Venture capital scheme to back tech start-ups
Starfish Ventures' new tech fund will look for support to Australia's wealthy super funds. Photo: Virginia Star
A new venture capital scheme will tap Australia's wealthy superannuation industry for the majority of a $100 million fund this year to invest in local tech start-ups.
Melbourne-based Starfish Ventures will launch Techfund III later this year, according to partner Tony Glenning, who said the firm's technology fund plans to invest between $3 million and $15 million in each of several web and mobile tech companies.
"The key to a healthy ecosystem is to have funds support a company through their entire lifecycle," Glenning told Fairfax Media's IT Pro.
He said the $3 million to $15 million segment was a "bottleneck wedged between angel investors and private equity investors", who offer $1 million and more than $20 million respectively.
Starfish will seek established tech start-ups that sold their idea to a substantial customer base, and require a large injection of funds to grow rapidly.
However, substantial investments require a big fund, Glenning said.
"To reach critical mass a fund needs to be $100 million plus, maybe even up to $200 million," Glenning said. "That way you can invest a worthwhile amount in each company and support a wide range of companies to balance the portfolio."
Starfish has invested in a range of Australian tech start-ups including Bugherd, BubbleGum Interactive, DesignCrowd and iSelect, which is expected to list on the Australian Stock Exchange later this year.
Last year it invested about $30 million in 10 companies, which includes joining a $1.5 million investment round led by PayPal founder and Facebook investor Peter Thiel in Scriptrock; $2 million in Australian web and email company Atmail; and $US2.3 million in web content acceleration company MetaCDN.
Techfund III succeeds the soon-to-expire $185 million Techfund II which launched just before the global financial crisis, and the $62.5 million Techfund I, which closed in 2009 and was supported by a number of super funds, including Macquarie Funds Management and Westscheme.
"The vast, vast majority of the funds have come from Australian super funds. They're probably our first port-of-call investors and traditionally have been our biggest supporters."
Starfish is one of the only tech venture capital firms to source capital from super funds.
Australian super funds contributed just $634 million to venture capital and private equity funds in the 2012 financial year, according to the annual report of the Australian Private Equity and Venture Capital Association. This amount is half of what it was three years ago. In the 2004 financial year, contributions peaked at $4.2 billion.
Venture funds are perceived as poor investments by the local superannuation industry because they don't offer the same liquidity as equities, bank deposits and fixed interest accounts, according to Gordon Noble, director advocacy and policy strategy, Association of Superannuation Funds of Australia.
Starfish's Glenning agreed liquidity was an issue.
"During incidents like the GFC or the dotcom bust super funds might reallocate their capital and tweak their investment strategy," Glenning said. "VCs, which invest over 10 years, don't offer that flexibility."