Sober warning issued about start-up industry in Australia

A company has issued a sobering message about the state of one of Australia’s newest industries as tough market conditions bite.

A venture capital firm has issued a sobering message about the state of Australia’s start-up industry as tough market conditions bite.

This week, Square Peg Capital sent a blunt email to investors admitting that they regretted pouring so much money into new businesses because Australia’s economic situation continues to worsen.

“In hindsight, our pace of investing should have been slower than it was,” Square Peg’s letter reads, per the Sydney Morning Herald.

“We had sufficient visibility to exit a number of positions and return substantial capital to you, however it was cognitive dissonance that prevented us from slowing down our cadence of new and follow-on investing.”

The company warned that more start-ups would fall in the next few years.

“The failure rate in our portfolio has been remarkably low for a number of years, and this is not sustainable,” the email continued.

“We will assess each situation dispassionately but also with a high level of transparency and empathy towards the founders.”

It comes as dozens of companies have collapsed in the past few months as supply chain issues, rampant inflation and tighter spending against the backdrop of Australia’s cost of living crisis has driven many businesses into an early grave.

Several prominent start-ups have also succumbed to the economic crisis in recent weeks.

The home page of Square Peg’s website.

Square Peg warned investors that they shouldn’t expect as big a return on their investments as they got in previous years.

“We have slowed the cadence of investing in both new and existing portfolio companies,” the email said.

“We believe this is the right decision given the high level of uncertainty right now.”

Square Peg, which was co-founded by Australian man Paul Bassat who also founded job searching platform SEEK, has thrown its weight behind several companies that have gone on to achieve unicorn status, including graphic design giant Canva, payments company Airwallex and online marketplace Fiverr.

Currently, Square Peg has more than 60 companies in its portfolio.

News.com.au has contacted Square Peg Capital for comment.

Send collapsed two months ago.

Several Australian start-ups and tech companies believed to be on their way to becoming unicorns have gone bust in the last few months.

For instance, Send tried to disrupt the grocery delivery space in Australia by delivering food within 10 minutes.

But at the end of may, the firm went into liquidation, with news.com.au revealing that the company had spent $11 million in eight months to stay afloat.

Then last month, Australia’s first ever neobank founded in 2017, Volt Bank, also collapsed.

The bank’s demise means 140 staff lost their jobs, and also impacted 6000 customers and investors.

In June, news.com.au also reported that the entire buy now, pay later industry was staring down disaster, with “carnage” on the horizon for big companies including Afterpay, Zip and Humm.

And it’s not even just start-ups — well-established companies have also bitten the dust as debts snowball out of control.

Australia recording a staggering 3917 liquidations or administration appointments across all industries during the 2021-22 financial year.