Types of Start-up Funding in Australia: A Summary

A Guide to Start-up Funding in Australia

Start-ups in Australia have a variety of funding options, each with its own set of advantages, challenges, and ideal use cases. Here at Fundabl we have put together an introduction to help you understand these and to help you make an informed decision about which path to take.

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Equity Funding

This involves selling a percentage of your business now based on its present valuation. Valuation can often be difficult to determine but we see most Australian start-up companies raising somewhere between 10x and 20x current ARR (annual recurring revenue).

• Angel Investors: These are high-net-worth individuals who provide capital in exchange for equity. They often bring not just money, but valuable experience, mentorship, and networks. Targeting the right angel investor can be pivotal, especially ones who have a vested interest or background in your industry.
• Venture Capital: Venture capitalists (VCs) invest larger sums than angel investors and often come in during later funding rounds. They provide substantial capital but often require a significant stake in your company and a seat on the board. Understanding how to work with VCs, including how to meet their expectations and leverage their resources, is crucial.
• Corporate Venture Capital: This is a subset of venture capital where a large company invests in start-ups, often in fields relevant to their interests. These can provide not only funding but also strategic partnerships, access to resources, and potential pathways to scaling.

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Traditional Debt Funding

Debt funding involves borrowing an amount of money and paying back in instalments over time. The advantage of this method is that no equity is required so the start-up is not subject to the effects of dilution.

• Bank Loans: Traditional bank loans can be difficult for start-ups to secure due to their risk profile and lack of collateral. However, understanding how to present a solid business plan and financial projections can increase your chances.
• Mircoloans: For startups that need smaller amounts of capital, microloans can be a viable option. These are often easier to obtain than traditional bank loans and can be a good stepping stone.
• Lines of Credit: A line of credit provides flexible access to funds up to a certain limit. This can be useful for startups that have fluctuating capital needs and for high growth businesses who need access to additional funding sources on demand.

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Alternative Funding

Listed below are some alternative funding methods which are less conventional than those mentioned above.

• ‍Revenue-Based Financing: This is gaining popularity, especially for startups with steady revenue streams. Payments are based on a percentage of monthly revenue, making it a flexible option with less risk based on limited liability.‍
• Crowdfunding:  Crowdfunding allows startups to raise small amounts of money from a large number of people, typically in exchange for early access to products or other rewards. It’s a great way to validate your product in the market.
• Equity Crowdfunding: Similar to crowdfunding but investors receive small equity stakes in the company. This has opened up equity investment to a broader pool of smaller investors.
• Venture Debt: Venture debt is an alternative type of debt financing designed for venture-backed companies. This financing serves as a complement to equity, offering balanced funding for early and growth-stage companies. It's particularly beneficial for start-ups, allowing them to maintain control and minimise equity dilution while accessing necessary capital.

Government Grants and Programs

Australia has a rich wealth of start-up support programs, incentives and R&D grants.

• Research and Development (R&D) & Innovation Grants: Many governments, including Australia, offer grants for R&D activities. These can be invaluable for tech start-ups focused on innovation.

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Convertible Securities

Convertible securities are used in a similar fashion to selling equity - where the initial mechanism is debt which is then converted to equity in the future. The downside of this method is that the provider of the debt (i.e. the investor) doesn’t actually own any percentage of the start-up until the executable event occurs - meaning that there is some risk should the company fold.

• ‍Convertible Notes: These are short-term debt instruments that convert into equity, usually at the next funding round. They can be easier to negotiate in early stages when valuing a start-up is difficult.‍
• SAFE Notes (Simple Agreement for Future Equity): These are an alternative to convertible notes, designed to be simpler and more founder-friendly. They convert into equity at a later date under specified conditions.

At Fundabl, we offer provide flexible venture debt funding solutions for start-ups and scale-ups. Our loans range from $200k to $5m, with flexible terms of up to 36 months. If you're considering utilising debt to fuel your business growth, get in touch to schedule an introductory call.