CHAMP Ventures recently teamed up with HarbourVest on a deal. Why did you choose a co-investment structure?
It was really deal-driven. HarbourVest was one of our LPs [in the most recent fund] and this deal was of a size and structure that lent itself to a co-investment. From a size perspective, we could have done the deal ourselves out of Fund VII, but we have great plans for this business and there’s a high likelihood of a follow-on growth investment. Due to the upfront size of the deal as well as potential growth opportunities, we thought it better to go forward with [a co-investment] rather than over-leveraging the business. We don’t tend to over-leverage things in Australia, and at CHAMP Ventures specifically we have a modest appetite for gearing. We traditionally would fund our businesses one turn less than the market [average].
Australian firms are starting to diversify their LP base to include foreign capital. Is CHAMP Venture's LP base changing?
The most recent fund we’ve raised (Fund VII) is the first time CHAMP Ventures ever had international LPs. This [A$475 million] fund is 50-50 in terms of its LP base, domestic and international. And that’s meant we’ve had to invest a lot more time, a lot more planning, and a lot more preparation. The level of professionalism that’s required to attract that sort of capital has certainly been a step up, but we got there.
What concerns do international LPs have when assessing a country manager in Australia for the first time?
I think they’re all concerned about management, the quality of the team, the track record of the team, the stability of the team – for all LPs, that’s critical. And then there’s other country-specific things that international LPs have particular interest in. The mining boom, for example, was an interesting issue for Australia. Most LPs are interested in the resources cycle and what stage that is in. And there were certainly some concerns around currencies. So if you’re a US investor, you’re investing now and you’re going to get your money back over the next ten years. In currency conversions, a swing of 20 to 30 percent either way can have a major impact on your returns. It was also a lot more work in terms of preparing and talking through case studies of prior investments. The LPs wanted to spend a lot more time with our investee companies, past and present. That level of due diligence was something new. In Australia, the process would be more streamlined because the LPs all know us.