The Governance Line: Why Australian Scaleups Stall Before They Scale

Australia is getting better at starting companies. We have not yet solved how to scale them. The boardroom is part of the reason.

Recently I sat in a room with a founding team preparing for a capital raise. The business was real. The product worked. Customers were coming back. The commercial case was not the problem.

The governance was.

Not in an obvious way. No fraud, no conflict, no crisis. Just a board that had never stopped being a founder meeting. The founders running the business day to day were simultaneously governing it. Decision authority was informal. Board discussions descended into operational detail not because the people were incapable of strategic thinking, but because nobody had ever drawn the line between what a board does and what a management team does. When I asked where that line sat, nobody could tell me.

Institutional investors ask that question on day one of due diligence.

Australia has made real progress on the starting side. Australian startup funding reached $5.48 billion in 2025, a 31 per cent increase on 2024 and the strongest recovery since the post-2021 correction, according to the State of Australian Startup Funding 2025 report by Cut Through Venture and Folklore Ventures. Australia now has 1,582 scaleups that have collectively raised more than $36 billion, according to Mind the Bridge's Tech Scaleup Australia 2025 report. These are genuine achievements.

But the same data tells a more complicated story. Deal count dropped 20 per cent in 2025. The top 20 deals captured 58 per cent of all capital raised. From Series A onwards, local cheque depth narrows sharply, with founders increasingly going offshore to US investors for rounds of $5 million and above. The Series B to Series C point remains, consistently, the structural weakness of the Australian funding ecosystem. Against this backdrop, recent policy changes have added further uncertainty for founders and investors at exactly the point the ecosystem needs confidence to scale. That debate matters and deserves the attention it is getting. But it risks consuming the energy that the underlying scaling challenge also urgently needs.

Scaleups account for just 5 per cent of SMEs but employ half the people working in them. The gap between starting and scaling is not a funding problem alone. It is also a governance problem that the funding gap is exposing.

I want to share what I see is actually happening, because I have now seen it closely enough to be precise about it.

The problem is not the absence of governance documents or processes. It is the absence of what I am calling the governance line: the clear, explicit boundary between what a board decides and what a management team executes. In early-stage businesses this line does not need to exist. Founders govern and operate in the same breath. This is appropriate and often necessary. It is also a habit that becomes a structural liability the moment the business needs to scale, raise capital, or bring in investors who are not already inside the tent.

What makes this problem fixable is that it is not about people. The founders I work with are not incapable of governance. They are operating in a structure that was never redesigned as the business grew. Nobody told them that the board meeting needs to be a different kind of conversation from the management meeting, or that the person who runs operations should probably not also be the person who oversees operations. These are not instinctive distinctions. They have to be named and made explicit.

The three things that matter most at this inflection point are simple to state and harder to do. Draw the governance line before the investors ask where it is. Define what the CEO role actually requires in terms of accountabilities and behaviours before naming a person to fill it, because the moment you personalise that conversation before the role is defined, it stalls. And agree, as a board, the ten or twelve decisions that require board approval and stop leaving that to informal judgment. A decision authority matrix removes more friction from a scaling business than almost any other single governance intervention.

None of this requires months of process or expensive external resources. It requires someone willing to name the problem clearly and a board with enough honesty to act on it.

I have been doing this work with scaling businesses alongside my board roles across complex consumer goods supply chains, innovation and industry policy. If you are navigating the governance questions that come with the startup to scaleup transition, I am open to a conversation.

But first, I would ask you two things.

If you have sat on a board at this inflection point, or led the capital raise of a scaling business: where was the governance line when the investors arrived, and was it where you thought it was?

If you are a founder reading this: when did you last ask your board what it is actually there to decide?

I have never sat in a room where a founder said they wished they had waited longer to sort the governance out. I have sat in plenty where they wished they had started earlier.