Australian tech investors are betting big on mega startup Canva. Now they’re about to be tested

Square Peg said it will update its valuations in the next quarter, beginning June 30, with the value of companies deemed “material” being determined by an independent evaluator. AirTree will update its valuations on its usual quarterly cycle, also on June 30.

Each of the funds pointed out that even without Canva, their performance is strong compared to their competitors in Australia and overseas. And it’s typical in venture capital that one or a few big bets carry many other investment decisions, given that high failure rates are expected among start-ups. At a lower valuation, Canva would still be an impressive choice for funds that invested in it, especially Blackbird, which got into Canva early and repeatedly backed it for many years. Even with a steep markdown, Blackbird’s investment in Canva is poised to provide its investors with a huge return.

Yet as important as Canva is to Australia’s tech sector alone, it’s also a marker of how far the sector has come from its recent highs.

Blackbird advertises its funds under the banner of finding “wild hearts with the craziest ideas,” even as messianic founders such as WeWork’s Adam Neumann are pilloried in popular culture. Credit:Blackbird

AirTree co-founder Craig Blair admitted in an interview that the price paid for start-up investments over the past year had skyrocketed, but disputed that AirTree had done too many deals at prices too high.

“I think it’s true to say that any investor who has invested in growth-stage companies over the past 12 months has…certainly paid valuations that we’ve never seen before and may never see again. ever be,” Blair said.

He said AirTree was disciplined in its investments, considered valuations reverting to long-term averages and paid the right price to reflect the markets at the time the deals were made. Paul Bassat, who co-founded job site Seek in 1997 and then Square Peg in 2012, said The Sydney Morning Herald and age he was broadly confident in the decisions taken when the market was very hot, pointing to stakes in companies that had good internal economies and cash reserves, but also conceded that times would be tougher.

“In the current environment, we’re probably expecting writedowns over the next six or 12 months, we’re going to see more failures in venture capital portfolios for the next year or two than we’re seeing. we’ve seen that in the last year or two,” Bassat said. “But I wouldn’t necessarily think that as of June 30 there will be significant write-downs.”

How does venture capital work?

  • Venture capital funds recruit investors, such as pension funds or high net worth individuals, who are willing to risk money on high-risk, high-reward bets on start-ups.

  • The start-ups they invest in are almost always unprofitable, and by design because they’re just getting started. But typically, venture capital funds expect between two-thirds and three-quarters of the investments they make to fail, with all of a fund’s returns generated by a handful of massive hits.

  • In return for an influx of cash, often brought in through multiple funding rounds as the business grows, the company grants the fund equity, or stock, and often a seat on the board of administration.

  • When all goes well (which is the exception, not the rule), the start-up grows and eventually “exits” – either through an IPO in a stock market or a sale at a higher big business. Venture capital funds and their investors typically reserve a significant return on their initial investment.

In an email response to questions, Blackbird co-founder Niki Scevak projected a bullish outlook.

“While multiples have contracted, we see nothing to suggest that the quality of companies being created in Australia and New Zealand is diminishing,” Scevak said.

A Canva spokesperson highlighted the company’s positive metrics and noted there were discrepancies in valuations, including some investors who hadn’t changed their valuations and others who had reduced their valuations. 10 or 20%. “Valuations with institutional investors are heavily influenced by public ‘peer comparisons’ which are turbulent primarily due to the broader macro environment,” the spokesperson said.

AirTree's Craig Blair, Blackbird's Niki Scevak and Square Peg's Paul Bassat.

AirTree’s Craig Blair, Blackbird’s Niki Scevak and Square Peg’s Paul Bassat.Credit:Dominic Lorrimer/Oscar Colman/Arsineh Houspian

Blair pointed out that venture capital funds are ultimately judged on the money they return to investors.

But falling valuations will always ripple through the entire sector. It will hurt start-ups trying to raise funds by forcing them to hand over more equity in exchange for the cash they need to survive – or face bankruptcy. Others will have to spend less money, hire fewer people and reduce marketing as they try to make existing money last as long as possible and show investors that they have the opportunity to make a profit. Startups that rise at lower valuations also face the prospect of demoralized staff, who expected the value of their shares to continue to rise.

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Square Peg, Blackbird and AirTree have all said they will not start introducing harsh non-standard clauses into agreements to protect their investments, despite the recession, each stressing they have funds to deploy and are looking for good companies. Some of the strongest start-ups will likely benefit from a decrease in the war for talent if the sector cools.

On the other hand, venture capital funds will be indirectly affected because investors, such as the country’s pension funds, will not see such a rosy picture when considering pouring money into their next funds. . In a deck dated 2021, Square Peg is seeking $550 million on its fifth generation fund, targeting an initial close in February this year and a final close in the second quarter.

“We are not increasing and we will not increase until the end of next year,” AirTree’s Blair said. Square Peg’s Bassat said it was “essentially done” raising its latest funds, although it has not closed.

In Blackbird 2022 Fundset As Seen By The Sydney Morning Herald and ageit is asking for $1 billion, split between two Australian funds and one in New Zealand.

“We are currently in the process of raising our funds and everything is going well so far,” Scevak said when asked if the funds had been closed.

Blackbird advertises its funds under the banner of investing in “wild hearts with the wildest ideas” — grandiose language at a time when messianic founders such as WeWork’s Adam Neumann are pilloried in popular culture, but Scevak is adamant.

“Even more then!” he replied when asked if it was good for the times. “As markets and economic conditions get tougher, companies that only deliver incremental benefits are suffering, and it’s those with big ambitions that seek to create real change and solve the biggest problems that succeed. .”

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