US investors’ appetite for Aussie investments is rising, says Equity Venture Partners’ Leibman

Sydney, Australia. Photo by Liam Pozz on Unsplash

The venture capital scene in Australia is relatively quiet – compared to Southeast Asia’s at least.

According to DEALSTREETASIA‘s 2018 private equity & venture capital data, Singapore raked in $7.77 billion worth of private capital last year, Indonesia took in $3.37 billion; and Vietnam, $2.28 billion. Australia drew slightly less – $2.1 billion (A$2.9 billion), according to Preqin estimates.

That figure however, represents an over two-fold increase from 2017. Dry powder entering the Australian VC market has also risen in recent months.

Sydney-based venture capital firm Equity Venture Partners (EVP) points to rising interest from foreign investors, particularly from the US.

“We’re definitely seeing increasing appetite from US investors who are actively looking for opportunities in Australia,” said Howard Leibman, founder of Equity Venture Partners. 

He added that US investors are stepping in where Australian VCs can’t: the larger Series B and C rounds.

Leibman added: “Our two largest companies SiteMinder and Deputy are both now funded by large US VCs. SiteMinder is now funded by Technology Crossover Ventures (TCV), while Deputy raised funds from OpenView Venture Partners, and more recently from Institutional Venture Partners.” 

Last year, data centre provider AirTrunk raised $621 million (A$850 million) from Goldman Sachs and TPG, making it one of the largest venture deals in the country.

“I think we’ll see some of the Australian funds be more able to support those larger capital raising rounds over time, but I think a number of US funds which are (already) quite active in Australia and will be increasingly so moving forward,” said Leibman.

Earlier this month, EVP closed its $35-million second fund focused on early-stage B2B software companies. The VC has $60 million under management across Australia and New Zealand, and a portfolio of 22 businesses including Hotelclub, Siteminder, Rezdy and Shippit.

Edited excerpts of an interview:

Tell us about Equity Venture Partners (EVP) and your focus areas.

We’re a Sydney-based, early-stage venture capital firm. We’ve been investing in Australian software businesses for the last 10 years or so. We closed our first fund a little while ago with 11 portfolio companies, primarily Australia-based with one based in New Zealand. Generally, they tend to be Series A stage, B2B software companies. We raised our second fund which we launched just a few weeks ago. Our second fund is a $35-million Australian fund, with a very clear focus on Series A stage B2B software.

Who are the investors in this recent fund?

Our investors for this fund and the previous fund are high net-worth individuals and family offices. We don’t have any institutional funds on board and I think that’s probably because the fund is small and it’s still at a stage where it’s more applicable to private investors and small to mid-size family office investment.

Is there any appetite for a third fund further down the line? Do you want to continue focusing on Australia, New Zealand or expand further?

There is a definite appetite for further funds. We now have $60 million under management which, given our focus on pretty early-stage investing, allows us to build a reasonably sized portfolio. We’re growing the team and building the portfolio and we absolutely do intend raising further funds down the track.

As to whether they will remain Australia focused, that’s difficult to say. The likelihood is yes, simply because that’s where we have our networks, our experience, that’s where we’re based and we see the emergence of some really interesting early-stage opportunities in this part of the world. I think there’s scope to expand somewhat into Asia, but I don’t think it will ever be a significant focus of what we do.

What are the ticket sizes for your fund?

We target A$1-5 million. Ideally, we’re investing A$2 million or thereabouts initially with a view to increasing that up to A$5 million over subsequent rounds. Typically, we’re looking to invest A$2-3 million initially.

What is EVP’s investment strategy in terms of picking some of these B2B software companies? What is the deal flow like?

The deal flow is pretty healthy and that’s indicative of the growing maturity of the Australian startup ecosystem. There are a number of very active incubators, and generally, the startup environment is becoming far more active partly because of the increased activity of funds such as ours, and the increased availability of capital.

We’re seeing a really good number of early-stage angel-funded software companies who are heading into Series A territory, and there aren’t a huge number of funds that have a specific focus at this early stage, so we tend to see a really good proportion of the opportunities.

Are you saying there aren’t as many VCs taking on a niche focus like B2B software? Or are you saying that there aren’t that many VCs investing in Series A deals?

A little bit of both. I think there are a small number of very good Australia-based VC funds who will invest at the Series A stage but because it’s a relatively small number of us, I think we’re all seeing a very healthy deal flow.

I think the fact that we have a very specific focus on B2B software means probably seeing a disproportionately high number of businesses in that specific category and then I think it’s on the back of having some very well-known businesses in our portfolio – businesses like SiteMinder and Rezdy and Deputy – that we tend to be sought out by startups looking to raise their next round.

In SEA, we’ve seen VCs typically start off as generalist VCs before choosing to focus on a specific sector. But you guys dove right into becoming a specialist fund. How did you end up taking this route?

The founders of EVP, myself and my co-founder Les Szekely have both been involved in the startup environment and investing personally for a number of years pre-dating the launch of our first fund. I guess we’ve been active with startups for a good many years, 10 years or thereabouts and we acquired experience over that period investing across a range of startups and have found ourselves focusing specifically on B2B SaaS companies over the last few years.

So, fund I was not purely focused on B2B SaaS. We had a general early-stage investment mandate with a bias towards online marketplaces and B2B SaaS platforms. We were software-only investors, so we’re not investing in hardware or foods or any of the new areas that early-stage investors are increasingly focusing on. We’re very specifically software focused and then I guess the transition from the first fund to the second has been that the first fund was software with a leaning towards B2B SaaS as well as online consumer-facing marketplaces. With our second fund, we’re certainly open to B2B marketplace businesses but with a preference for vertical B2B SaaS platforms. We’re very unlikely to do consumer-facing businesses any longer.

B2B SaaS is still pretty broad. Are there specific focuses within these verticals that you think has a lot of opportunity for you?

We’re looking more to platforms that are servicing large global markets with clearly defined B2B verticals and B2B SaaS platform servicing those verticals. We don’t have a specific industry focus. I think the common thread that runs through the portfolio is that the founders tend to be industry insiders with specific experience in a particular industry and building a platform to solve a particular problem within their industry.

We’ve got businesses like Rezdy, a SaaS platform for tour and activity operators in the travel space, Practice Ignition is a practice management platform for accounting businesses, professional service businesses, Practifi is practice management for financial planners and wealth management professionals, so they tend to be really quite specialist vertical SaaS players. 

What else do you look for in your companies? What is your investment strategy like?

We’re looking to partner with founders who have the right experience, drive, track record and credentials to build a substantial global business. So I guess first and foremost, we’re looking to partner with founding teams with the right experience.

We’re also looking to invest in industry verticals that have significant global scale. We’re looking to invest in software which becomes deeply integrated into their customers’ way of doing business – so a B2B SaaS platform which becomes a fundamental component of the customer’s business and deeply integrated into their own particular supply chain so that drives healthy underlying economics in terms of expansion opportunities and low churn.

We have a strong focus on unit economics and levels of customer engagement across the platform and we like to invest early, but at a point where there is strong early evidence of that deep customer engagement and strong early revenue growth.

EVP focused on Series A opportunities for your last two funds. Will there ever be a chance where EVP launches another fund focusing on follow-on rounds?

It’s very possible. It’s not something we’ve thought of specifically but it’s very possible. What we do, like most fund managers, is we will reserve a certain proportion of our current fund to support follow-on opportunities within the portfolio.

We’ll explore after that whether it makes sense to raise a fund specifically for further follow-on rounds. We really haven’t thought that through specifically.

What are the exit opportunities for some of your companies? How do you go about planning their exit routes?

Generally, we’re investing pretty early, so they’re often a good number of years away from a likely exit. My expectation is: given the profile of the businesses we’re typically investing in, which is really quite focused industry vertical B2B SaaS players, the likely exits are going to come from trade sales and strategic acquisitions by incumbent large technology players within the vertical that we’re addressing.

I think typically our businesses are not likely to IPO. There are a couple of exceptions, so businesses like Deputy, for instance, may well be an IPO candidate over the coming years, so it’s a little bit of a mix. I think the majority will look to exit by way of a trade sale and then there’s perhaps a handful where there’s an IPO possibility over the next 5 to 10 years.

How were you introduced to Deputy?

I was introduced to Deputy when I met the founder about four years ago. I was introduced via a customer of his. Deputy was at the time a relatively small SaaS company. They had not raised any external capital and were exploring what a capital-raising path might look like and I was introduced to her to have that conversation. I was working initially as an advisor and subsequently as an investor to the company for the last four years.

What did you like about them when you first met them?

What I’ve liked about that business all along is the incredible passion and drive of the founder. Their technology addresses a market opportunity which is virtually without bounds. The software is a workforce management platform for hourly pay or shift-based workers and it’s applicable to pretty much any company in the world that has a shift-based workforce. So it’s not limited to geography, industry, and has the potential to become a truly very sizeable global company, given the potential market that it addresses.

Beyond that, we had very strong validation that the product was best-in-class and there was very strong evidence of product-market fit. The business also proves an ability to scale in terms of its customer base from addressing relatively small SME businesses in the food and hospitality space, all the way through mid-market and increasingly enterprise-type customers. So the platform is servicing both ends of the spectrum on the same underlying technology stack.

How has the Australian VC landscape been shaping up in your opinion? Any interesting developments you expect to see this year?

I think there are a number of funds that have recently raised capital, so there is a good deal of capital available for the right opportunities, so I think we’ll see quite a number of super interesting early-stage companies emerging. There’s also an increasing trend of technology companies listing on the ASX, although I probably don’t have a whole lot of comment to make about that just yet.

What about foreign investors’ interest in Australia?

We’re definitely seeing increasing appetite from US investors who are actively looking for opportunities in Australia.

Within our portfolio, our two largest companies SiteMinder and Deputy are both now funded by large US VCs. SiteMinder is now funded by Technology Crossover Ventures (TCV), while Deputy raised funds from OpenView Venture Partners and more recently from institutional venture partners like IVP.

Those are two companies within our portfolio which were funded in the early stages by Australian VC and the larger rounds have been led by US VCs. I think that reflects the fact that typically Australian funds are not of a scale to support sizeable Series B and C rounds.

I think we’ll see over time some of the Australian funds be more able to support those larger capital raising rounds, but I think a number of US funds which are (already) quite active in Australia and will be increasingly so moving forward.

Julia Zhou contributed to this article.

Also Read:

Australia’s Equity Venture Partners closes $35m second fund

Australian workforce management platform Deputy raises $81m Series B

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.