Investments regulator APRA thinks Canva’s $39 billion valuation is on the money

Canva’s $39 billion valuation has been given the tick of approval by the government financial watchdog, the Australian Prudential Regulation Authority (APRA), in a sign that investors have been getting it right when backing private tech companies.

The regulator ran its ruler over Canva, which celebrated the 10th anniversary of its launch last week, as part of a review into the governance practices of registrable superannuation entity (RSE) licensees.

Several have a stake in Canva through their investments in venture capital funds run by the likes of Blackbird. The VC holds a 15% stake in Canva, worth around $5 billion and last month, sold a $150 million slice of that equity from its early fund as it heads to maturity. AustralianSuper, Hostplus, HESTA, Telstra Super and Aware Super are among the investors in Blackbird’s funds.

The sale delivered a return of around $17 million to Hostplus.

APRA decided to take a closer look at what’s going on after private tech stock valuations began to tumble over the last 18 months. It chose Canva as the focus of unlisted asset valuation governance due to its public profile in a higher-risk asset class.

While super fund investments into startups via VCs looks like petty cash when it comes to overall funds under management, rising valuations have nonetheless bolstered the returns of the funds involved at a time when volatile stock markets have seen diminished performance, including losses for annual ROIs.

Canva remains a private company that in less than a decade saw its valuation peak at $54.5 billion in 2021. At that point Blackbird valued its holding at $8 billion 

But 12 months ago, Blackbird, along with Canva’s other Big Three VC investors, Square Peg and Airtree, which also have super funds backing them, all agreed to cut Canva’s valuation by 36%.

The revelation that APRA had been looking into the issue of Canva’s valuation as a case study from late 2022 provides additional context on the collaborative efforts the VC funds went to in engaging Big Four consulting firm EY to run its ruler over the valuation and agree on the company’s worth.

At the time, Airtree partner Craig Blair said the drop was in line with the market “and an important measure for our superannuation investors”.

Canva’s August 2022 valuation subsequently held its ground over the last year, leading up to the secondary market sale of shares last month.

APRA originally flagged the issue of unlisted asset valuation and governance practices for super funds and their asset managers (ie. the VC funds) in 2021 saying it “expected to see improvement in certain areas”.

It did, with the review finding the majority of RSE licensees’ governance practices around their valuation of Canva appropriate. But it also delved into concerns around the relationships between the super funds and the VCs investing their cash, saying there are some areas for improvement.

APRA said they observed some instances of:

• inadequate interim revaluation triggers in valuation policies;
• deficiencies in information provided to the Board;
• gaps in Board skillsets, willingness to challenge information provided and access to expertise; and
• lack of consideration of the expected performance and unit pricing impact of valuation decisions.

Overall, the watchdog is happy with the improved efforts of the super funds after a warning shot across their bows, especially when it comes to challenging what the VCs are telling them.

“Valuation methodologies applied by RSE licensees were consistent with their respective valuation policies and RSE licensee practices and policies were broadly in line with APRA’s expectations,” APRA said in a letter to the super funds today.

“We observed examples of better practice by RSE licensees, particularly relating to querying the valuation approaches of appointed investment managers and reflecting valuation adjustments according to the specific circumstances and policies of the RSE licensee.”

Amid some high profile startup failures that delivered no return for investors over the past year, other private tech company valuations have seen massive plunges. The most prominent was the CBA-backed Swedish fintech Klarna, which fell by 85% in just 12 months from US$45.6 billion in June 2021 to US$6.7 billion following a US$800 million raise in July 2022. That led to a $2.3 billion write-down on the value of CBA’s investment in Klarna to just $408 million on June 30, 2022, less that the $470m the bank invested in the BNPL.