Seismic shift for venture capital in Australia

Australia’s venture capital industry has changed dramatically over the past few years, and is now bigger and more global than ever before, that was one of the insights shared by Fred Giuffrida, Managing Partner at US-based investment firm, Horsley Bridge Partners, one of the Future Fund’s US-based VC fund-of-fund managers. Giuffrida was headlining the discussion at the Australian Investment Council’s Venture Capital Industry Forum held in Sydney earlier this week.

Today, early stage companies are choosing to stay private for much longer than was the case just ten or 20 years ago, and by doing so they are seeking to grow, expand and become more operationally established through strategic partnerships with their venture capital investors.

Fred Giuffrida also noted the stark difference to the state of the ecosystem today as compared to that which existed when he was last in Australia, just over 20 years ago. Visiting Australia at the invitation of the Future Fund and the Australian Investment Council, Giuffrida shared his observations about the increase in the availability of capital, which has led to a lift in both price and competition ‘What is changing most recently? Competition is accelerating, resulting in prices being pushed up,’ he said.

‘But while there has been much change, the one constant between 20 years ago and today is that venture still has the capacity to deliver the sort of outsized 10 or 20 times multiple returns that simply aren’t achievable in any other asset class – and when you invest with high performing managers, they can deliver those returns on a consistent basis,’ he said.

Bots and lasers transforming industries

Another keynote session at the event featured Australia’s internationally renowned leader in the area of field robotics, University of Sydney’s Professor Salah Sukkarieh, who has recently become the CEO of a spin-out venture from the university, Agerris.

Sukkarieh explored the increasing role that field robotics can play in the transformation of agronomy; where robots – or ‘bots’ – can manage the spraying and watering of large plots by isolating individual plants or fruits, which can lead to reduced environmental impacts and overall scale efficiencies in farm management. Sukkarieh and his team at the university have pioneered the technology, and Agerris will seek to deliver to the agriculutual sector a commercial bot product which helps farmers make use of the technology to enhance efficiency, at a price point that is economically viable.

Dean Dorrell from Carthona Capital is one of the investors into Agerris, and he echoed the sizable opportunity for Australia to compete and win markets in the area of agtech capability, which was a solid foundation underpinning his firm’s decision to invest into the venture. Carthona Capital is joined by Uniseed and BridgeLane Group as lead investors into the business.

Federico Collarte, co-founder of spectrum-scanning LiDAR venture Baraja. LiDAR technology is core to the capacity for autonomous vehicles to be able to acquire sight of the road and surroundings ahead, enabling vehicles to respond appropriately and avoid collisions. Collarte shared with the audience the challenges and successes he has confronted through the journey of beginning his startup, with his co-founder, from Collarte’s garage, to a firm which now employs more than 100 people based out of the Australian Government’s high-technology CSIRO facility in Sydney. Baraja has attracted investment from leading venture firms BlackBird, Main Sequence Ventures, as well as Sequoia Ventures in China. Collarte engaged the audience through his deep passion for innovation, and acknowledged the important role played by government programs such as the R&D tax incentive and Commercialisation Australia grants in helping to support the growth of the business during its formative years.

Is cleantech the next sector for disruption?

The global shift towards greater reliance on renewable energy, and a push for increased decarbonisation is underpinning renewed investment into cleantech here in Australia, according to Kirstin Vaughan from the Clean Energy Finance Corporation’s (CEFC) Innovation Fund. In 2018 alone, $55m was invested into a range of different cleantech ventures, which all have the potential to bring about a dramatic shift in the nation’s energy demands into the future. And, in response to a question from the audience, Vaughan believes that the investment momentum towards renewable energy will continue to gather pace because it’s commercially smart to do so, regardless of changes to key aspects of federal government policy over time.

The CEFC is responsible for investing $10 billion in clean energy projects on behalf of the Australian Government, with a focus on decarbonising the nation’s energy grid.

The global fintech landscape

39 fintech unicorns valued at approximately US$180 billion are currently shaking up the world’s fintech scene, according to Simon Cant, co-founder of leading corporate venture firm, Reinventure. The proliferation of fintech ventures and investment could be linked back to three key ‘waves’, as Cant described them: classic fintech, neo-banks and blockchain 3.0.

Looking out into the future, Cant believes a shift in market power will potentially see markets such as India and South East Asia leap frog the western world in the fintech arena. This is very likely to happen because the dynamics of the addressable market, along with the lack of an entrenched cohort of incumbent operators, that will conspire to create a highly fertile environment in which class-leading fintech firms can quickly gain traction through sizeable local markets, from which they can then launch into more developed markets globally.

Expectations of venture strategies

One of the most eagerly anticipated sessions at the event featured panellists from a number of Australia’s top institutional investors, spanning superannuation and sovereign funds. Four leaders from MLC Superannuation, QIC, Telstra Super and Hostplus discussed their views on the approach they have each adopted in respect of their venture investment strategy from an institutional perspective. The common theme is much of the discussion in this session was the important role played by investment into venture capital in generating outsized returns for fund members, and the benefits delivered through diversifying portfolios, while at the same time helping to support a significant market transition across the economy towards a more innovative and competitive business sector.

Concluding comments from all the panellists in this session best summed up the sentiment: ‘you will never know when is the right time to invest in venture capital, so the best thing you can do is develop a cohesive strategy and get on with it – don’t wait. It’s a long-term strategy that will pay significant dividends if executed well,’ they all agreed.

Insights from venture managers on the front-line

In a panel of leading venture investors from Blackbird, Brandon Capital, Square Peg Capital and OneVentures, there was a comprehensive discussion about a number of key themes relevant to today’s early stage investment market, including the environment for exits both here in Australia and globally, and the sometimes challenging dynamics involved in supporting startup management teams while ensuring that the requisite skills and expertise needed to execute on a strategic plan for the business can be realised, especially at the CEO level.

Another theme discussed by the leaders was the dilemma that can be faced in balancing the competing desire for generating liquidity for investors by exiting holdings in successful early stage businesses as they grow, against the desire to retain a stake in the business for longer, and participating in follow-on investments to retain a sizeable stake as the value of the business rises exponentially over time.

Talent is one of the biggest concerns

In the concluding session for the forum, Innovation and Science Australia CEO, Dr Charlie Day, spoke with Australian Investment Council CEO Yasser El-Ansary about a number of the key recommendations made in the Australia 2030 report released by ISA in late 2017.

The need for a comprehensive strategy to build talent through domestic and international pathways was ‘critical to the capacity of our economy to transition in the way we need to,’ according to Day’s analysis of the current landscape around our innovation sector. Day and El-Ansary discussed the opportunity to put in place the right foundations to support long-term capacity building through the nation’s education system, and the need to supplement that in the short and medium-term through targeted policies that support attracting talent from other sectors and markets to propel the momentum that is building across Australia’s vibrant startup ecosystem.

‘Ultimately, if we want to see world-class companies built here in Australia, we must attract world-class talent – it’s as simple as that’.

About the event

The Australian Investment Council’s 2019 Venture Capital Industry Forum was held in Sydney on Wednesday 1 May 2019 and was attended by close to 150 senior delegates from the nation’s early stage investment sector including venture funds, institutional investors, entrepreneurs, and leading business advisors.

This year’s event was held in conjunction with the corporate support of international consulting firm, PwC, alongside government support from the federal Department of Industry, Innovation and Science. Australia’s sovereign wealth fund, the Future Fund, was also a major partner for this year’s event, by arranging for Fred Giuffrida from US-based investment firm, Horsley Bridge, to come to Australia as a keynote speaker for the Forum.