The dream of every startup is to be listed on the NASDAQ stock exchange in New York, just like it happened to Atlassian on December 10, 2015. The company kicked off in 2002, headed by Mike Cannon-Brookes and Scott Farquhar, with a loan of $10,000. When it was listed on NASDAQ, its stock increased to $8 billion. The company’s worth is now as much as some of the biggest companies in Australia, including Crown Resorts, Fortescue and Qantas. The listing news came just a few days after the Turnbull Government had announced its strategy to encourage Australians to invest in startups through actions such as tax incentives and amendments to crowdfunding regulations.
On the other hand, it’s not as easy for startups to succeed like Atlassian. Zano mini-drone, one of the most financed crowdfunding projects in Europe via Kickstarter, is an example of a startup that folded under the pressure. The project attracted over 12,000 participants and raised over $4.8 million, and yet things still didn’t go their way, and the company had to shut down. In general, the art of finding reasons for why startups fail or succeed is not clear cut, especially if crowdfunding is involved, since it is one of the riskiest investments out there.
Nikki Durkin, co-founder of 99dresses, an online business in Australia, understands the difficulty of getting a startup company off the ground. She struggled for 4 years to get her startup up and running, but failed despite securing $1.2 million in capital. She admitted defeat in 2014, and has rebounded as a Code Camp co-founder. Her new company is based in Australia and operates holiday camps in the country to give coding lessons to children. Durkin said that the failure of her first startup made her understand her strong and weak points, and what she liked and disliked. She also said that it is very important for entrepreneurs to comprehensively understand their product, market, business model and team, and be passionate about their business.
Alex Freeman, member of Sydney Angels, said that the probability of startup failure ranges from 70 to 90 percent, subject to investment stage. The risk is higher if the money is invested at an earlier stage which is why most crowdfunded projects are considered very risky. Freeman said that one way of reducing this risk is by spreading the money across different startup companies. He also added that financiers should not expect returns from startups in the first three years. This is because most startups start making money from 3 to 7 years.
According to Freeman, investors should be very careful when choosing a startup to invest. Management is a key element to consider. The investors should take their time and do their research on the startup. This is because people start companies for different reasons, some of which may not be viable for serious investors. Other significant factors to consider include whether the startup has a team of legal and business advisers as well as a clear focus on its desired outcome.
Therefore if the investor takes time to research startups and concentrates on a number of different companies, then investing in startups could be considered good investment. Nevertheless, it is not recommended if it is your first investment because of the high risks involved. It is critical for all investors – experienced or not – to learn about startup risks by reading relevant books and articles, meeting experienced investors and asking questions, listening to podcasts of experienced investors and business people, and attending startup forums. All in all, being part of a startup is always an exciting experience.