Denham Sadler
March 21, 2017

Power returns to Aussie VC

Venture Capital

Power returns to Aussie VC

Tony Holt: The Square Peg Capital co-founder says the market is resurgent

Control is back in the hands of Australian entrepreneurs and investors as the local venture capital market continues its resurgence, Square Peg Capital co-founder Tony Holt said.

The renowned venture capital firm, co-founded by Seek’s Paul Bassat, has just closed its first fund at about $234 million ($US180 million), well over its original target of $200 million.

It’s another milestone in the Australian venture capital market’s return to prominence after its virtual disappearance following the dotcom bust.

Last year saw local VC firms raise $568 million from superannuation funds and other institutions, including AirTree Ventures’ $250 million fund and Blackbird Ventures’ $200 million equivalent, according to AVCAL.

Mr Holt, who has worked in investment banking, corporate finance, M&A and capital raising across the world, said that the venture capital sector is now standing on its own two feet in Australia.

“It’s much more in our own hands than it has been at other times in the past. If you add the capabilities that are growing amongst the entrepreneurial community, then you’ve got a pretty good dynamic,” Mr Holt told InnovationAus.com.

“We’re on a good upwards trajectory. It’s a long-term business that we’re in. I think we’ve got some really high-quality managers with pools of capital that will allow us to collectively achieve returns.”

Despite recent criticisms levelled at the federal government over a lack of focus on its much maligned innovation agenda, Mr Holt said too much reliance is placed on the government, and a focus must instead be on the longer term aims of investors and entrepreneurs.

“If you look at it from a five-year context, there have been some ups and downs in focus over the last few years, but I think the facilitation that has been provided by lots of different layers of government when compared to the environment of several years ago is pretty amazing,” he said.

“I don’t think any of us believe that governments create entrepreneurs or an ecosystem, but the capacity to contribute is important, to facilitate and provide a framework. Then it’s up to the investors and entrepreneurs.

“If we can have more capable people believing in themselves and being prepared to take risks, then that’s going to be huge over time.”

Super fund Hostplus is the biggest single investor in Square Peg’s first fund, chipping in $50 million, with the rest coming from entrepreneurs and high net worth individuals.

The fanfare and spotlight that comes with a fund’s closure is a necessary evil, but it’s certainly not a key highlight for the Square Peg team, Mr Holt said.

“In some ways it’s not really news for us, it’s not a highlight. It’s really a path we’ve been down and investing from for a good part of a year.

“The tally is part of our equations and our input for us to make good investments, but there’s no gold stars being handed around by our team,” he said.

“It’s a necessary part of what we all do, and there’s no point hiding our light under a bush and then saying, ‘shit, no-one knows about us’. But it’s not an end itself. This is part of our capability set that allows us to do what we really love.”

Square Peg, which is perhaps best known for its early investment in Uber, plans to invest mostly in Australian early-stage tech companies along with some from South-East Asia and Israel.

The firm is already an investor in locally-funded players including Canva, UpGuard and BugCrowd.

With more than $200 million in the warchest, the fund is looking for “all the normal cliches” – with a primary focus on the founders.

“They’re cliches for a reason, because it’s the most important part. We’re looking for businesses in our geographies doing something special, that are going for large opportunities done by people who’ve had an experience in the area they’re operating in that gives them a real advantage,” Mr Holt said.

Square Peg is one of the biggest players in Australian venture capital, but has previously invested as a collective rather than through a formal fund. Launching its own fund is a “natural part of the evolution”, Mr Holt said.

“We retain a lot of the benefits of co-investment – which is our heritage – but add the benefits of the ability to attract a broader investor set to the fund which bring a lot to the equation,” he said.

“This gives us the capability to invest in a spread of opportunities, and we don’t lose any of the things we had before. It’s a bit of a win-win.”

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