The nation’s sovereign wealth fund has backed an Australian venture capital fund for the first time, in a move that could open the floodgates for the local tech and innovation sectors.
The Commonwealth’s Peter Costello-chaired Future Fund – launched by John Howard in 2006 to safeguard some windfalls from the mining boom – oversees about $163 billion in investments.
Despite supporting offshore startups and venture capital funds, it had never previously participated in local VCs or tech companies, much to the chagrin of the Australian industry.
The Future Fund has now made its first such foray, contributing to Blackbird Venture’s $225 million third fund, which was unveiled on Tuesday.
The Blackbird fund was led by super fund Hostplus and its existing 100 investors, along with clients of Cambridge Associates. While its cash has increased rapidly, Blackbird’s investment focus would now be on even earlier stage companies, founder Niki Scevak said.
“They key message is that even though the fund is getting bigger, our interest is getting earlier and earlier. We love to invest in pre-revenue, pre-product companies,” Mr Scevak told InnovationAus.com.
“The aim is if we do find those truly iconic companies, we have the capital to invest throughout their journey. The dream is to fund companies we can invest hundreds of millions of dollars into over ten or more years,” he said.
“We want to invest a few hundred thousand dollars into the seed round and dig down into the trenches with them and discover great companies and great markets.
“The ambition of Blackbird is to be the best in the world, not the best in Australia. We want to hold ourselves onto the world stage, and be at a better level than Silicon Valley.”
The federal Opposition had been pushing for the Future Fund to offer more support to local VCs, and shadow minister for the digital economy Ed Husic says he’s “very happy” to see this eventuate.
“Building support for the work of local VCs means a great deal for our future economic success. The greater support they have, the more likely we see support for ideas that can translate into stronger commercial and job growth,” Mr Husic told InnovationAus.com.
“So it’s a decision that’s not only good for local VC – it’s vital for our broader economy. Well done to the Future Fund,” he said.
The Future Fund held a workshop in October last year with local VC managers to demonstrate how it evaluates opportunities, and this is where the Blackbird team was first introduced to the managers of the sovereign wealth fund.
The Future Fund support was another vote of confidence for the local VC sector, Mr Scevak said.
“We attended the workshop they put on and got to know the team, and they’ve been wonderful to work with. I’m proud to have them join our journey and they’ve been a pleasure to deal with,” he said.
The startup community has been calling on the fund to assist local tech companies for years, with growing calls last year for the government to step in.
The raise marks another key milestone for the Australia venture capital industry, and could see significant amounts of further capital poured in, angel investor Adrian Stone said.
“It’s about time. The Future Fund has about $150 billion to invest and they haven’t invested in Australian VC before,” Mr Stone told InnovationAus.com.
“We’ve been agitating, and it almost got to the point where the government should step in and demand they put money in, so they’ve gone and done it for themselves,” he said.
“It sounds like they’re planning on putting it into more VCs. The amount put into Australian VCs last year was about $1 billion – the Future Fund could increase that by 50 per cent with the stroke of a pen.”
The backing of Blackbird is likely to signal the beginning of a new phase of the Future Fund turning its attention to local tech outputs, Mr Stone said.
“If they’re going to do the sensible thing and not just make that token investment, then this is foretelling significant investment in Australian VC.
“If they repeat this three, four or five times in other funds, then that could double the amount of money we have available to invest, just with the stroke of a pen, and without materially affecting the money they’ve got to invest,” he said.
It’s now about making sure the funds make a return to prove their viability to the sovereign wealth fund, he said.
“Now it’s finally starting to pour into the Australian ecosystem, I’m hoping we have enough time left on the clock for the funds to generate returns.”
“We need to keep Future Fund in the ecosystem and that will only happen if they get returns in five to ten years,” Mr Stone said.