This Week in Australian Startups #79, 4th August 2024
This Week in Australian Startups #79, 4th August 2024
This week Canva announced they plan to acquire Leonardo.Ai - their second acquisition this year after Affinity and their 9th to date.
There’s a few things about this acquisition I find really interesting, and what I’ve been thinking about this week.
Build, buy or borrow - what’s the right approach for Canva when it comes to AI?
Short answer - buy and build. Borrow is only a short term tactic.
Many of Canva’s current GenAI features are largely based on partnerships with OpenAI and Google. Whilst I’m sure Canva is getting some great wholesale prices, multiply that by the number of DAU and that’s a lot of cash. Multiply that further with the plan to get to 1 billion MAU and it’s a even more cash with no control of the underlying models.
The deal for Leonardo.Ai is widely being reported to be in excess $320M, a mix of cash and equity. In the context of what Canva is likely paying for external models this starts to look like a bargain - especially as you look into the years ahead.
Adding Leonardo.Ai into the Canva family brings many benefits with it, but the real diamond here is that now Canva has their own foundational modal. I’d be surprised if Canva wasn’t already working on their own, but now they are probably a year ahead of plan which is vital for an upcoming IPO.
When I last wrote about Canva this year it was when they acquired Affinity - the only serious competitor to Adobe. Adobe launched Firefly, it’s generative model in March 2023 - which brings GenAI functionality inside its products like Photoshop.
Having access to Leonardo.Ai’s foundational model Phoenix, will mean Canva will pretty quickly be able to offer the same functionality in Affinity and of course in Canva.
It’s great news for AWS as well, as this should mean Canva will spend less money with its two biggest competitors Google and indirectly Microsoft (OpenAI).
This take from Tim O’Neil on what else we might be able to expect soon is worth a read too.
Getting ‘IPO ready’
Like every great SaaS company that dreams of becoming a category creator or killer, the journey eventually takes you to become a platform.
I’m not sure if Canva will need to hit the 1 billion MAU in order for a successful IPO, but I’m almost certain it will be part of the story - “we’ve got a clear path ahead to get there”.
Leonardo.Ai brings with it 19 million users and a recently launched Enterprise offering, a great addition for Canva - and I’d expect to see a few more strategic moves like this still to come, likely another acquisition or two to really bolster its position as a platform and not just an incredible SaaS company.
With Leonardo.Ai and Affinity it really rounds up the design vertical nicely - I could be wrong but my guess will be the next acquisition will be focused the productivity vertical on Canva Docs.
Good timing?
Andrew Poesaste, partner at Rampersand, wrote an opinion piece for SmartCompany this week. In it he shared the above graph from Gartner ‘The AI hype cycle’.
Whilst there seems to be some anonymous VCs speaking to the media this week on the acquisition with some scepticism, one going so far as to call it “a saviour purchase”, I think they’re missing the entire point here.
As Andrew wrote in his article “AI startups will be under more pressure than ever to show results and revenue”. That’s true for any startup, especially in the post ZIRP era we find ourselves in, but especially if you have a .ai domain.
The question that really matters, in my eyes at least - is AI a product or a feature?
There’s a lot of discourse on the topic, Marques Brownlee does a good take here. He recounts about Clubhouse and how it quickly became a feature after its meteoric rise to success initially as a product. Now with AI, we’ve seen products like the Rabbit R1, Humane pin and even ChatGPT - and quickly we are seeing this start to become functionality in existing products like the iPhone.
Is GenAI a product or a feature? I don’t have a looking glass into the future to see where we’ll end up in the ‘Plateau of Productivity’.
Whilst the announcement has made it clear, just like with Affinity, Leonardo.Ai will continue running as a stand-alone business but integrate into core Canva offerings. The one difference I would make is that Affinity is in established product category which needs its own interface to use. Time will tell, but I can see a future where Leonardo.Ai becomes a feature within the Canva product experience rather than a standalone product.
When it comes to Phoenix - that’s certainly a product that will drive many features to come for Canva.
Final thoughts
All in all, it’s an excellent outcome for both Canva and Leonardo.Ai.
For Leonardo.Ai, it all but guarantees their success and longevity regardless of any hypotheticals in the future that may or may not happen. They now have access to all the financial security and distribution that only a company like Canva can provide - and in this space there isn’t anyone else I would want to be acquired by if I was Leonardo.Ai.
For Canva, acquisitions like this create not only more defensibility but adds to their army of products to take on incumbents - today that is very clearly Adobe, but tomorrow we’ll start to see them eating into Google and Microsoft’s lunch in the productivity arena. That partnership with AWS/Amazon starts to look really good with many natural incentives aligning.
Top News
Atlassian share price falls 13% on lower revenue forecast (AFR | Startup Daily)
GIP in talks to join rival bidder consortium at AirTrunk’s $20b sale (AFR)
IntelligenceBank has acquired Red Marker, an AI-powered marketing compliance platform (AFR | BNA)
Boman Group, is raising a new $100M fund-of-funds to invest in Australian VC firms (AFR)
Afterpay founder Nick Molnar will take on a new role overseeing sales at Square (The Australian)
Synchron connects Apple’s Vision Pro to people’s brains to help overcome paralysis (The Australian)
Aura Ventures announced it’s third investment exist in just 12 months, returning $44M (The Australian)
Cocoon Data has signed a partnership with Google, to use its software SafeShare to make Google Docs more secure (The Australian)
Iress completes sale of its UK Mortgages business to Bain Capital (Australian FinTech)
Mutinex introduces AI-powered offering, Hendren - launching a new category called “BAM”, Business Answers Modelling (mediaweek)
GOTERRA has partnered with Australia’s largest hotel the Hyatt Regency Sydney to install a robot-controlled insect farm (AFR)
Stake has now secured its own Australian Financial Services Licence and is looking to evolve into a broader wealth management platform (Capital Brief)
TEN13 has now invested over $100M across 50 companies in 6 continents (Stew Glynn)
Startmate reveals the 11 startups for the new Winter cohort (Startup Daily)
Boosting Female Founders grants culled, with $17M in funding up in the air (SmartCompany)
Craig Scroggie, the CEO of NEXTDC has joined the board of Freelancer (BNA)
Space tech accelerator iLAuNCH is offering $100,000 grants to commercialise uni research (Startup Daily)
SiteMinder edges closer to break-even as ARR surpasses $200M (BNA)
The value of Australian sportstech has grown 10% to $4.7 billion a year (Startup Daily)
AD1 Holdings, as ASX-listed software aggregator, has acquired Oliver Grace, a marketing agency based in Melbourne for $2M (BNA)
Unified MSP software vendor Invarosoft has acquired backup alert reporting vendor Alert Centric (ARN)
Funding Rounds
Splend, Australia’s largest vehicle subscription provider for rides-share drivers, has raised $20M from the Clean Energy Finance Corporation (AFR | The Australian)
Eco Detection, a water monitoring technology company, has raised $10M from Capital Limited, a mining services company listed on the London Stock Exchange (AFR)
Slice, a layby budgeting product for airline fares with consumer and business-facing arms, has raised a $7.5M Seed round led by Peak XV Partners fka Sequoia India and Southeast Asia (AFR | Yannick Darmalingam | BNA)
InvestorHub, an all in one platform shareholder engagement platform, has raised $4M topping up its Series A to $9M led by EVP with participation from Archangel Ventures and Flying Fox Ventures (AFR | Ben Williamson | Startup Daily)
DroneShield, which provides an end-to-end counter-drone solution, has raised $120M from a share placement on the ASX (InnovationAus | Startup Daily)
Monty Compost, a sustainability tech company focusing on the organics recycling sector, has raised $1M led by Skalata with participation from Antler, ACAC Innovation, Mandalay Ventures Partners and EnergyLab (BNA)