The Business Growth Fund’s $12 million Hubbed investment is the kind of “sexy” deal VCs might miss

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Source: James Ross / AAP Image

A “sexy” $12 million investment in package delivery solution Hubbed is the latest deal from the Australian Business Growth Fund (ABGF), the public-private partnership designed to back small businesses underserved by venture capital.

The ABGF, a $540 million team-up between the federal government and the nation’s six biggest banks, last week announced its new 30% voting interest in the venture.

Hubbed provides e-commerce shoppers an alternative to home delivery, allowing buyers to collect their parcels from more than 2100 service stations, convenience stores, and storage facilities nationwide.

Beyond those store partnerships, the Hubbed back-end integrates with leading webstore providers like Shopify and Magento, and makes use of delivery services including Australia Post, TOLL, Shippit, and Sendle.

Company founder David McLean bills Hubbed as a convenient solution for shoppers who may not be at home to receive their packages, while also offering Australians a bevy of reliable, 24/7 pick-up, drop-off (PUDO) locations.

After the pandemic drove waves of shoppers online — and saw Australia’s leading delivery services buckle under the weight of record parcel volumes — backers say Hubbed is a scalable solution to logistical woes: cutting down on home deliveries means fewer trucks on the road, and less time spent delivering Australia’s growing e-commerce hauls.

Hubbed also says its options significantly cut the carbon emissions associated with door-to-door deliveries.

Ghazaleh Lyari, co-head of investments at the ABGF, says Hubbed was a perfect fit for the fund’s specific funding vision.

“We look for opportunities that offer a unique value proposition and I think this particular investment definitely fits that criteria,” she told SmartCompany.

Now the goal is for Hubbed to expand to more than 3000 PUDO sites nationwide, build out the Australian tech platform, and expand into Asian and European markets.

“They have seamless integrations into all kinds of carriers, so they’re carrier agnostic,” Lyari said.

“They have a whole long list of global and international carriers that they already service… So I’m hoping that with the additional investment that they have received, that we’ll be able to really expedite the delivery of those services to consumers as soon as possible.”

The extra funding may also help Hubbed’s returns pilot, which is slated to roll out this month.

ABGF eyeing further investments for 2022

The ABGF was formally established in 2018, combining an initial $100 million from the federal government with matched contributions from NZ, Commonwealth Bank, National Australia Bank and Westpac.

Macquarie and HSBC each tipped in $20 million, giving the fund $540 million to work with at the outset.

But unlike venture capital firms, which invest in pre-revenue rounds, or other major institutional investors buying stakes in major multinationals, the ABGF was founded to service successful small businesses in the middle ground.

To become eligible for ABGF investment, a business must have a turnover of between $2 million and $100 million, Lyari says, although the ABGF is focused on the smaller end of that spectrum. Companies must also display at least three years of profitable operations off their own bat.

And unlike traditional VC investors, which might push companies to scale and exit as fast as possible, Lyari says the ABGF is more concerned with sustainable growth.

“Our investment return expectations are lower, and that in turn allows us to be more patient in terms of every one of our investments,” Lyari said.

“So that patient nature of the fund is quite attractive to founders from that perspective, giving them agency around the time of exit.”

The model has already proven attractive for companies like Hunter Valley clean energy company 3ME Technology, which last year accepted $15 million from the ABGF as part of a 10-year deal.

The slow-burn approach also provides a unique opportunity for firms overlooked in the funding scrum.

“They might not be sexy for VC, but they’re pretty sexy, and they’re the backbone of the Australian economy and our fund basically enables growth by providing this kind of growth capital,” Lyari said.

The ABGF doesn’t aim to stop at Hubbed, with Lyari saying the fun still aims to invest in ten companies a year. Another six companies are serious investment prospects for 2022, she says.

Recent volatility in the tech sector has not deterred the ABGF, either.

“The important thing for us is that we choose carefully about which companies would like to back and companies with growth potential that exists in good economic times and bad economic times,” she said.

For the ABGF, the message is clear: patience can be just as appealing as instant gratification.

Any small businesses which feel they may fit ABGF’s funding criteria can contact the fund directly.

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