Aussie venture capital stalwart Square Peg has raised $350 million ahead of closing its fourth fund, nudging its assets under management over the $1 billion mark.
It’s good news for co-founder Paul Bassat, who also co-founded jobs board giant Seek back in 1997. It’s also a sign that the Aussie startup ecosystem may well come back fighting after the COVID-19 pandemic.
In fact, Bassat believes we could be about to enter a period of innovation to rival the dot-com boom.
Speaking to SmartCompany, Bassat suggests this funding round is less about the amount of cash in the bank, and more about the longevity of Square Peg. Since 2012, the fund has backed the likes of Canva, Airwallex, Deputy and Athena.
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The continuing ability to back promising businesses shows the Aussie ecosystem is growing, he says.
“Having that consistency and longevity is obviously important for us,” Bassat explains.
“But it’s really, really important for the startup ecosystem.”
Square Peg’s raise includes funding from Hostplus and AustralianSuper, and Bassat says the fact VCs are securing backing from institutional investors — namely Australia’s cash-rich super funds — is significant.
“We’re starting to see a real sea change of willingness of institutional investors to back Australian venture capital managers, which is really important,” Bassat explains.
“Our institutional investors, and our super funds in particular, are … the largest source of capital in Australia,” he adds.
In the past, Aussie VCs have typically relied on family offices and high-net-worth entrepreneurs to back venture capital.
“That’s been a really important source of funding, but it puts a real cap on the size of the venture market in Australia,” Bassat says.
“The fact that institutional investors are now prepared to consistently back Aussie VC funds is a really, really important milestone.”
Growth in crisis
Of course, the ongoing growth of the startup ecosystem feels even more notable in the current environment, when the COVID-19 pandemic has sent Australia into its first recession in almost three decades.
However, while the economic situation is often compared to the global financial crisis of 2008-09, the reality today is different, says Bassat.
While the pandemic has put pressure on many startups, in terms of securing capital and ensuring their very survival, there are some promising themes that have emerged.
Those businesses that deliver their products or services online have performed relatively well during this time, Bassat says.
“In some cases it’s actually been a net positive for them,” he notes.
“Because investors understand and see that this crisis is creating some positive tailwinds for technology businesses, it means the flow of money going into startups isn’t yet being impacted in the same way it was in other crises.”
As social distancing measures forced consumers to stay at home, and businesses to move to remote working, many things we’re used to doing face-to-face moved online almost overnight. As such, startups in the telehealth, edtech, cybersecurity and e-commerce sectors have recorded significant growth and attracted investment during this time.
“It’s not like these trends are new, it’s just caused an acceleration,” Bassat explains.
“As a result, the normal rules — that a lot less capital flows into VC in a crisis — won’t necessarily apply this time around.”
An era of innovation
When considering the kind of businesses Square Peg will back going forward, these trends will come into consideration. But, at the same time, “nothing has changed”, Bassat says.
“We’re looking for really outstanding entrepreneurs who are very very focused, really passionate, solving important problems, and solving them in a way that is hard for others to replicate,” he explains.
The COVID-19 crisis has just created a whole lot of opportunities for founders who fit the bill.
“The reason we’re so excited about the next period in innovation is that so many different markets are going to need to be reimagined,” Bassat explains.
Markets that are traditionally slow to change, such as healthcare and education for example, have been forced to reconsider their everyday operations. Corporates with hundreds of employees working from a single location have had to make a very swift move to remote work.
“In all of these different verticals, it’s created a new way of thinking about evolution … what are the opportunities? What are the possibilities to do things differently?,” Bassat asks.
“It’s not about going back to the way we did things pre-COVID. It’s also not about doing things the way we have done it during the crisis. It’s about reimagining each of these markets,” he adds.
“I think we’re going to see a huge, really important era of innovation over the next few years.”