(pictured: Ben Chong)
The signs are there for an uptick, with two big super funds making commitments and others taking strategic positions in fintech companies, but venture capital in this country remains an after-thought compared with other unlisted assets.
Notwithstanding First State Super’s $110 million and HostPlus’s $400 million, the handful of Australian-based venture firms are hoping that the Government’s new 10 per cent tax break for individuals may help the high net worth sector for fund raisings.
According to Ben Chong, founder of Right Click Capital, there is no shortage of deals – just the capital. Last year he and his partners reviewed more than 500 potential deals, which is a costly enterprise.
Right Click Capital has commenced a capital raising for a new closed-end fund, looking for about $50 million. Chong says there has been some “positive support” from high net worths and he is “having conversations” with institutions.
One of the many frustrations of dealing with big super funds is that they seem to take an inordinate amount of time to make a decision on any new allocation. There will usually be several decision makers at the fund and its consultants, too, requiring multiple meetings and the provision of swathes of information.
As the SEI survey indicates (see separate report), many private equity firms overseas are widening their remit to include venture capital alongside private debt but investors generally prefer specialists over more diversified general partners.
Right Click Capital is a member of the Draper Venture Network, which consists of 11 international venture managers and is run by Tim Draper, the grandson of William Draper who is usually credited with launching the industry’s first limited partnership in the 1950s.
To be eligible for the 10 per cent tax rebate, which took effect this year, at least 80 per cent of a firm’s allocation has to be in Australia. Chong says that his fund will be using the Draper network plus a standalone Asian relationship to assist with its 20 per cent of the fund to be invested offshore.
He recently returned from a Draper conference in Silicon Valley and says the evidence is that the better networked a venture firm is the better its returns on average. The Draper network is diversified by region and areas of specialty. Right Click Capital is focused on software, transactional businesses such as fintech and also the Internet of Things businesses which are marketing orientated.
Despite superior returns from asset class, the average investment size in Australia fell from $5.3 million to $2.4 million over 2015.
“Furthermore, Australian super funds have only committed half a per cent of their assets under management to Australian PE and VC funds in 2015,” Chong says. “This percentage allocation has almost halved since 2009.”
Over the period from 2011 to 2015, 19 per cent of venture-backed companies received late-stage or expansion funding compared with 30 per cent over the previous five years from 2006-2011.
“This lack of institutional funding is pushing maturing and innovative Australian companies abroad,” he says.
Right Click Capital has three partners Chong, Ari Klinger and Garry Visontay – and a five-person advisory board which includes Ray King, the former asset consultant and private equity specialist manager who currently consults to IOOF.