The emergence of two tech-focused $200 million tech venture funds will help to “rebuild” the Australian venture capital industry, Blackbird Ventures co-founder Niki Scevak says.
Blackbird Ventures announced in September it had raised a $200 million fund, and was on the hunt for “dramatically ambitious” early-stage startups, and earlier this week Square Peg Capital launched plans to raise its own $200 million fund.
They follow Brandon Capital’s $200 million fund announced in April, which is focusing on medical research commercialisation and health tech, and AirTree Ventures boasts a $60 million fund launched in 2014.
“The recent funds are recognition that Australia has produced so many great technology companies, but paradoxically to date we have not produced many successful investors, which has led to the state of the venture capital ecosystem,” Scevak tells StartupSmart.
“The VC industry is getting rebuilt with funds like Square Peg, AirTree and ourselves.”
These funds increase the chances that fundamentally great technology companies will get built, Scevak says, and could help change Australia from a consumer of technology to a producer of technology.
“Our kids will be creating software and startups and not flying into the Pilbara on a Monday and back home on a Friday,” he says.
Capitalising on the extra capital
As the amount of VC funding now on offer in Australia approaches $1 billion Blue Sky Venture Capital investment director Elaine Stead says the additional capital can have an “enormous” impact on the Australia startup ecosystem.
“The last 12 months has seen circa $700 million raised, which if you look at the AVCAL deal book, is definitely the largest amount of capital raised in one year in the last ten years, and possibly ever, in the Australian market,” she says.
“Capital availability will not be a bottleneck for the sector.
“It’s because we as an industry are starting to develop a track record and this allows larger funds to be raised.”
The increased funding opportunities will give more founders runway to develop and pivot their ideas, Scevak says.
“More capital for startups to be more ambitious is only a great thing,” he says.
“Most things don’t work and there is plenty of failure, but amongst that a few great companies get built that are iconic business stories of our time.
“With more capital, there will be more success and more failure.”
Square Peg co-founder Paul Bassat says while the increased capital will undoubtedly have an impact, the ecosystem still needs more technology-focused funds.
“We need far more than three or four venture funds in technology, we need 10 or 20. Hopefully a lot of other players will emerge,” he says.
“That’ll mean more competition for us butit’ll be really good news for the tech ecosystem in Australia.”
Plugging the funding gap
The difficulties of securing large series A rounds has long been a pain point for Australian entrepreneurs, with many having to turn to international investors or relocate entirely to fund the necessary capital.
But the emergence of these $200 million VC funds means post-seed funding rounds will be more accessible in Australia, Right Click Capital partner Benjamin Chong says.
“Whilst there has been a huge amount of interest from early-stage angel investors and pre-series As for a long time, founds have found it a challenge to get series A investment,” Chong says.
“The opening up of new funds will allow for companies with high potential to receive funding from local sources, which in an early-stage of a company’s life are very important because they give input, introductions and are able to open doors for businesses to help make it to the next stage of growth.”
With great funds come great opportunities
The ability to raise substantial series A rounds could also help to slow down the brain drain that the Turnbull government has recently set its sights on halting.
“More local funding only makes it even more likely that companies will stay here,” Scevak says.
“There will always be those who want to relocate to Silicon Valley, but I think this will go down over time, simply because Silicon Valley is an incredibly expensive place to do a startup and one where employees don’t stick around.”
Despite the increase in available capital, the success of the Australia startup community will still come down to the founders involved, Scevak says.
“More funding comes when there are more great startups – it doesn’t create more great startups,” he says.
“More great startups are a function of an ecosystem of lighthouse companies like Atlassian, Envato and Campaign Monitor being created, which breeds the necessary conditions for the next generation of great companies to be successful.”
“I do truly believe that funding is a consequence of great founders and startups, not a creator.”