Aussie superfunds back local VC

Institutional investment into Australian innovation is rising, spurred by the increasingly global nature of these businesses.

Venture capital fundraising in Australia reached a record A$1.3 billion ($1.4 billion; €1.2 billion) in financial year 2017, jumping from A$567.9 million in FY2016, buoyed by commitments from superannuation funds, data from the Australian Private Equity and Venture Capital Association show.

The main source of capital is the domestic institutional investor base of corporate and financial institutions, public sector and private individuals, and most importantly, the superfunds. Their commitments accounted for about a third of the total raised through end-June 2017.

“Australian VC has matured enormously over the last few years and many of the previous impediments, such as the tyranny of distance and the cost of getting a start-up off the ground have reduced significantly,” Sam Sicilia, chief investment officer of superannuation fund Hostplus, tells Private Equity International. He says domestic VC funds are outperforming their Silicon Valley counterparts and Australian entrepreneurs are considering the global potential of their start-up from day one.

Hostplus is one of Australia’s largest superannuation funds with more than A$30 billion in assets, of which more than A$700 million is committed to start-ups and supporting innovation in biomed, fintech, clean energy, autonomous cars and cybersecurity. More than 20 percent of that is invested at home, about 40 percent in the US, with smaller allocations in China, UK and France.

The A$63.7 billion First State Super is also an active investor in the local start-up scene. The investor only set up its private equity and VC programme in 2013 but has made approximately A$400 million-worth of commitments to US and Australian VC managers. Robert Credaro, head of growth assets at First State, agrees the increasingly global nature of Australian companies is one driving factor behind local LPs’ growing appetite. “The success of companies such as Atlassian and Aconex underscores that we have a viable group of companies and entrepreneurs that are taking those businesses global.”

Hard to soft

Cloud software company Atlassian was floated on NASDAQ in 2015 with a $5.8 billion valuation, while construction software group Aconex was acquired by tech giant Oracle last year in a $1.6 billion deal.

Another factor is the changes in the nature of investments, Credaro points out. About 15-20 years ago, “people were looking for computer chips, better materials, computing breakthroughs, among others. These were very valuable but also very hard to do and costly to do. Nowadays, VC firms back more IT-driven and applied internet business models”.

VC investment in FY2017 grew to A$429 million, an increase of 24 percent on the previous year and the highest since the peak of FY2014, according to AVCAL. Q1 VC investment reached $130.5 million across 16 transactions, with large deals including Canva’s $40 million Series C funding round, which valued the start-up at $1 billion, according to KPMG.

Future Fund, Australia’s A$141 billion sovereign wealth fund, recently started investing in Australian VC, making its first commitment to Blackbird Ventures in April. Steve Byrom, head of private equity, tells PEI it sees the potential in the local VC scene and wants to get into that system. “We want to see those portfolios and companies become successful that will lead to more capital.”