![A new breed of VC with hands-on entrepreneurial experience is exemplified by Michelle Deaker, founder of OneVentures.](/content/dam/images/g/t/c/o/s/l/image.related.afrArticleLead.620x350.gtcwat.png/1483072430223.jpg)
Think of a global Australian venture to emerge so far this millennium and it's likely Australian venture capital managers had nothing to do with it.
Go on. Atlassian, Campaign Monitor, 99Designs? Yep, all founder-funded, right up until they each got a big lick of venture capital ... from America. Freelancer? Founder-funded and Simon Clausen-funded. Envato? Self-funded all the way.
Icons Cochlear and ResMed did rise with the early support of venturers in the 1980s, and Seek in the late 1990s, but it's been mostly downhill for the asset class since. The Australian Private Equity and Venture Capital Association once calculated that between 1985 and 2007, the 37 venture capital funds active at any point had made an average return on capital of minus 5.4 per cent. Institutional investors fled, in preference for venture capital's less volatile big brother, private equity.
This lack of success makes the record fundraising year just enjoyed by Australian venture capitalists all the more remarkable. After a 2010-11 nadir in which just $120 million was raised, $568 million flowed to the asset class in 2015-16. Two more $250 million-odd funds have been raised since, by AirTree and, ironically, Seek co-founder Paul Bassat through his Square Peg Capital.
![Bill Ferris, Australia's first venture capitalist, says failures have taught him "where to look".](/content/dam/images/g/t/c/w/g/f/image.imgtype.afrArticleInline.620x0.png/1483004860689.jpg)
The millions of Australians who now find themselves invested in venture capital, through a new generation of super fund supporters like Hostplus and First State Super, have a right to ask: why are we back in this, and will it be different this time?
Willing and enabled
The man who has emerged as Australia's biggest investor in venture capital, Hostplus chief investment officer Sam Sicilia, obviously thinks things are different now.
"When venture capital failed the first time, a company like Uber would have failed with it, because its tech enablers just weren't there. In Uber's case, things like the seamless integration of GPS technology into ubiquitous 4G, and a payments system that's verifiable on the spot," Sicilia tells AFR Weekend.
"Today those enablers are there, and we're blessed to be in a position to take advantage," he adds, referring to Hostplus' relatively young average member age of 33.
![Paul Bassat's Square Peg Capital is the latest recipient of investment from Australia's biggest backer of venture ...](/content/dam/images/g/n/j/c/d/g/image.imgtype.afrArticleInline.620x0.png/1483004860506.jpg)
With decades to go before they can access their super, these members are less likely to complain about some of their money being locked up for long periods in venture capital funds, which tend to have a 10-year life and at least a five-year wait before the proceeds of exited investments begin flowing back.
The managers still in the game have learnt a lot, adds Bill Ferriss, who in 1970 set up Australia's first venture capital firm and has enjoyed winners like Seek, Gekko and Looksmart, and endured losers like dotcom relics K-Grind and D-store.
"The failures helped define where to go and where to look," he says.
"And in the new era, with web-based models you can find out with a low amount of capital, and in a quick time, if you are on to something."
![Sam Sicilia, chief investment officer of Hostplus, says the "tech enablers" are now there for venture capital.](/content/dam/images/g/t/a/w/7/f/image.imgtype.afrArticleInline.620x0.png/1483004860596.jpg)
New breed
There is also a new breed of venture capitalist who, unlike many in the first wave, has actually built a business before.
"Back in the 1990s a lot of the VCs had grown up in private equity and moved downstream, so financial engineering was their thing. Or they had come out of strategic consulting with a focus on big business rather than building and growing a company," says Dr Michelle Deaker, who in 2007 founded OneVentures, today an investor of $310 million in IT and life sciences start-ups.
Deaker instinctively avoided such VCs while she was building her first business, instead raising $6.5 million from family offices for E Com Industries, which became Australia's largest prepaid card and electronic voucher provider before its trade sale to a UK company in 2005.
"But the VCs in the market today are not just about capital, it's capital plus expertise," she says. "We've run our own companies and been through our own exits. I took E Com through the tech wreck and then raised money for OneVentures at the height of the GFC, so I think I've learnt some resilience and about finding paths to market when others can't."
Deaker is just one of today's prominent venture capitalists from a business-operating background. Paul Bassat, of course, took the leap from law to tech, co-founding one of the world's largest jobs portals. AirTree managing partner Craig Blair has founded several companies including Travelselect, an online travel company which exited to lastminute.com in 2002.
Even fellow e-travel entrepreneur Graeme Wood is getting in on the act, with the wotif.com founder backing Mawson Ventures, an investor in everything from a gel that filters water to a new type of lithium ion battery which is claimed to have twice the storage capacity of existing technology.
All of these new funds are too early in their lives for investors to know if venture capital is really doing better than it has in the past.
Arrogant profiteers
Meanwhile, the asset class must live down its reputation among some of its potential investees.
"Venture capital," snorts David McClure, whose 500 Startups tech business accelerator produces graduates for American VCs to fight over.
"Where inexperienced rookies think they're really f---ing smart and experienced veterans think they're really f---ing lucky."
This preconception of VCs as arrogant profiteers from the hard work of others was repeated recently by no less a figure than Gordon Bell, the guy who planned the internet for the US government. He called the Australian VC industry greedy and nasty for wanting a 40 per cent stake in a tech start-up he'd seeded, and insisting on a capital return in the event of a change of control.
"They [local VCs] are behaving almost like bankers, 'We are going to get our money back one way or another'," he grumbled to AFR Weekend.The verdict will be delivered as venture capital 2.0 starts its first wave of exits from around 2018, says Bassat.
"Everyone's learnt lessons from the past. All I know is that overwhelmingly, the VCs I see out there today come from strong operating backgrounds, and are passionate about bringing the knowledge from their prior careers into helping the companies they are backing," he says.
Bassat has skin in the game for the success of his portfolio companies, as he and his senior partners at Square Peg Capital have invested $25 million of their own money in its new fund.
Getting it right
The rewards for venture capital getting it right this time will be great not just for successful founders, but for million of superannuants too.
With interest rates and rental yields near historical lows, super funds need longer-term project-based returns to meet the expectations oft heir members, Ferris points out.
Hostplus' Sicilia said he expected long-term returns of 20 per cent plus from venture capital after fees. (Those fees were nothing like the 2-per-cent-plus-performance fee which were a hallmark of the first wave of venture capital in the 1990s, he added.)
Hostplus' allocation target to venture capital is 4 per cent of its overall fund. However, the actual exposure would be at most half that at any one time, Sicilia says, given venture capital's long drawdown period and return of capital from exits along the way.
Sicilia, who by early 2017 will oversee over $330 million in Australian venture capital managers, is happy to be an example that other chief investment officers may choose to follow.
"Your appetite for venture capital depends to some extent on how much illiquidity you can stomach, but if the risk-return equation stacks up then I think it's something you should look at, for the sake of the society that our members live in," he says.
"Agriculture and mining have never been big employers, manufacturing is dwindling, so where is tomorrow's activity going to come from? It has to be in the brains trust, the outputs from science, engineering, maths, biotech – let's keep those jobs here by investing in those industries now."
With Yolanda Redrup