Australia’s Square Peg Capital to focus on consumer Internet plays in ASEAN

Australia’s Square Peg Capital, which recently raised an oversubscribed $180 million fund and currently manages approximately A$300 million in assets, has plans for Southeast Asia that concentrate on consumer Internet plays, given its recognition of the ASEAN technology ecosystem reaching an inflection point as the regional economy matures.

Square Peg is currently evaluating the requirements for a permanent presence in SEA, with the firm considering locations such as Malaysia or Singapore for a Southeast Asia office, Tushar Roy, a Sydney-based partner at the firm told this portal.

Roy, who sits on the boards of several portfolio companies of Square Peg Capital, said the fund’s focus would be on early- and growth-stage companies in Australia, New Zealand and Southeast Asia. 

In addition to its Southeast Asia focus, Square Peg also maintains an exposure to the Israeli entrepreneurial ecosystem, which has a long track record and significant technical talent present, coupled with a fully-scaled ecosystem with international links. The VC firm has three partners focused on this market.

It also has links to Boston, which is connected to the Israeli startup ecosystem, though the main focus for Boston is on opportunities in IoT & wearables, as well as connecting and engaging with the MIT community. 

Southeast Asia represents a massive, young, connected regional market that is home to emerging markets with significant economic growth prospects while also being under-appreciated. Several partners have TMT experience across the region. For Square Peg, the target areas in Southeast Asia are the consumer and mobile internet-based models and pan-Asian marketplaces and platforms,” Roy said. 

He further added: “We will see many of the platforms and marketplaces ‘come of age’ and mature their business models. More aggressive market moves from Amazon, Alibaba and others will drive further adoption of e-commerce and adjacent tech ecosystems. The exit landscape will also become more established, with M&A picking up from China, Japan, Australia, Europe and the US. We will also see more SEA companies use IPO as an exit mechanism.” 

Roy said the firm was looking at investing in “outstanding teams solving large, difficult problems in a differentiated way”. The support it provides to startups in its portfolio includes strategic counsel; access to global networks of customers, partners and investors; operational support and expertise on an ‘as needed’ basis, he added. 

According to the KPMG Q1 2017 Venture Pulse report, global venture capital (VC) funding continues to decline, with VC activity declining for the fourth consecutive quarter from 3201 completed financings in Q4 2016 to 2716 in Q1 2017. This represents a decrease of 15.2 per cent. Across the same timeframe, however, total capital invested resurged, as $23.8 billion was invested in Q4 2016 and close to $27 billion in Q1 2017. 

However, Asia bucks this trend – venture capital invested in Asian startups reaching $39 billion in 2016, accounting for approximately 30 per cent of global VC financing in 2016 and nine times more than 2010 levels. Southeast Asia, in particular, has seen its investment increase over eight times since 2012.

Source: KPMG Venture Pulse, Q1 2017

Square Peg was co-founded by Paul Bassat, Tony Holt, Justin Liberman and Barry Brott in 2012. According to Crunchbase data, the VC firm has made 44 investments in a portfolio of 29 investments, with two exits via trade sales.

Bassat co-founded the ASX-listed online employment platform SEEK in 1997 and served as Joint CEO from 1997 to 2011, while Holt possesses significant investment banking and principal investing experience across Square Peg’s markets at institutions like Macquarie, Citi and Merrill Lynch. Meanwhile, Liberman and Brott’s background is rooted in early stage investment through the Melbourne-based family office, Jagen Pty Ltd.

With an initial focus on Australia and New Zealand in its early days, where the venture ecosystem has a track record of producing local, regional and global technology winners such as SEEK and Atlassian, the venture firm’s geographic focus has since expanded to focus on Southeast Asia and Israel.

It is restructuring from a vehicle that pooled for investments into a more traditional venture fund comes at a time when the venture capital (VC) sector in Australia is seen as underdeveloped relative to comparable developed economies.

Square Peg’s latest fund has secured a cornerstone investor in the form of Australian superannuation fund HostPlus, and sees involvement from various HNWIs in Australia, in addition to several corporate networks.

Originally started as a vehicle to invest its founders’ capital in specific firms, the growth of the venture ecosystem in Australia and the corresponding growth in the volume of deals that Square Peg has dealt with has seen the model and its LP base evolve rapidly over the last few years.

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