Venture capital funds based offshore have been crowded out by ascendant domestic players over the past three years, but an emerging crop of pan-Asian players are trying to convince promising local founders why they should take their money.
Local managers led by Blackbird Ventures and AirTree Ventures raised a record $568 million in 2015-16, and invested nearly $300 million of the $347 million deployed. Offshore venture capital funds were responsible for just 14 per cent of the total VC investment in Australian businesses, down from 30 per cent in 2014-15 and 55 per cent in 2013-14.
However start-ups should consider having at least part of a fundraising round covered by VCs with offshore partners, according to Dmitry Alimov, whose Singapore-based Frontier Ventures made its first and only Australian investment in 2015, when it joined Macquarie Bank founder Allan Moss in a $4.1 million round for professional marketplace Expert360.
“The thing we liked about Expert360 was that it was building its network effects in Australia first, but had a realistic plan to go global,” Mr Alimov said.
“Australians have a great entrepreneurial spirit but I’ve observed that relatively few have a genuine intention to found global companies or the means to execute it. Having backers based in the key markets they will need to conquer can help with both of those problems.”
Speaking to The Australian Financial Review while in Sydney for an Expert360 board meeting, Mr Alimov said he still had capacity in the $US50 million fund that he and Russian-based partner Oleg Tumarov launched in 2011 for Australian investments, preferably marketplaces where he could help amplify network effects already being achieved domestically.
Meanwhile another Singapore-based venture capital firm with a strategy of investing in Southeast Asia and Australia has outed itself as a backer of Data Republic alongside NAB, Westpac and Qantas in last year’s $10.5m Series A, and spruiked its ability to help companies expand into Asia.
Qualgro, which closed a $US52 million fund in late 2015 backed by six Asian corporates, has made three of its 14 investments so far in Australia and is part of a growing band of venture capitalists attracted here from outside the US, the source of most foreign venture capital to date.
Qualgro had hitherto gone public about only one of its Australian investments: its participation in last August’s Series A round for OpenAgent, a start-up that allows home sellers to find and compare real estate agents.
However, the manager has revealed to The Australian Financial Review that it also cut a cheque for the Series A of Data Republic, which has built a platform it claims allows corporates and governments to exchange data securely.
Qualgro also backed Nura, a Melbourne-based maker of headphones customised to the user’s individual hearing profile, in a $6 million round closed in February led by Blackbird Ventures.
Qualgro is seeking to differentiate itself from the local VCs by stressing its ability to directly help investees expand into Southeast Asia.
Qualgro’s Australian-based partner Peter Huynh, who previously founded Optus’ corporate venture capital arm, said the manager had already helped one of its Indian portfolio companies, enterprise software-as-a-service provider SirionLabs, to interview and hire its Australian country head and introduced it to its first client here.
“We will offer the same assistance to our Australian companies,” Mr Huynh said, pointing out Qualgro’s founder Heang Chhor had been a McKinsey & Co partner for 26 years, with a network “across continents”.
Another global VC that has been active is Follow [the] Seed, launched by Sydney-via-Israel entrepreneur Andrey Shirben in 2015. With partners in Sydney, San Francisco, China and Tel Aviv, Mr Shirben said its portfolio companies could access a truly global network.
Follow [the] Seed has in the last month led a $1.5 million fundraising for Jayride, taking to $5 million the total raised for this Sydney-based business, which wants to be the “booking.com for airport transfers”, according to co-founder Rod Bishop. It also joined a $1.7 million round for Haystack, the creator of a digital business card it claims can replace the paper version, which has teams in both Israel and Brisbane.