Australia venture fund tops A$1 billion after pension backing

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[SYDNEY] Australia's largest pensions have backed Square Peg Capital's latest funding round as the firm looks to boost investments in startups joining the wave of innovation sparked by the coronavirus.

AustralianSuper and Hostplus were among investors in Square Peg's A$350 million (S$336.7 million) funding round targeting early-stage technology companies, the Melbourne-based firm said in an emailed statement on Tuesday.

The raise makes Square Peg Australia's largest venture firm, with more than A$1 billion under management, it said.

The fresh funds will help Square Peg back firms that are tapping the massive changes brought on by Covid-19, from increased online shopping and education, to shifts in healthcare and new work arrangements, said Square Peg co-founder and partner Paul Bassat.

"In the space of two months, we have seen the equivalent of a decade's worth of change in the take-up of online business models," he said in the statement. "Covid-19 is a catalyst for the acceleration of long-term trends that have existed for a long time."

Mr Bassat cited some of the companies that have thrived during the pandemic, such as US software firms Slack and Zoom, and Canadian e-commerce firm Shopify.

Square Peg-backed Fiverr - a freelance marketplace based in Israel - has seen its share price more than triple since it listed last year.

Square Peg's raise signals investors still favor Australia's venture capital industry despite heightened fears that investment from the nation's A$2.73 trillion in retirement savings will slow amid the coronavirus-induced recession.

Local venture firms raised almost A$4 billion in the past four years, thanks to a flood of money from pension funds taking bets on early-stage companies.

The fresh capital will support Square Peg's fourth fund, and to fund opportunities it's already spotted from earlier financings. The firm has invested in tech-unicorns Canva and cross-boarder financing firm Airwallex.

The fund, created in 2012, is targeting companies in Australia as well as Israel and Southeast Asia.

Having cash on hand allows the firm to fund investments on more favorable terms as the virus-induced market rout lowers private valuations. Previous downturns have bred unicorns including Aconex, Atlassian Corp and Culture Amp.

Funds that managed to raise capital in the wake of the global financial crisis outperformed their peers by about 34 per cent in the following five years, Tempus Partners founder and managing director Alister Coleman said.

"It would be short sighted to not be giving yourself an opportunity to be capitalizing on the creativity that comes out of these periods," Mr Coleman said by phone.

This is the first investment in Square Peg by AustralianSuper, the nation's biggest pension fund. Hostplus has backed two other rounds.

To be sure, venture firms remain cautious about their ability to raise capital as institutional investors and pension funds focus on re-balancing portfolios and chasing distressed assets in more traditional areas.

It took about three years following the financial crisis for investment into Australia's venture funds to recover, Preqin data show.

"There's going to be a slowdown in money raised by Australian institutions," Blackbird co-founder Rick Baker, who's currently raising A$550 million for a core and follow-on venture capital fund, said by phone last month. "If we can keep a core group of VC funds we can have a foundation to build on" when the recovery comes, he said.


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