From capital to sale: securing funding and exit strategies in the technology sector

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Rebecca Archer

Welcome back to Beyond the Numbers with Grant Thornton – a podcast unpacking marketplaces shifts in today’s dynamic business landscape.

I’m Rebecca Archer, and today I’m joined by National Head of Corporate Finance & M&A Partner Holly Stiles and National Head of Technology, Media & Telecommunications and Private Business Tax & Advisory Partner Jace Gawne-Buckland.

In this episode, we’re discussing opportunities and considerations for unlocking value in funding and exit strategies for technology businesses. With such an evolving landscape including shifting capital dynamics and ever-changing investor expectations, it’s more important than ever for tech startups to understand how to scale and how to position the business to maximise value and appeal to investors.

Holly and Jace have recently published a guide for technology business owners on securing funding and exit strategies and are here today to share their insights.

Welcome, Holly & Jace!

Holly Stiles

Thanks, Rebecca.

Jace Gawne-Buckland 

Thanks for having us. Rebecca.

Rebecca Archer 

Now, before we begin, I wonder if you could both tell us a little bit about your roles and how exactly you help clients at Grant Thornton?

Holly Stiles 

My name's Holly Stiles, as you mentioned. I head up our Corporate Finance team and I'm an M&A Partner. I've got over 20 years’ experience helping business owners. I advise them on their strategic transactions – so that includes acquisitions, capital raising, private equity transactions and also exits or divestments of business as well. I work across a wide range of sectors, but I have a particular interest in the technology sector.

Jace Gawne-Buckland 

I wear two ‘hats’. So, ‘hat’ one has me as a Partner in our Private Advisory team. In that role, I work with scaling, privately owned businesses and Family Offices and provide them with accounting, tax and CFO style services. Working with scaling businesses often leads to capital raises or realisation events and over the last few years I've helped – I think it's six – businesses scale and then undertake a significant capital investment or trade sale ranging in transaction size from $25m to $115m.

My second ‘hat’ has me as the Head of our Technology industry group, which brings together people from our firm that are passionate about and experienced in tech and we share information, stay ahead of trends and really focus on how we can work together to assist our tech-based clients and also just be a valuable contributor to the industry.

Rebecca Archer 

Fantastic. Thank you both so much for that. Can you maybe set the scene on the current technology landscape in Australia in terms of M&A and capital raisings?

Jace Gawne-Buckland 

So, I might just start with a few general comments first.

The sector is obviously a very vibrant and growing sector. So, Australia's software market is projected to reach US$12.44b in 2025, with SaaS and digital platforms leading the charge on that, and Australia has many success stories in being ground zero for great tech businesses such as Atlassian and Wisetech and Canva and Altium, and the list goes on.

The landscape at the moment is being dominated by AI, cybersecurity, sustainability tech and quantum computing. So, according to the Tech Council of Australia, AI is the defining tech trend of 2025, and interestingly on that, data centres for AI consume about 2-3 per cent of global electricity at the moment. That's quite a fun fact, but that is growing.

Another interesting point to make just general about the tech landscape is that we've reached a level of digital maturity in Australia. We have 97 per cent Internet penetration and over 20 million social media users, making Australia one of the most digitally connected nations in the world.

Now, in saying all that, I want to talk specifically about the investment in M&A landscape in Australia. So, Grant Thornton recently released our Dealtracker report, which looks at M&A activity in Australia in the 18 months up to 31 December 2024, and there are some really interesting insights for tech businesses in that report. So, first of all, the tech sector showed great resilience amid a pretty volatile market. Despite global economic uncertainty – and there is a lot of uncertainty at the moment – tech remained a top sector for M&A activity comprising 19 per cent of total deal flow according to our Dealtracker report. This included Investment Managers significantly increasing their focus on enterprise software and AI, with tech making up 35 per cent of Investment Manager deals.

With regards to valuation trends, the tech sector commanded a really high median enterprise value EBITDA multiple at 11.4x. So, that was really reflecting a strong investor appetite for scalable high growth tech businesses. Listed tech companies on the ASX traded at a median multiple of 23.5x, which is the highest median valuation multiple and significantly higher than others, and that was driven by demand for AI and enterprise software.

We did see that the IPO market is still very challenging. IPO volumes generally dropped 60 per cent compared to the previous period, but average IPO size increased so that sort of indicates a quality over quantity trend. Notably, tech IPOs were absent reflecting investor caution and high listing thresholds, along with a trend towards VC and PE capital raising, and lastly on cross border interest. So, 39 per cent of all deals involved international buyers, up from 31 per cent with US and Canadian investors targeting scalable Australian tech for global deployment, and additionally, foreign buyers were interested in larger targets and were willing to pay more than their domestic counterparts.

Holly Stiles 

That was a really great summary, Jace. I think in terms of overseas acquirers, what we've seen in the last few years is that a lot of overseas acquirers – particularly in the US – are very keen to acquire Australian technology and take that technology and leverage it in the much bigger US market.

So, we've really seen a dominance of from a geographical perspective of those overseas acquirers being US and Canada, the North American, closely followed by Europe as well. Also, obviously at the moment our dollar is relatively weak, which is making us attractive at the moment, but more than that, we have a really quality Australian technology sector in Australia and that's attractive to those overseas investors.

Rebecca Archer

I want to look now at investor expectations and how those might be evolving. What does a compelling investment case look like today?

Holly Stiles

In terms of how things are evolving, I guess if we go back a few years – back to the height of COVID 2021 – there was a very significant boom in technology M&A at that time and valuations really skyrocketed. All good things come to an end, and in 2022 there was a bit of a reset and investor sentiment really shifted from ARR growth at all costs, to a focus on profitability and sustainability of business models.

So, that really required a lot of technology business owners to pivot their strategy and that created a tough few years for technology businesses, but if we look at where we are today – today in Australia, investors are looking at very broad range of metrics.

The guide that we published recently has got a lot of detail in there in terms of the types of metrics that investors are looking at, but a few examples would include the Total Addressable Market or ‘TAM’. So, investors typically are targeting niche verticals rather than a horizontal play because of the potential to build a really strong business in one particular sector rather than compete against the global tech giants.

Investors are looking very closely at customer feedback and retention – for customers to really love the product and to be very sticky will really facilitate the growth of the business, and then they look at a wide range of growth metrics but also profitability. So, as we mentioned, there's that shift from growth at all costs so it needs to be profitable. So, one key metric that a lot of investors look at is the Rule of 40, which sort of combines the look at the growth rate, but also profitability, and then they look at IP. You want to understand that the technology is really robust and is of this good ownership over that IP, and also very big focus on leadership as well and the quality of the management teams.

So, depending on the stage of the investor, some of those factors will be more of a less of a priority. So early-stage investors are much less focused on profitability, but they really prioritise quality management teams who've identified that attractive niche vertical and have had some early success, and that can really be enough of an investment thesis when you're at an early stage.

Once the business has matured and has become a bit more stable, established, and you start to appeal to other types of investors, for example Private Equity investors, they will put a much higher weighting on profitability, but still want to look at all those other metrics that we mentioned before.

Interestingly, one difference in the Australian market as compared to the US market, for example, is in the US Private Equity investors are much less concerned with profitability and are really focused on ARR growth. So, that is one key difference to the local market here.

Rebecca Archer 

What are the most common challenges that tech businesses face when preparing to raise capital or to exit?

Jace Gawne-Buckland 

So, one of the biggest challenges is the valuation and expectations gap.

So, buyers and sellers often face mismatched valuation expectations, and we see that especially in the mid market. We often see tech businesses with, as Holly was saying, low earnings but high growth potential, and sometimes they struggle to justify high multiples without having a clear path to that profitability that we spoke about.

Included in this is overcoming customer and revenue risks as well. So, high customer concentration or a lack of recurring revenue models can reduce the attractiveness to purchasers. Businesses have to demonstrate attractive investment criteria, as Holly was saying, such as long term or strong retention, lifetime customer value, customer acquisition cost ratios, healthy sales pipelines, etc.

The next area that presents a challenge is simply being ‘investment ready’. So, we often see a lack of robust financial reporting and forecasting or an insufficient understanding of key metrics of a business like annual recurring revenue or customer acquisition costs or lifetime value or as Holly said, the Rule of 40. This often leads to just a lack of being due diligence ready as well. So, this includes incomplete or unclear financials, lack of IP documentation, lack of governance structures. These can all derail deals. Also, investors are increasingly scrutinising ESG compliance and cyber resilience as well.

Another challenge is when investors see a lack of strategic clarity or market positioning. So, unclear growth narratives or misalignment between founders and investors on vision and governance, limited differentiation or unclear product market fit as well and over reliance on a few major customers. So, customer concentration risk, as I mentioned, or not truly understanding their customer.

There are some other challenges as well that we see. They include things like market timing and volatility. So, IPO windows remain narrow, and that IPO market is not strong for tech at the moment, and that's due to persistent inflation and higher interest rates and geopolitical uncertainty, and sometimes the stars just do need to align.

We also see operational gaps as well. So, weak internal controls or governance or compliance, especially with tax and ESG, poor documentation of IP and contracts and legal structures, and then lastly, we see challenges in businesses funding themselves between investments or before investment. So, bridging that essentially the ‘valley of death’ between seed funding and profitability.

So, founders and leaders generally have limited resources in the startup or scale up phase and access to capital is a highly competitive market, and so this is where there needs to be an absolute focus on building a great, mission critical product in an attractive niche vertical that will maximise appeal.

Rebecca Archer 

So, with all of that in mind in terms of the capital raising side of things, talk us through the exit strategies.

Holly Stiles 

In terms of exit – so where business is heading towards an exit, or might be just doing a capital raising ahead of an eventual exit, but close to that eventual exit – there are a few key options.

So, the first one is private equity, and in the mid market there is a very broad range of Private Equity investors, many of which have a very strong appetite for technology businesses. So, these investors will provide capital and a partial exit opportunity. So, the opportunity for shareholders to take a bit of money off the table and diversify their wealth a little bit, but also growth capital as well, and they work very collaboratively in a partnership style investment in this part of the market. So, a key benefit to private equity is in addition to the capital that they provide, they also provide very strategic support to help business owners to grow their business.

So that might include making acquisitions, and PE firms often have whole teams of people who are there searching for targets, making approaches, and really helping you to do those acquisitions in a much faster track way than perhaps you might be able to do them by yourselves. They can also help with a wide range of other strategic objectives in the business, including expanding overseas and corporatising the business as it scales, and all those things you need to do to put in place to keep up with the pace of growth of the business. So, they work with the founders and the management teams to grow the business and to optimise towards an eventual exit.

So, the typical investment horizon for PE investors is three to five years. So, they're, they're building the business and growing and then you exit together in that three-to-five-year time frame. Typically, they'll take a stake of 40-60 per cent and work alongside you and make sure that founders still have, you know, a really key interest in the business so that they're motivated to keep, keep growing it, and everyone's interests are aligned, but there are a broad range of options in terms of structure that you can achieve with a PE investment.

So, the second major opportunity is an IPO. So as Jace has mentioned, it's been a pretty quiet market for IPOs recently. In the past, it's certainly been a very popular option for technology businesses, and we were hoping that the market would really open up a lot more this year. With the change of government in the US and a lot of volatility that's happened in the first few months of this year and the uncertainty that that's caused, I think the IPO window has pushed out a little bit further, but when it comes back then that is a very good option for business owners to do a partial exit. So, there'll be some shareholder sell down – you can't exit fully normally – and then you also raise growth capital at the same time, and then the last option is a divestment of the business which could be a partial, but most commonly is 100 per cent exit through a sale of the business to potential acquirers, which can include large software businesses both overseas and domestically. There's a range of software consolidators who are acquiring a wide range of different SaaS businesses, and then other businesses in the sector that you operate in may be interested to acquire your technology rather than to build it themselves.

So, there's a range of different potential acquirers and where there is a strong strategic fit, a corporate acquirer is likely to pay the highest valuation multiples compared to other exit options, but which option is right for the business and which option is right for the shareholders will depend on a number of different factors, including the shareholders goals and their preference and what they're looking to achieve, but also the business's opportunities, where it's at, the growth opportunities and what funding is required to achieve those.

So, we spend a lot of time with business owners exploring their different options, the timing and what's right for them at any point in time.

Rebecca Archer

What practical steps can tech leaders take to really strengthen their position even if they're not planning an immediate raising or exit?

Jace Gawne-Buckland 

There are a number of steps that we go through with our clients, but I guess first of all, engage early with your advisors. So, work with your accountants, your M&A experts, your lawyers, your financial advisors that will help set you up for success, and one thing that I found really helpful for my clients is that if you're going to go through an investment or sale process, conducting a mock DD to uncover and address risks before you actually get to the real deal is highly valuable.

Ensure a rock-solid strategic vision. So, define your long-term goals and how to get there and focus on how you will best achieve sustainable, profitable growth. So, don't just focus on growth as Holly mentioned before, you should also maintain attractive margins in that as well. So, consider that Rule of 40 and cash EBITDA. As Holly said, define your potential exit pathways; know what the options are as they might influence your strategy. So, that means engaging with your advisors, as I said, early to explore PE and IPO and strategic sale pathways, and then also regularly update your business narrative and the investor pitch and make sure that it's current and relative.

Next is to build a strong financial foundation and financial hygiene. So, this is what I do a lot of work in as well. So, maintain clean auditable financials and develop three to five year forecasts for the business. Track and optimise key metrics through robust performance reporting. So, focus on that ARR, the customer acquisition cost, the lifetime value, the EBITDA margins, the Rule of 40, all of those things and any specific KPIs relevant to your business and market. Strengthen your governance and your compliance as well.

So, establish a clear board structure and build a board with sector expertise and implement robust internal controls. Investors are looking for that. So, ensure accounting and tax and legal compliance is up to date and proactively address the ESG and sustainability reporting which is often now a key investor filter. Enhance scalability and IP protection. So, build scalable tech infrastructure and reduce tech debt where you can and document and protect IP and invest in product innovation. Holly mentioned before that a lot of the time investors are looking for a developed leadership team and culture. So, build a well-rounded leadership team with succession planning. A big factor for investors is the people that they are investing in as I said before. So, build a strong leadership team that's experienced, practical and capable with good sector knowledge, and for your culture, just foster a culture of collaboration and transparency and agility and performance and all those good things that we often talk about.

Consider positioning yourself for international investment. As Holly said before and as we've gone through here, there is a lot of international bias and investors looking at Australian businesses and so highlight your global scalability and prepare for cross-border due diligence as well, and consider structuring for foreign investor appeal, including tax and legal readiness. And then optimise your structure and plan for tax as well. So, ensure that you have an appropriate structure for investment or divestment, and to do this you need to consider the circumstance and the exit strategy and the investor or the buyer, etc.

And then lastly, tax planning is really important. It should always be considered early so that you can achieve an optimal after-tax outcome. It shouldn't be the first or only consideration, but tax is obviously an important consideration to make.

Rebecca Archer 

If you are a tech company and you're wanting to eventually plan a raising or an exit, is it ever too early to start a conversation?

Holly Stiles 

I would say no to that. As Jace mentioned, it's really good to get advisors on board with that goal in mind so they can help work towards that objective. Most technology business owners that we talk to do have an exit in mind at some point. They're building the business with a view to doing an exit at a certain stage.

So, I think having advisors that are there and can work with you and have that goal in mind and help you to optimise the performance of the business and the chance of achieving, you know, the best possible outcome when you do an eventual transaction – that's really important.

Jace Gawne-Buckland 

Yeah, I agree. Holly, Rebecca, we have the conversation literally at day zero when structuring the business. What are the ultimate long-term goals or possibilities? Because that does affect the structuring at the very start of starting your business journey, and if you don't get that right, it is actually or can be very costly to change that later on, and so, having that conversation about what the future looks like or the possibilities in the future is really important right at the very start of your journey.

Rebecca Archer 

Well, Holly and Jace, thank you so much for being part of today's show. For those people who are listening, who might wish to connect with you and maybe delve deeper into the kind of work that you do and potentially even explore ways that you could assist them. What is the best way for them to find you and to reach out?

Holly Stiles

We'll include a link to the guide that we've recently published in the in the show notes. So, that's a very comprehensive guide for technology business owners on how to optimise their position ahead of a capital raising.

We'll also include links to our LinkedIn profiles, and yeah, we'd love to hear from anyone who would like to discuss how they could potentially get some assistance with their business.

Rebecca Archer

Interested in who we interview outside of our firm? Have you heard about our other podcast series The Remarkables? Listen as we uncover and explore remarkable stories about incredible people working to better their local (and sometimes global!) communities and inspire younger generations. A link to series will be in the show notes.

If you liked this podcast and would like to hear more, you can find and subscribe to Grant Thornton Australia on Apple Podcasts or Spotify. Leave us a review or ideas on who you’d like to hear from next. Thank you for listening!

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