Venture capital firm OneVentures has launched a new $100 million venture credit fund, the first of its kind in Australia, in a move reflecting a certain maturing of the market.
Speaking to StartupSmart, Michelle Deaker, managing partner of OneVentures, says as well as giving local startups access to a new type of funding, the move could potentially attract new investors to the space too.
The new OneVentures Credit Fund will offer startups access to debt funding, as opposed to venture or equity capital, providing a loan to be repaid over a set period of time.
This type of funding gives startups a cash injection, while also offering the opportunity to keep hold of more equity in their business.
It “also might allow them to have a longer runway before they go out to raise capital again,” Deaker says, thereby giving them space to increase in value in the meantime.
Going into the capital raise process later, and with an increased valuation, will also help founders maintain equity, she says.
According to Deaker, this type of funding is commonplace in more mature markets, with about $5 billion invested through direct credit funding in the US every year.
In the US, Europe and Israel, venture credit represents about a quarter of later-stage financing, and 10% to 15% of total funding, she says. But, in Australia, it hasn’t typically been easy to come by.
“In Australia, it’s very hard for startups to get access to this sort of product, which is an institutional-grade product,” she says.
Some might secure debt facilities, but banks are ever tightening their lending, Deaker says. Some US companies also offer funding in Australia, but that’s generally reserved for startups looking to expand operations into the US.
However, the Australian startup ecosystem has reached level of sophistication where it’s ready for this type of funding, Deaker says.
“Australia is starting to grow up now,” she says. “We’ve really seen growth in the ecosystem in the last five or six years … there are a number of reasonable-scale venture capital firms investing in venture equity.”
The new OneVentures fund will provide “a complementary product” that can “play alongside” venture equity.
“We think we can come in and provide a product that’s going to service the market well,” Deaker says.
OneVentures is launching the new fund in partnership with Israeli venture lender Viola Credit, part of the Viola Group technology investment group, which has some $US3 billion ($4.06 billion) in funds under management.
According to Deaker, Viola Credit brings experience in credit financing to the table, having invested $US800 million ($1.08 billion) in more than 120 companies to date, and team members from the Israeli firm will be among those managing the new fund.
“There’s not any expertise in venture debt in Australia,” Deaker says, adding that the Viola team will bring “a huge amount of experience”.
Who is the fund for?
The fund is expected to make around 40 investments of between $500,0000 and $5 million, into “young growth companies,” Deaker says.
“They need to have revenue growth … or need funding towards another significant milestone,” she adds.
The fund will also target companies in “high-growth areas of technology” or those that “might be at the forefront of their industry”.
This could mean software-as-a-service companies, which “have the ability to go global on day one,” she says, or ecommerce businesses looking to build “working lines of capital”.
While OneVentures focuses on technology and healthcare businesses, there are “a lot of different use cases,” within that spectrum, Deaker says.
In fact, Deaker says OneVentures shared the plans for the fund with “our friends in the VC market” last week, to much excitement and many, many recommendations of companies who could benefit from the fund.
“It was really well received,” Deaker says. “I think we will have a lot of people applying for it.”
While the initial fund will be invested into 40 companies, the beauty of debt funding is that it is repaid, meaning you get to “recycle it back”. The 40 companies is a mere initial figure, Deaker says, which will increase over the lifetime of the fund.
In terms of her friends in the VC space, Deaker says she suspects they will be watching closely.
“I’m sure there are other people thinking about a product,” she says.
The fund is open to investors now, and is expected to close in November. And, while it has seen early support from existing OneVentures investors, Deaker hopes this lower-risk way of funding might attract a new type of investor too.
“There are a lot of investors happy to invest in venture equity funds, but [others] who don’t feel comfortable there, but would like to invest in some way.”
This fund offers “an opportunity to invest in technology in a way that has got lower volatility and lower risk,” Deaker says, opening doors to brand new investors.
It’s a good introductory product, she adds, offering these new investors a little more exposure to the startup space.
“Once they understand the sector a but better, they might invest in other ways as well,” Deaker says.
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