Who’s got the biggest fund?
What a year it has been for ANZ venture capital. By our count ANZ VCs have raised more than $1.6 billion this year. Founders have never had so much local cash money at their fingertips.
Records are being broken everywhere you look
In September Movac closed a NZ$250 million fund - the largest in NZ history. In August, Blackbird closed a mega $500 million fund, which was set to be the biggest in Australian history. Then this week Square Peg swooped in with a further $250 million extension for its recent $350 million fund - taking its fourth fund size to $600 million and total funds under management to $1.4 billion. HowdyaLikeThemApples.
With hundreds of millions in deals this year, Atlassian founders’ family office funds, Grok Ventures and Skip Capital, are giving big VC a run for their money too.
We also saw the launch of several new VCs. This week incubator Moonshot announced it had raised its first investment fund for space startups. Earlier this year Galileo Ventures closed a $10 million fund. Tidal Ventures launched a $30 million fund with the backing of Atlassian alumni. Significant Capital Ventures raised $15 million to invest into university research.
These new funds are often the result of blood, sweat, tears, and hundreds of meetings trying to convince LPs (investors) to come on board. Without a well-established track record of investing, a new fund is incredibly difficult to get off the ground. Galileo Ventures was three years in the making.
Remember, not every startup is destined (or wants) to be a unicorn
Even better for the ecosystem, we’re seeing the rise of alternative funding for startups, who often don’t meet the requirements for a traditional bank loan.
OneVentures closed a $80 million fund to provide venture debt for startups generating $3-5 million in revenue. US revenue-based financier, Lighter Capital moved into Australia. And this week Matt and Aprill Allen announced the launch of Tractor Ventures, a revenue-based financing firm.
These debt facilities provide a much needed capital injection for startups who don’t want to dilute their equity (although venture debt generally requires some form of warrants/options to be given to the debt provider) or who can’t go down the VC path—for example, if the problem being solved is too niche—or don’t want to go down the VC path.
“Wait, what, why wouldn’t you want almighty VC backing?!” We hear you ask.
It’s easy to be lured into thinking that VC is the only way to build a successful startup. But VC money has VC strings and expectations attached. It is built on the premise of unicorn exits. Now, not every investment needs to be a giant success. Just a small number of unicorns will produce the outsized returns required to keep their LPs happy. But it does mean that VCs expect you to shoot for the moon. And that’s not for everyone.
On the other hand, profitable, sustainable businesses are also a wonderful thing, and that’s where debt can be useful.
Here’s how Tractor Ventures’ revenue-based financing works, as an example:
A loan is provided based on past and forecast revenue. Matt Allen calls this “confidence money” - money to invest in the things the founders know will have a positive impact on top line revenue, for example marketing spend.
The loan is repaid by a fixed percentage of the company’s revenue. So if sales are up, the loan can be repaid faster. But if revenues go down, you also pay less - so the potential cash impact isn’t as bad as it might be with other forms of loans. Tractor has set its revenue percentage at 5%, but the startup can choose to pay back more without penalty. Lighter Capital is usually between 10-12% of revenue and Stripe Capital is 12%, by comparison.
Tractor has also assembled a team of experienced startup operators to advise, help and coach their portfolio companies - a value-add that many local and international VCs promise but don’t always have the capacity to deliver. In return, Tractor asks for warrants/options which vest over 12 months.
Whether you go down the VC, debt or bootstrapped path, startup life is never easy. It’s great to see founders have more and more optionality when it comes to capital.
News that caught our eye (AUD) 🧐
The BNPL conquest continues. Afterpay is joining the S&P/ASX 20 Index. Openpay launched into the US. Zip is investing in Spotii (BNPL based in the United Arab Emirates) and Twisto (a payments platform focused on the Czech Republic and Poland), and completed a $120 million institutional raise, with the option for retail shareholders to invest a further $30 million.
Crypto listings. Cryptocurrency payments company Banxa (Alium Capital & Thorney-backed) will list in Canada, making it the first crypto Payment Service Provider to be listed in the world. Coinbase (Reinventure-backed) has filed an S-1 to float, which could make it the first big public cryptocurrency exchange in the US. Its last investment round was in 2018, valuing the company at US$8 billion.
The price of bitcoin has surged to new highs - hitting over US$20,000 for the first time. Another reminder for Square Peg’s Paul Bassat that he well and truly lost his bet in 2017 to Mike Cannon-Brookes that Bitcoin would crash to less than $2,000.
In an attempt to attract customers to the bank, Xinja offered high-interest rates on its deposit accounts. However, without having developed a lending business, the company received no income from borrower repayments, leaving it in a position where it was burning shareholder cash.
Two Tims officially launched Summon - a full concierge service to sell prestige cars privately on behalf of their owners to “provide Aussie’s a better and fairer way to sell their cars” (rather than just handing the keys over to a broker or wasting time in a private sale).
Atto accelerator held its demo day. Great to see such variety in the businesses going through these programs - everything from a Bubble Tea Club (name says it all - a $2.6B industry) to Femfit - a wearable pelvic floor trainer.
‘She’s Building a Robot’ was published on Wednesday. A book about a teenage girl and her friends who enter a robot building competition, the book aims to inspire young women to get excited about technology. It’s written by Mick Liubinskas, an Australian technology entrepreneur and investor.
We had our first post-lockdown startup drinks IRL, which reminded Bex (on tip toes AND in the foreground below) that she’s short.
Deals deals deals (ANZ)
eNett (along with virtual card issuer Optal) has been acquired by WEX from Travelport for US$577.5 million. eNett, which was the fastest-growing unit at Travelport for years, targets the travel industry for its business-to-business payments solutions. Obviously Covid hit hard and the acquisition price has been cut substantially as a result - down from US$1.7 billion in January when the original deal was struck. WEX cancelled that deal in May. Lawsuits ensued. We bet there are a lot of people glad to see the back of this deal. And this year.
Online brokerage Lendi is merging with Aussie Home Loans (owned by CBA). This means Lendi can access Aussie’s national network across over 970 brokers and over 210 stores, and Aussie can ramp up its tech game using Lendi’s platform. Both brands will remain.
Show me the money
Sharesies raised NZ$25 million to expand its investment platform beyond NZ into Australia. Sharesies recorded 227% user growth in 2020, with more than 250,000 users. But they’re not without competition in Australia. Superhero launched earlier this year with free brokerage on ETFs and $5 flat on ASX-listed shares. Wonder if the big banks will step up their game. Probs not.
FutureFeed, a startup using seaweed to reduce methane emission from cattle won US$1 million from the world’s biggest prize for the food sector. The cash prize will, in part, be used to work with Aboriginal people to produce the world’s first ultralow-carbon beef and dairy by mid-2021.
Around the world
No mo’ IPO. Roblox and Affirm have delayed their IPOs - the crazy success of c3.ai, Airbnb and DoorDash have made it too difficult to price its shares. The suspense.
if there is one thing we’ve learned about unicorns, it’s that they are spotlight-shy. Say “GAAP” too loudly and they tend to scatter. But at some point unicorns have to exit… There are more than 500 unicorns in the world, all of which will want to exit while stocks are at or near all-time highs. If the liquidity train is derailed because some IPO did too well, I will lose my gosh-darn mind.
Discord raised a further $100 million as it hits 140 million users. This follows a $100 million raise in June. It also rolled out screen sharing - “That means you can watch everything from TikTok to Twitch with any of your friends from anywhere in the world, in real time. While chatting.”
Fragile Big Tech. Google had a massive outage affecting millions of users. Microsoft also had a few issues on the same day. This follows a substantial AWS outage in November, another outage affecting Facebook Messenger and Instagram chat last week and a global Microsoft outage in October.
Spotify signed a podcasting deal with the outcast Royals. The first full podcast series by Archewell Audio (a new production founded by Prince Harry and Meghan Markel) is expected to launch in 2021.
Big, bad US govt security breaches discovered - “It’s the nightmare scenario that has worried cybersecurity experts for years.” Suspected Russian hackers have been secretly monitoring US government email accounts since at least March. Last week, news of a breach at a leading cybersecurity firm FireEye hit. Then, thanks to the FireEye investigating that breach, we learned that the U.S. Treasury, State, Commerce, the National Institute of Health and Homeland Security (the agency tasked with protecting the government from cyberattacks) had also been breached. Oops. Big oops.
Forget Tony Stark, warehouse workers will be ironmen. German Bionic raised $20 million led by Samsung for exoskeleton tech to supercharge human labor - “Instead of building machines that replace humans altogether, build hardware that humans can wear to supercharge their abilities.”
That’s a wrap for 2020!
Thanks for coming along with us on our newsletter journey this year. Your feedback, support, likes and shares kept us going. We’ll be back at the end of Jan. Happy holidays!
Gavin, Bex and the team at Ignition Lane