Telstra Ventures’ Matthew Koertge closes $500 million third fund amid VC pain

“It was definitely harder than it has been. The environment is obviously very important, and I think people are just cautious,” Koertge says.

Telstra was also a significant investor in the third fund.

Koertge says investor commitment to the alternatives asset class remains strong, and several large US venture capital funds have pulled off sizable fund raisings recently.

But he says Telstra Ventures has two other important selling points for investors.

First, it has been able to help portfolio companies generate more than $640 million in revenue by selling to Telstra’s enterprise customers.

Secondly, its five-year investment in data science is helping it invest in better companies with better growth prospects. for all the bad news out of start-up land recently, Koertge says Telstra Ventures portfolio companies ended last financial year with cumulative revenue 20 per cent ahead of expectations.

‘Not out of the woods’

That operational success is one of the reasons Koertge sees the period as very different to the dot-com bust or the gobal financial crisis, both of which he lived and invested through.

“We’re definitely not in that sort of territory, but we’re not out of the woods either.”

Telstra Ventures has clearly pulled its horns in this year; where it would typically make 12 investments a year, it did just one in the March quarter and one in the June quarter.

And while Koertge says it has managed to dodge the “down rounds” washing through the VC sector – where a start-up raises money at a lower valuation than its previous funding round – he has seen a marked change in both valuation levels and, in particular, the terms on which money is being raised.

Indeed, he says when a start-up is actually willing to publicly announce the valuation it has raised money at, that number won’t really tell you the whole story, given the stringent conditions investors are demanding. These include liquidation preference agreements, in which new investors can demand to get paid back their money (or even multiples of their investment) before older investors.

“A lot of people are saying ‘You tell me the valuation, and then I’ll tell you the structure that I want,’” Koertge says.

He believes the new reality of lower valuations and more investor-friendly terms will only fully wash through the sector in the next six months. And while that won’t be pleasant, it’s probably healthy.

“Last year there were lots of investments being done very quickly, on quite generous terms. And I think there were also a lot of investors that were not usually part of the venture ecosystem – tourist investors as they are sometimes called – who were investing a lot of money. That environment has definitely cooled down a little bit, which is good.”

Given the size of funds recently raised by Telstra Ventures and other VC firms, Koertge says a bit of certainty around concerns such as rising interest rates, the war in Ukraine and the global economy might see confidence return to the sector fairly quickly.