Startups can play a critical role in Australia’s economic recovery from the COVID-19 crisis and funding needs to be made available to ensure these companies can continue to grow and hire, according to Square Peg Capital and SEEK co-founder Paul Bassat.
The Melbourne-based venture capital firm now has more than $1 billion under its management after recently closing a $350 million fund, with participation from Hostplus and AustralianSuper.
As tech companies and startups look to emerge from the coronavirus pandemic and begin operations, it’s important that capital is made available to them to ensure they can look to grow quickly and jump start the economy, Mr Bassat said.
“There will probably be less capital going to early-stage companies than otherwise, and certainly there’s a case for ensuring there is a continuity of capital, and ensuring startups have sufficient funding and a playing field to execute on their strategy,” Mr Bassat told InnovationAus.
Startups have the ability to grow quickly and create large numbers of high-quality jumps, exactly what Australia desperately needs, Mr Bassat said.
“Post this crisis we know the Australian economy will have to produce a large number of jobs to replace those that have disappeared. In some cases, they have disappeared due to cyclical factors, but in some cases they are disappearing permanently, hastening a structural trend,” he said.
“What startups do is they produce new jobs. These are young companies that are net hirers, whereas established companies don’t tend to be. We need a cohort of young companies that are high growth, coming in to effectively create jobs the economy is going to need going forward.
“The jobs created by tech startups are really highly productive and highly paid jobs that the economy really needs.”
While previous economic crises such as the dot-com crash and the GFC had hugely negative impacts on tech companies, the COVID-19 pandemic may have less of an impact on the sector, he said.
“Most previous crises have been associated with less capital going towards the early-stage, less towards the liquid markets. Where this crisis is a little different is that people understand that in a lot of cases it’s the tech companies that are the winners from the crisis – they’re seeing an acceleration,” Mr Bassat said.
With the new fund, Square Peg will be continuing with its existing investing mandate, looking towards Series A and Series B rounds in tech companies based in Australia, Israel and South-east Asia, along with follow-on funding for existing portfolio firms.
The two big superfunds were supportive of the new fund throughout the COVID-19 pandemic, Mr Bassat said.
“The superfunds were fantastic – they’re really good supporters. I remember a conversation with some of the senior guys at AustralianSuper in the last few days of March, when the market was at an absolute low. And they made the point that it’s an environment like this where you get the opportunity to show what sort of partner you are,” he said.
“They didn’t blink throughout the process, they just continued with it. It was a terrific process – we worked through that really well. And Hostplus are great supporters of ours, this is the third fund they’ve backed.”
Square Peg now has the most funds under management than any other venture capital firm in Australia. But Mr Bassat said this isn’t the most effective measurement of success.
“Venture capital is not an asset class where having the most funds under management is a key determinant in success. That hasn’t been a goal in and of itself. The goal is the ability to have sufficient capital to identify and back fantastic entrepreneurs and continue to back them through the lifecycle of a company,” Mr Bassat said.
“Now having a fourth round we’re starting to get that longevity which means we can continue to back a whole new generation of founders over the next few years.”