Melbourne-based Square Peg Capital has secured one of Australia’s largest venture capital funds with $US180 million ($233.7 million) to back startups in Australia, New Zealand, Southeast Asia and Israel.
Since launching in 2012, Square Peg has taken a deal-by-deal approach to backing startups alongside high net worth investors, but a rise in demand sparked the move to a venture fund model, says Square Peg co-founder Paul Bassat.
“One of the catalysts for us to move to a fund was that the group of investors who wanted to invest with us was getting larger,” Bassat tells StartupSmart.
“The mechanics of a deal-by-deal model was getting trickier.”
Bassat, who co-founded recruitment giant Seek, says Square Peg raised around half of the $US180 million fund in 2016, with its largest contributor Hostplus investing $50 million before more investors, entrepreneurs and family offices came on board this year.
Two years after opening its doors, Square Peg had invested more than $150 million into startups when it announced its intention to launch its fund. The new fund will signficantly expand its investment portfolio, which boasts stakes in some of the world’s fastest growing tech companies including Canva, Fiverr and Uber.
Bassat says Square Peg will target technology businesses, especially those in the consumer and mobile internet, marketplaces, the Internet of Things, enterprise software and Software-as-a-Service sectors.
“We are part of an overall story, which is seeing a significant increase in funding for venture capital in Australia, which from our perspective is an unambiguously good thing,” says Bassat.
Square Peg’s venture capital fund follows the establishment of AirTree Ventures’ $250 million fund for tech startups in 2016. Blackbird Ventures also continues to invest in about eight to 10 startups a year with its $200 million venture capital fund, which closed in 2015.
“The drought has broken,” AirTree Ventures managing partner Craig Blair told StartupSmart after securing Australia’s largest venture capital fund for tech startups in 2016.
According to the Australian Private Equity and Venture Capital Association Limited (AVCAL), investment into venture capital funds in Australia jumped 50% in the 2015-16 financial year, with a “record” $568 million invested.
“These numbers are good news for Australian early stage and SME businesses, highlighting the renewed focus on innovation and technology as a key growth platform of the Australian economy,” said AVCAL chief executive Yasser El-Ansary in a statement in November 2016.
While there’s “still a long way to go”, Bassat says the growth in venture capital funding is a good step forward for the local startup ecosystem.
“It’s extremely difficult for early stage entrepreneurs to raise money,” says Bassat.
To startups hoping to benefit from Square Peg’s new fund, Bassat recommends getting a “warm” introduction into the investment group, which receives about 1000 approaches a year from startups and companies across its target markets.
“In a perfect world, we’d want to see as many startups as we can [but] we’re a relatively small team and there are constraints,” he says.