Start-up investment booms as AirTree banks biggest Aussie VC fund yet

“There was a big gap in start-up land and VC in Australia when we started out, and really all we are doing is catching up … We are still actually underdone in terms of capital in the market, so there is a big opportunity.

“The lovely thing right now is that the ecosystem is working so well that there are just thousands of entrepreneurs out there bringing us ideas. So our job is not to be futurists, but to stay across those trends and pick them when they emerge.”

Last year Mr Blair told The Australian Financial Review that across its three earlier funds, totalling $585 million investment, its holdings in start-ups had grown to more than $2 billion in value.

Some of its most notable portfolio companies are Canva, GO1, A Cloud Guru and Employment Hero, Milkrun, Linktree, Mr Yum and Immutable.

The $700 million funding will be divided across three different investment vehicles, targeting different styles of start-up investments.

The biggest pot is $450 million for AirTree Growth, which will be used for follow-on funding in existing portfolio companies that are expanding. It has also set aside $200 million for AirTree Seed, which it said would make it the largest seed fund in the country, focusing exclusively on partnering with founders from day one in their first funding rounds.

Meanwhile, it has earmarked $50 million for what it says is the first Web3 specific fund created by an Australian VC to close.*

Web3 or Web 3.0 is the latest iteration of the internet, based largely on blockchain technology and featuring operators who promise users they can control and monetise their own data.

AirTree has made five investments in Web3 companies so far, most notably NFT (non-fungible token) trading platform Immutable, and said its $50 million allocation would target DeFi (decentralised finance), NFTs and DAOs (decentralised autonomous organisations.)

“At a fundamental level, investing in disruptive software is our core DNA, so blockchain-based technologies are a logical fit for us,” AirTree partner Elicia McDonald said.

“We’ve made adjustments to our processes as this world is different to the traditional Web2 world. We have to be flexible with ownership levels as the 10-20 per cent standard ownership doesn’t work in a world where the ethos of decentralisation is core.

“In this area in particular it will be important for us to focus on a ‘decades versus days’ mentality; understanding that there will be ups and downs in the crypto markets, and focusing on our longer-term belief in the move towards decentralisation.”

As well as AirTree’s new fund, other leading local tech start-up investment funds are likely to close big new investment rounds during 2022. AirTree’s $700 million fund close is larger than Blackbird Ventures’ $652 million fourth fund and Square Peg Capital’s $600 million fourth fund, but both of those firms are expected to announce new funds, with Street Talk reporting that Blackbird is looking to pull in more than $1 billion.

Mr Blair said AirTree could have raised significantly more than the $700 million, but believed this was the right amount in terms of its capacity to effectively deploy it.

Investment levels in local start-ups have soared in the last year, and new data provided to the Financial Review by research firm Cut Through Venture showed just how buoyant the Australia and New Zealand markets have become.

With a note that many angel and pre-seed deals go unreported, meaning the true figure could be 15-20 per cent higher, Cut Through said it had counted $10.2 billion worth of Australia and New Zealand start-up funding deals in 2021.

This included three deals over $300 million, eight over $200 million, 19 over $100 million and 46 over $50 million.

The largest investment last year was $US350 million in software as a service firm simPRO, which equated to $483 million on November 23 when it was announced. This was followed by $US325 million ($458 million) in e-commerce marketing technology company Rokt, a $284 million raise by Judo Bank and $US200 million raises at Canva and Airwallex.

A worrying statistic in the Cut Through data was that just 21 per cent of the funding last year went to start-ups with at least one female founder. Given that 21 per cent included Canva, which also raised an additional $US71 million last April, it highlighted a dramatic skew towards male-run companies.

AirTree has been seeking to address the imbalance, with measures including a move to ensure its partnership level has equal gender representation. It has six operating partners, with three women after Ms McDonald was promoted to the position alongside Jackie Vullinghs to join Helen Norton last year.

The other operating partners, alongside Mr Blair, are James Cameron and John Henderson. High-profile AirTree co-founder Daniel Petre no longer has any role with the firm after stepping back last year to focus on initiatives in the philanthropic space.

Ms McDonald said it was important that AirTree backed more diverse founders and that they were actively seeking to do so.

“This is something that is 100 per cent top of mind for us, so we actually track our diversity metrics, both from an ethnicity and gender perspective, at each stage of our funnel right through to investments,” she said.

“There’s always more that can be done in this industry, and we feel that a critical step in that process is to make sure that our team is representative as a step towards getting our portfolio to be diverse and representative of the broader society.”

*Correction: After publication The Australian Financial Review was alerted to the existence of MHC Digital Finance’s Digital Web3 Fund, founded by Mark Carnegie last year, which was launched in December 2021 and has made two investments.