for potential investments, which are then screened by the firm’s human analysts.
The data science strategy has proven a winner in terms of investor returns, with deals sourced using data science delivering a 4.03 times return in the next funding round, versus 2.44 times for human-only sourced deals.
But Koertge says data science also provides another way for Telstra Ventures to help portfolio companies generate revenue and cash when it’s needed most by targeting the right sectors and even specific potential customers.
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