Blackbird Ventures’ $10b return makes it Australia’s biggest VC

The rapid growth in the size of venture capital funds marks a maturing of the sector, with total VC deals landing comfortably above $2 billion annually for the past three years, up from less than $1 billion annually when former Prime Minister Malcolm Turnbull launched his national innovation agenda in 2015.

Mr Scevak said he believed Blackbird’s success was based on having the confidence to back companies very early, usually pre-revenue, and building long-term trusted relationships with “generational” companies. Over its lifespan, roughly 80 per cent of Blackbird’s investments have been in pre-revenue companies.

“To build a great relationship with the company, the best starting point is right at the beginning and by building and investing more over time, that is actually the ultimate competitive advantage in out-competing all of the big global funds when a company is very successful and everyone wants to invest,” he said.

“The only reason we’ve been able to invest $270 million into Canva is because we first invested $250,000 right at the beginning when it was just Mel, Cliff and Cam.

“So we will never stray from that strategy. If we stray from investing in the beginning, I think that’s the beginning of the end for Blackbird.”

Mr Baker said that, rather than being a VC cliché, the idea of being “founder first” and putting founders’ interests ahead of gains for Blackbird had been crucially important in making them an investor of choice for the best emerging companies.

Founders talked together all the time about how they were treated, and Blackbird’s model of investing throughout the life of a company only worked if founders appreciated them being there.

“Right from the beginning, we made sure we have founder-friendly terms in all our term sheets, and where we can, we will support founders, even sometimes to the detriment of ourselves,” Mr Baker said.

“For example, in the past where there was a grey area in a funding document that could have been interpreted to give a bad result to the founder and a much better result for us, we decided on the interpretation that favoured the founder. By doing that time and time again, you build your reputation.”

Rory San Miguel, founder of surveying data analytics and 3D mapping start-up Propeller, which Blackbird has backed in numerous rounds, said the founder-friendly talk was more than just rhetoric. He always advises other start-up founders to try to get them on their cap table if possible.

He said integrity was critical in dealing with investors, and that Blackbird had demonstrated it consistently and more obviously than other Australian VCs over nine years, and across deals where he had personally referred other founders to Blackbird.

“Everyone can say they’re high integrity, but it’s the times when you’re not high integrity that really hurt, and I do have unfortunate examples of other funds not doing what they say,” Mr San Miguel said.

“It materialised for us in 2016, when we were raising our second round, and not all of our business metrics were in shape. Instead of sending us on our way to the US to try and find funding, which a lot of other funds do when they know you aren’t currently the star of their portfolio, they tripled the amount they were entitled to invest, and told us to use it as a tailwind to help close a new investor in the US, while making sure the US investors knew they were massive fans.”

The ongoing funding round at Blackbird will be for its fifth fund, after its fourth closed in October 2020 and pulled in $652 million from large institutional investors including Hostplus, the Future Fund, First State Super, HESTA, AustralianSuper and Telstra Super. Mr Scevak said it was talking to all of its existing investors for the new fund, as well as some new targets both at home and overseas.

“We’ve fully started that process and deep into the due diligence process, which as you can imagine is a pretty labour-intensive process,” he said.

Labour-intensive it may be, but it is unlikely to be a patch on the work needed for Blackbird’s first fund, which Mr Baker said is slightly embarrassingly named the 2012 fund, despite taking so long to close that it was not done until well into 2013.

“It took us 22 months to raise that first fund, with over 500 meetings, and we ended up with 97 investors to raise a $29 million fund, so it was like it was the world’s biggest angel round,” Mr Baker said.

“This one is likely a lot faster and more efficient, and there seems to be some really good demand for it, so we’re really happy.”

The fund will be targeted at more early-stage investments, where initial rounds are getting larger, and also at further follow-on rounds in its existing portfolio of roughly 90 companies.

Aside from the unicorns, Blackbird holds significant portions of a number of Australia’s hottest start-ups. It owns 26 per cent of Propeller and 23 per cent of online health start-up Eucalyptus, which is close to closing a round in the range of $60 million, expected to value it at upwards of $450 million.

It is also a key investor in heavily fancied customer research platform Dovetail, team-scheduling software Skedulo, $300 million-valued driverless vehicle technology firm Baraja, and space tech business Gilmour Space.

Mr Scevak said, despite Canva’s returns taking the headlines, its funds would be performing in the top quartile by global standards even with its star performer removed. He revealed that 20 per cent of the companies it has invested in are now valued at more than $100 million, and that it has calculated that the net internal rate of return (IRR) for every dollar invested across its funds so far is 81 per cent.

“Eighty-one per cent is an incredible number, and I think that when we invest in companies, we want them to be the best in the world. But we also want to show that it’s possible to build an investment firm that is the best in the world from Australia and New Zealand,” he said.

“Cambridge Associates have the best global VC benchmarking data, and that [81 per cent] figure compares as top of the top anywhere in the world.”

Two-thousand-and-twenty-one will be remembered as a year when the local tech scene significantly matured, with a large uptick in big funding rounds in the $100 million range. Importantly, there was also a number of big sales of Aussie firms.

Afterpay was sold to Square for $39 billion; A Cloud Guru was taken out for $2 billion by US firm Pluralsight; four-year-old CitrusAd was bought by Publicis Group for $205 million; and the Invoice2go was acquired for $850 million by Bill.com.

In comparison with Square Peg’s $650 million distributions back to investors, Blackbird has paid out $259 million, with its significant moments being when it sold a 40 per cent slice of its first fund for $100 million in 2019 and when Amazon acquired Zoox, the driverless carmaker founded by Australian Tim Kentley-Klay, for about $US1.2 billion.

Mr Scevak said the numbers essentially proved the virtue of the decision to focus on early-stage tech in 2012, and believed that the local industry still has a huge amount of growth ahead of it.

“This is what we had dreamed of when we started Blackbird; that the ecosystem would be at such a stage it is now, with so many great companies coming from Australia and being the best in the world in what they are trying to do,” he said.

“I think it is just the beginning, and the ultimate destination is when the top companies in Australia are technology companies. Nine of the 10 largest companies in America are tech companies; Alibaba and Tencent, the two largest Chinese companies; and I think a similar thing will ultimately happen in Australia.”