Geoff Stooke (pictured above) says the economic doom and gloom is pushing Australia’s technology start-ups and tech related enterprises to look more to overseas investors and markets.
“What we’re seeing with some of those sectors that are a little bit distressed because of economic realities is that they’re probably looking for overseas markets,” said the account director at Modern Risk Solutions, a Honan Insurance company.
Stooke is a specialist broker who finds investors, provides risk advice and insurance offerings for start-ups and also new and scalable projects. His clients are often in health-related technology firms or consumer related tech enterprises.
He said Australian technology businesses are starting to think more globally with a view to finding investors and capturing larger markets.
“We’ve done a lot of work for our clients who are expanding into North America and Europe and I’m starting to see Australian technology businesses think more globally because they have to get to scale and profitability quicker and there’s obviously larger markets out there than Australia,” he said.
In these cases, his insurance work becomes trickier.
“So jurisdiction becomes an insurance issue because if you’ve got a company operating in different countries the insurance requirements can be a little bit more complex,” said Stooke.
In Australia, the current situation for many start-ups is challenging.
“There’s a fair bit of distress and certainly a flattening and lowering of valuations,” he said.
Tech start-ups are particularly impacted by this lowering of valuations.
“We’ve seen that tech valuations have come off significantly and I know that’s having a significant impact on our clients’ ability to raise capital at a valuation that they think is fair and reasonable,” said Stooke.
In the current economically difficult environment, he described the expectations of investors and the founders of tech start-ups as being “in a little bit of misalignment.”
“We’re certainly seeing start-ups within our jurisdiction having to work a lot harder to get to profitability,” said Stooke.
Stooke gave the example of Tokyo headquartered SoftBank Group’s substantial loss this week which he said was due to write downs in the valuations of some tech companies.
The Modern Risk broker said this is connected to growing gloom around economy.
“I think there’s recession concerns,” he said. “When you get to two quarters of negative growth, naturally, those recession fears flow through the whole economy and that includes obviously technology and new enterprise capital that might go to safe havens, as opposed to higher risk adventures.”
Stooke said currently there’s “not the pipeline of opportunities” there was for their clients in the consumer-related tech space in Australia.
“I think they’re obviously super conscious of the economic realities of what’s going on because if they can’t get capital, they can’t scale so that makes it quite difficult,” he said.
However, one significant area of Australia’s start-up sector is bucking this trend: digital health. This space includes telehealth and health related tools that improve diagnostic or clinical services. Digital health has proven to be COVID-19 and recession proof.
“We’re starting to see a lot of opportunity in that space in terms of where capital is going to because medical and health is kind of recession proof,” said Stooke. “So regardless of what’s happening with consumer sentiment and growth in the economy we generally find anything health-related is fairly stable.”
Stooke also said a digital transformation “across every industry” in his sector is creating “huge opportunities.”
Many of Modern Risk’s technology clients are firms looking for what he described as a repeatable and scalable model.
“So usually, the type of companies we help have found their market and achieved what’s called a product market fit which means they’ve got a product or service that actually is viable and being used,” he said. “They generally have some revenue behind them and they’re usually in a technology sphere and their market valuations can increase quite substantially because they can grow quite substantially with capital, they’re not constrained by expenses or architecture.”
In October last year, the Australia-based international brokerage Honan Insurance Group announced its acquisition of Stooke’s Melbourne based firm.
Stooke described the last ten months in very positive terms.
“Having different departments and different support wrapped around what we’re doing so we can focus on the client stuff has been a significant change for our team, which is good,” he said.
The Honan network also allows Modern Risk to pursue clients across a wider geographic footprint, in New Zealand and across Asia.
“I’d say the advancement in resources has been amazing,” said Stooke.