Tech investors from Australia have bet heavily on mega startup Canva. Now, they’re about to be tested

Square Pegg said it would update its valuation in the next quarter starting June 30, with the value of companies deemed “material” determined by an independent assessor. AirTree will also update its valuation on its usual quarterly cycle on June 30.

Each fund insisted that even without Canva, their performance was stronger than that of competitors in Australia and abroad. And it is typical for venture capital to make one or several other investment decisions for great bets, given that high failure rates are expected among start-ups. At a lower valuation, Canva would still be an impressive pick for the funds that have invested in it, particularly Blackbird, which got into Canva early on and backed it repeatedly over many years. Despite the steep fall, Blackbird’s investment in Canva is poised to deliver huge returns to its investors.

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

blackbird

Blackbird advertises its fund under the banner of Seeking “Wild Hearts Ideas of the Wild”, even as messianic founders like WeWork’s Adam Newman are being pilloried in popular culture. Credit:blackbeard

AirTree co-founder Craig Blair acknowledged in an interview that the price paid for start-up investments had gone up over the past year, but disputed that AirTree has struck too many deals at very high prices.

Blair said, “I think it’s fair to say that any investor who has invested in growth-stage companies in the past 12 months has…

He said AirTree was disciplined in its investments, accounted for valuations returning to long-term averages, and paid prices accurately reflecting the markets at the time of deals. Paul Bassat, who co-founded job site Seek in 1997 and then Square Peg in 2012, told Sydney Morning Herald And age He widely believed in decisions made while the market was hot, pointing to a stake in companies that had good internal economics and wealth reserves, but also acknowledged that times would be tough.

“In the current environment, we probably expect some write-downs in the next six or 12 months, we are going to see more failures in the venture capital portfolio for the next year or two than last year or two, Bassat said. “But I wouldn’t necessarily be thinking that by June 30, there would be significant write-downs.”

How does venture capital work?

  • Venture capital funds sign up investors, such as superannuation funds or wealthy individuals, who are willing to make high-risk, high-reward bets on a start-up.

  • The start-ups they invest in are almost always unprofitable, and by design they are just starting out. But as a general rule, venture funds expect between two-thirds and three-quarters of investments to fail, with all of the fund’s returns generated by a handful of major successes.

  • In return for an influx of cash, often contributed through multiple funding rounds as the business grows, the company funds equity, or shares, and often gives a board seat.

  • When all goes well (which is the exception, not the rule), the start-up thrives and eventually achieves an “exit”—either through an initial public offering on a stock market, or to a larger company. through sales. Venture funds and their investors usually book a significant return on their initial investment.

Responding to an email to questions, Blackbird co-founder Nikki Skewak predicted a bullish outlook.

“While multiples have contracted, we are not seeing anything to suggest that companies in Australia and New Zealand have reduced quality,” Ssevak said.

A Canva spokesperson pointed to the company’s positive metrics and noted that valuations varied, including some investors who didn’t change their valuations and others who lowered their valuations by 10 or 20 percent. “Valuations with institutional investors are being heavily influenced by public ‘peer comparisons’ which are turbulent primarily due to the broader macroeconomic environment,” the spokesperson said.

Airtree's Craig Blair, Blackbird's Nikki Skewak and Square Peg's Paul Bassett.

Airtree’s Craig Blair, Blackbird’s Nikki Skewak and Square Peg’s Paul Bassett.Credit:Dominic Lorimer / Oscar Coleman / Arsinh Hospian

Blair stressed that venture capital funds are ultimately judged on the cash they return to investors.

But the drop in valuations will still reverberate across the region. That would hurt start-ups trying to raise money — or facing — by handing over more equity in exchange for the cash they need to survive. Others will spend less cash, hire fewer people, and reduce marketing as they try to retain existing money for as long as possible and show investors they have a way to make a profit. . Start-ups that raise at low valuations also face the prospect of demoralized employees who were hoping that the value of their shares would continue to rise.

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Square Peg, Blackbird and Airtree all said they would not introduce harsh non-standard clauses in deals to protect their investments despite the downturn, each insisting they have the funds to deploy and that they are looking for good companies. Looking for. If the field cools down some of the strongest start-ups are likely to benefit from less war for talent.

VC funds, on the other hand, will be indirectly affected as investors, such as the retirement funds of the country, will almost never see the pink picture when considering investing in their next fund. In a 2021 deck, Square Peg is seeking $550 million in its fifth-generation funding, with an initial close in February of this year targeting and a final closing in the second quarter.

Airtree’s Blair said, “We’re not growing and we won’t grow well until the end of next year.” Square Pegg’s Bassat said it was “essentially done” raising their latest round of funding, though they didn’t close.

As seen by Blackbird Funds Deck in 2022 Sydney Morning Herald And ageIt is seeking $1 billion, split between two Australian funds and one New Zealand.

“We are currently raising our fund and it is coming together well so far,” Skewak said of whether the fund was closed.

Blackbird is advertising its funds under the banner of investing in “wild hearts with wild ideas” – highfalutin language at a time when Messiah founders such as WeWork’s Adam Newman is being bullied in popular cultureBut the servant is adamant that the phrase stands.

“even more so!” When asked if it was right for the time being, he replied. “As markets and economic conditions become more difficult, only businesses that deliver incremental profits suffer, and it is those with great ambition who want to make real change and solve the biggest problems that are successful. “

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