Australian venture capital firm Flying Fox Ventures is focusing on decidedly unsexy startups, its partners say, as local investors modify their strategies in the wake of the tech downturn over the past 18 months.
Flying Fox led a $1.4 million ($750,000) investment round in British accounting startup Mayday, which founder Rachael Neumann says is part of a deliberate bias toward funding boring companies that nonetheless have strong demand for their products.
We get excited about boring businesses, Neumann said. Mayday is a company built on artificial intelligence and machine learning capabilities, but with, shall we say, a boring app.
We now like boring businesses because they are necessary, recession-proof and to some extent protected against unfavorable macroeconomic factors. Companies that fall into this unsexy category become very sexy to us if they are capital efficient and have high growth.
Neumann said the 2021 tech bubble led to overinflated valuations and too many companies without solid fundamentals received venture capital funding. Over the past 18 months, tech startup valuations have fallen by around 30 percent on average, with cryptocurrency, fintech and edtech startups hardest hit.
According to the website Layoffs.fyi, the sector is also facing mass layoffs. This year, 1,100 startups around the world have laid off approximately 249,000 workers. This pain has also hit venture capital firms, which are eager to turn their bets into paper profits.
Neumann found that when money was completely free and had to be thrown around, investors were prone to making two mistakes.
We looked at a niche market and thought it was the tip of the iceberg, but in reality it was just a truly niche market. The second mistake was actually understanding what was the real issue for consumers versus what was simply a matter of convenience.
Do we need this item in 20 minutes or less or is it really necessary? And if the pain isn’t severe, they won’t pay for it. Grocery shopping in 20 minutes or less sounds great, but we probably don’t really need it.
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