Finding the next diamond in the rough: Investors on finding the next big start-up

The industry is saturated with direct-to-consumer brands in the lead, but there have been decisions that have made a few select businesses thrive over time. Venture capital provides high returns and grows companies at very early stages. This was key to businesses such as Canva, Koala, Culture Amp, Afterpay, and Envato. These companies all have moved into diamond territory on the back of strong investment rounds, and all have plans to further grow their business.

“Venture capital has grown forcefully, providing extraordinary growth opportunities for Australia’s best and brightest startups. And at least two billion dollars of funding has been aimed towards startups and innovation through the National Innovation and Science Agenda and state government innovation funds,” said Startup AUS CEO and author Alex McCauley, highlighting the turning points that have defined our advancing situation in Australia.

There is no singular attractive category for investment without a formula. It is important to look at how large the market is for the opportunity, not just if the category is interesting and to keep a long term, big-picture goal. That has been the road to booming for many of these DTC (direct to consumer) brands that forego the usual middlemen of retailers and re-sellers and sell directly to consumers. 

With a combined shopping power of over $200 billion, according to Forbes, both Gen Z and Millennial shoppers have been a preferred target focus for a great majority of retailers in 2019. These cohorts share many traits including internet exposure, mobile devices, social media, and more.  By targeting this audience there have been many booming technology brands. David Goldberg, American management consultant and businessman, founder LAUNCH Media and CEO of SurveyMonkey reflected, “I think there was an arbitrage opportunity five years ago, where you could take a stale category, get an agency to build out a really good brand, really good packaging, and slap some millennial pink on top of it and acquire customers cheaply on Instagram. I think that’s getting much harder.”

Take a company in the mattress category for example Koala. Koala embodies forward-thinking, entrepreneurial young business. Co-founders Mitch Taylor and Dany Milham’s unique approach saw Koala disrupt the traditional mattress market and an exciting $12 million in sales in the first year. Koala can claim to be Australian’s highest-rated mattress online. The mattresses are Australian-made, comfortable, affordable and made 100% of recyclable materials. This commitment to being eco-friendly is one of the business’ core values.

Because digital-first brands don’t interact with customers or investors in person, it is of utmost importance that they communicate their value proposition and their company values at first click on their websites and social media. It is the power of the first impression that will determine future investments in Australia and beyond, and the power of market fit that will determine long-term company success.

Quiz: Who is your Retail Tribe?