Startups' M&A dependence needs consideration amidst reforms – Business News Australia

“Australia can be a challenging place for tech companies to scale – there is a lower probability of a tech company achieving the next funding round, especially from Series B funding onwards, compared to tech firms in the US.

“Access to later-stage funding for scale-ups is a key issue here – there will be a $53 billion funding gap for later stage funding in Australia by 2030, compared with funding on a per-capita basis in the US.”

In this context, M&A activity is an integral feature of Australia’s tech sector.

“Investors choose to invest in startups on the basis that those investments will eventually result in materialised returns. In order for investors to materialise returns, companies typically need to proceed to an IPO, or be acquired or sold,” Black explains.

“There are a range of hurdles to companies realising returns by way of an IPO, and as a consequence, mergers and acquisitions are an important way for investors to materialise returns on tech investments.

“This helps drive further competition in the tech sector and supports the growth of new startups, which ultimately makes Australia a more attractive place to grow and scale a tech company.”

Some of these views are echoed by UNSW Founders investments and portfolios manager, Beste Onay, who describes the reforms as a good possible step forward but has asked legislators to consider “all sides of the puzzle”.

“While the proposed reforms offer a possible solution, the reality is that they need to better consider the implications for startup founders and the growth of technological innovation in Australia. Being a founder is an incredibly difficult job, and not many will be able to hold onto a business to a point where it can compete with big corporates,” Onay says.

“The assumption is that by blocking the merger, the startup will continue to exist in the market, however, there’s a bigger likelihood that this will not be the outcome. Mergers and acquisitions have the potential to open up new opportunities for founders, and usually, when a founder goes through an acquisition they’re in the process of moving on.

“If we take away these opportunities we risk stifling innovation locally, and discouraging new businesses which means less competition ultimately.”

“Supporting the survival and scaling of tech firms can help drive improved competition and better consumer outcomes.

“An effective and well-balanced regulatory regime for mergers and acquisitions is critical for the growth of Australia’s economy and our tech sector.”

He says the TCA looks forward to working constructively with the government on the finer details of the proposed reforms, including the proposed refresh of the merger factors and in setting the thresholds for a mandatory notification system.

“The Tech Council is pleased to see the government respond to industry concerns about the certainty and timing of merger reviews by introducing clear thresholds for mandatory notification, strict timeframes for review, and not proceeding with a call-in power for the ACCC,” he says.

“We also welcome the Government’s decision to reject the proposal to reverse the onus of proof, which if implemented, would have made Australia a less attractive place to invest, grow and scale a tech company.

“Getting the details of this reform right is critical to ensure that Australia remains a globally competitive economy for fostering growth and investment in tech.”