Elaine Stead

New research by Harvard private equity and venture capital guru Josh Lerner shows despite nearly $1billion venture capital (VC) announced in the last few months, Australia’s VC market is far from being saturated.

The flurry of activity in the last quarter of 2015, which saw $900 million in new funds announced – with $300 million already raised – compared to the $368mil raised for the entire FY15, has seen some investors raise concerns about the VC market reaching saturation point, which could drive valuations up.

But Blue Sky Venture Capital’s head Dr Elaine Stead says rather than simply looking at capital raised over a given period, comparing ratios of VC stock to GDP is a lot more revealing.

“While Australia is raising an uncommonly large amount of VC in FY16, it is nowhere near the US in terms of relative saturation,” Dr Stead said.

The data, commissioned by Blue Sky, shows even taking the new $900 million worth of funds into account, the US is still nearly 7x the AUS ratio

Comparing VC-to-GDP ratios shows the extreme difference in relative VC stock. Even when adjusted for population, Australia lags in investment compared to the US.

“Looking at VC investments as a percentage of GDP, Australia ranks 23rd, which is above Brazil and Russia but below New Zealand and Austria. We are nowhere near saturation,” Dr Stead.

“And our innovation inputs are equivalent, if not better, than other countries. We’re a sophisticated market, with good infrastructure and internet services.

“Australia also rates highly in years of schooling and tertiary studies enrolments. And the country produces significant numbers of science and engineering PhDs.”

Blue Sky is currently raising $200mil for its third VC fund, targeted at institutional investors to invest in later-stage deals in Australia and overseas.

Dr Stead says much of the capital raised in other funds are focused on the early stage, but Blue Sky has found its sweet spot.

“We find the proportion of good quality investment opportunities is much higher at the later stage due to survival bias, but not many funds are focused on the late stage. While VC is starting to reach critical mass in Australia, it’s important to ensure enough capital is available for the entire ecosystem and beyond the early stage,” Dr Stead said.

Blue Sky has just made a record breaking $25 mil investment into Vinomofo, and is also invested in Australian darling Shoes of Prey, as well as Pet Circle, THR1VE and ParcelPoint.

Blue Sky Venture Capital is a division of Blue Sky Alternative Investments.

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Andre Eikmeier

Vinomofo, the most epic wine site on the planet, announced $25 million in financing from Blue Sky Venture Capital to bolster rapid domestic growth and support operations in new markets.

Vinomofo’s first capital raise coincides with the company’s fifth year in business and the roll out of a business ‘lite’ model offer into six new markets including; New Zealand, USA, UK, Singapore, Hong Kong and China. Launched from an Adelaide garage in 2011, by co founders Andre Eikmeier and Justin Dry, the 100 people strong operation is now HQ from Cremorne, Victoria.

Vinomofo is not just a retailer it’s a wine experience, by giving consumers an unparalleled offer on curation and value. A hyper-focused quality product selection sourced direct from the best producers enables Vinomofo to harness the buying power of their 400,000 wine-loving members to secure exceptional deals.

Andre Eikmeier, co founder and joint CEO of Vinomofo, said the funding will enable rapid scale for the business upon a proven and robust model, both locally and abroad.

“We want everyone to be able to experience good wine – that’s our mission. From what we’ve seen across the past five years in Australia, we believe that a lot of people all over the world need Vinomofo – wine lovers and makers alike, and this investment is going to help us bring our vision to life.

“We’ve achieved 100% YoY growth for the past 12 months, we’re on track this financial year to surpass $50 million in annual revenue, and now it’s time to take Vinomofo to the next level in Australia, and to the world,” Eikmeier said.

Dr Elaine Stead, investment director at Blue Sky Venture Capital, says Vinomofo demonstrates the performance qualities at quantum and stage sought by the fund.

“Vinomofo is a great expression of the quality of deals that come through our doors. In just five years, Andre and Justin have built a cracking business with huge scope to scale globally, which is where we come in,” Dr Stead said.

“This is why we have started fundraising for a $200 million fund, as we are now coming across companies that need at least $20 million to execute on their expansion plans.”

Andre Eikmeier said Blue Sky Venture Capital has not only a good track record, but shares a similarly strong human culture, and therefore is the right funding partner for Vinomofo.

“We certainly haven’t rushed into this decision to raise. We’ve valued our independence, and our culture is at the heart of what we’ve built. When it became clear to Justin and I that a raise was the right thing to do strategically, finding the right partner was paramount, and Blue Sky emerged as a clear fit.

“We’re also really proud the entire raise was funded here in Australia, with an Australian partner. It’s a good sign for the future of our startup and growth company ecosystem,” Eikmeier said.

Blue Sky Venture Capital is a division of Blue Sky Alternative Investments (ASX: BLA).

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Elaine Stead

Blue Sky Venture Capital announced yesterday  it was launching a new $200 million venture capital (VC) fund targeted at institutional investors to invest in later-stage deals in Australia and overseas.

VC fundraising in Australia increased to $368 million last financial year[1] and since July alone, a further $400 million has been announced with Blackbird Ventures and SEEK co-founder Paul Bassat each raising $200 million funds.

But early stage VC still receives the lion’s share of funding. More than three-quarters of the capital raised this financial year was allocated to seed and early stage companies, while balanced and later stage companies received just $84.6 million.

Assistant Minister for Innovation Wyatt Roy said Blue Sky’s fund was a welcome addition to the innovation landscape.

“It’s great to see investment managers such as Blue Sky attract significant capital to develop and nurture the local VC scene and invest in later stage companies. This represents and exciting turning point in the development of the Australian innovation ecosystem,” Mr Roy said.

Blue Sky Venture Capital investment director Dr Elaine Stead said the fund would continue the venture capital strategy Blue Sky had pursued for the past 10 years and purposefully focus on late-stage and expansion deals.

“While VC is starting to reach critical mass in Australia, it’s important to ensure enough capital is available for the entire ecosystem and beyond the early stage,” Dr Stead said.

“We find the proportion of good quality investment opportunities is much higher at the later stage due to survival bias. But it is much harder for these companies to find more significant amounts of capital for late stage development or early expansion as not many funds are focussed on the late stage.”

Blue Sky is targeting the fund at institutional investors, in response to their increased appetite for VC investments.

“Venture capital needs patient capital that can tolerate a long-term investment strategy, and that fits comfortably with superannuation mandates,” Dr Stead said.

“Institutional funding is slowly re-entering the Australian private capital market, which means companies are able to remain private for longer, rather than having to explore the public markets before they are ready.”

The new industry-agnostic fund will also look to take advantage of Blue Sky’s ever increasing international deal flow.

In the last year, Blue Sky’s existing venture capital funds invested in on-demand consumer retail business Shoes of Prey, last mile delivery network and logistics technology company ParcelPoint, fast casual retail chain THR1VE, and Minneapolis-based medical device company Conventus Orthopaedics. The company recently exited head lice treatment company Hatchtech in a US$197 million deal with Indian-based Dr. Reddy’s Laboratories.

“Half of our portfolio is now based or has substantial operations outside of Australia and we have had the privilege of co-investing with some fantastic international venture funds. This activity, combined with Blue Sky’s unique 3,000 strong investor network, and multinational presence, has resulted in a substantial proportion of our venture capital deal flow originating outside Australia but usually with an Australia nexus,” Dr Stead said.

“Many of the best quality deals come from referrals and we have invested in infrastructure to optimise our referral network including scouts and partnerships in strategic hubs focusing on the US and Asia.”

“The larger pool of capital will mean we can take advantage of the great later stage opportunities that come through our networks, through a captive fund instead of as stand alone investments which allows us to move quickly and provide investors with a portfolio approach which we think is important for mitigating risk for investors, even at the more advanced stage we invest at,” Dr Stead said.

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[1] Australian Private Equity and Venture Capital Association (AVCAL) 2015 Yearbook

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Blue Sky Venture Capital investment director Dr Elaine Stead

Blue Sky Venture Capital has declared first close for its venture capital fund (VC2014) with more than $15 million in committed capital.

Blue Sky Venture Capital investment director Dr Elaine Stead said there was strong momentum towards the fund’s $30 million target.

“There is a huge interest from investors who are aware of Blue Sky’s strong track record of venture capital investments, and who are keen to take advantage of Federal Government incentives designed to boost investment in the sector,” Dr Stead said.

The fund has attracted significant interest from foreign high net worth investors as it is eligible as part of the new Significant Investor Visa (SIV) rules that require a minimum investment of $500,000 in eligible Australian venture capital or growth private equity funds.

The fund is also a registered Early Stage Venture Capital Limited Partnership (ESVCLP), meaning returns to investors will be tax exempt.

“These initiatives are most welcome as the sector has been cash starved for so long. On the plus side, it does mean the calibre of deals coming to us is unprecedented. We have a very strong pipeline,” Dr Stead said.

The fund’s first investment will be Australia’s largest independent online retail delivery network, ParcelPoint, and it is currently in due diligence on a second investment.

While 80 per cent of all venture capital (VC) investment goes into the earliest stage companies, including start ups, Blue Sky focuses on the underpenetrated and lower risk late VC and early stage expansion sector.

“We look for validated, game changing products, platforms or technologies with a global reach, rapid scalability or growth, established, experienced management teams and businesses where we believe we can genuinely add value,” Dr Stead said.

“Focusing on later stage opportunities also allows us to provide investors with a shorter investment horizon than is typically seen in venture capital.”

In contrast to the wider VC market, which typically invests 80 per cent of capital in the crowded biotechnology and IT spaces, Blue Sky is committed to maintaining a technology and industry agnostic approach.

“We see sectors that are substantially underpenetrated because historically, most venture capital has focussed on biotechnology and digital technology. We are open to all sectors provided the opportunity is right,” Dr Stead said.

“Our goal is to provide investors with an opportunity for exposure to venture capital and the substantial returns this asset class can provide, but with a lower risk profile.”

The fund is Blue Sky’s second venture capital fund. The first vehicle invested in companies such as online retailer Pet Circle, social app HeyLets, specialty pharmaceutical company Hatchtech, biotech company Conventus Orthopaedics and anti-ageing skin procedure Serene Medical.

Blue Sky Venture Capital is a division of Blue Sky Alternative Investments (ASX:BLA).

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