Australian venture capital firm OneVentures is cashed up and ready to invest in Australian startups, with the company closing investments totalling $45 million in the first stage of its new Venture Credit Fund.
Announced last August, the fund has reached its first close and will soon finalise its first investment, though OneVentures expects the fund to invest its total $100 million over the next five years, specifically focusing on fast-growing tech startups.
Speaking to StartupSmart, managing partner Michelle Deaker said some of the fund’s primary areas of focus are businesses in the SaaS, platform and IOT spaces, along with some marketplace and e-commerce startups.
“We’re talking about companies that have $5 to $15 million in good recurring revenue, though we’d look at any tech company generating revenue as low as $3 million and as high as $20 million,” she says.
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The fund will be mostly focused on Australian companies, though Deaker says applications from New Zealand startups will also be considered. She also points to the popularity of venture credit in the US, where $1 in every $4 raised is venture credit, mentioning the funding option is best suited as an accompaniment to venture capital.
“Generally speaking you might still be raising VC, but in later funding rounds, you might look at taking on venture credit as part of the funding mix. It’s more suited to companies raising Series A onwards,” she says.
Unlike OneVenture’s previous funds, which total more than $330 million, the new Venture Credit fund is, as the name suggests, not venture capital. Instead, the fund offers founders a line of credit to be repaid, providing founders with capital without needing them to give up precious equity in their business.
At its launch last year, the fund was the first of its kind in Australia, but is commonplace in other markets, with upwards of $5 billion each year being invested in the US via debt funding.
While typical VC investors would see a payout when (or more accurately, if) the startup exits, OneVentures investors are paid in quarterly interest yield.
Founders are charged between 10-15%, depending on the level of risk their company is deemed to have.
“Then there’s some options and warrants, and if they come back then investors could see returns in the mid to high teens, and if some of the companies do really well then you can see IRRs up in the 20% range,” she says.
The fund was launched on the back of a partnership with Israeli investing stalwart Viola Group, which Deaker dubs the “Sequoia of Israel”, and has attracted the lion’s share of its $45 million from Aussie family offices and high-net-worth investors, offering the more institutional investment groups a lower-risk way of investing in startups.
The fund would like to see its second close by the middle of the year and has recruited a number of new partners and investment managers to oversee the fund’s distribution, with Nick Gainsley from Europe’s Kreos Capital leading the fund.
Deaker says the fund’s launch is a mark of achievement for the local startup scene, as she believes it has reached a point of maturity where venture credit is needed and predicts we’ll see a number of other funds establish themselves in the space.
“We’re seeing some family offices play in the venture credit space, and Partners for Growth from the US have made some investments here. We’ve also heard of a couple of other funds trying to raise venture credit,” Deaker says.
“It’s indicative of the fact the market is maturing. There’s a lot of VC being raised, and if you think that every $1 in $4 of VC could be venture credit, you can see there’s quite a large potential market size.”