ASX-listed investment group Blue Sky Venture Capital is trying to raise its third fund - a $200 million to fund expanding technology firms and keep more successful local companies at home for longer.
Blue Sky will back companies that have begun to establish themselves and are looking to start expanding or attacking new markets, usually with funding rounds ranging from $10 to $30 million.
Blue Sky Investment director Elaine Stead told The Australian Financial Review that there had been a shift in attitude among Australian institutional investors towards backing companies in the tech sector, as more success stories emerged. She said it needed to raise a larger fund to be able to back the kinds of growing and successful startups, that may otherwise have had to head overseas for expansion capital.
"There is now so much funding available for the angel and seed funding rounds, because that area was previously very thirsty, but Australia also needs to have enough capital available to support the wonderful opportunities that make it through to series B funding stage and beyond, which actually need a lot more capital to scale up," Ms Stead said.
"It is not a bad thing necessarily if a company moves overseas to attack larger markets, but it would be great if we could nurture Australian success stories in Australia for a lot longer. That will make a difference in terms of jobs, in returns for investors and will improve economic outcomes all around."
Assistant Minister for Innovation Wyatt Roy said the new Blue Sky fund, as well as the H2 Ventures announcement showed that the environment had begun to change for innovative tech companies looking to grow in Australia.
"This is a very exciting time, in developing a uniquely Australian innovation eco-system," Mr Roy said.
"This represents a point where we are starting to see very large amounts of capital invested into Australian Innovation with institutional backing, and it is a very big development."
FUNDING FOR 2016
Ms Stead said the new fund, to be known as VC2016, would likely be closed in the second quarter of 2016, and would largely target Australian firms, although it would not be exclusively Australian focused.
In the last year, Blue Sky's existing venture capital funds invested in on-demand consumer retail business Shoes of Prey, last mile delivery network and logistics technology company ParcelPoint, fast casual retail chain THR1VE, and Minneapolis-based medical device company Conventus Orthopaedics.
The company recently exited head lice treatment company Hatchtech in a $US197 million deal with Indian-based Dr. Reddy's Laboratories.
"We want to try and structure the fund so that it gives our investors access to opportunities from the US and Asia as well, so about 75 per cent of our deal flow is still Australian, but we will look at the best opportunities no matter where they are," Ms Stead said.
She said the average deal size coming through its due diligence processes was $18 million, and that there were currently more opportunities out there than could be backed. She said that out of $1 billion raised in Australia this year through VC funds, only 20 per cent of it was targeted at the later stage companies that Blue Sky targets, meaning many viable investments were slipping through the net.
Despite being more established than very early stage startups, Ms Stead said the companies backed still needed to be given time to deliver returns, so super funds and other institutions actually made idea backers.
"Venture capital needs patient capital that can tolerate a long-term investment strategy, and that fits comfortably with superannuation mandates," she said.
"Institutional funding is slowly re-entering the Australian private capital market, which means companies are able to remain private for longer, rather than having to explore the public markets before they are ready."