Peter Thiel, Accel Partners, Spectrum Equity, Technology Crossover Ventures and Sequoia Capital are seeking to make investments of as much as $50 million apiece in Australian and New Zealand internet and software companies, spurred on by the success of the initial public offering of OzForex and the rise in the share price of Xero.
“All the major late stage, private equity, venture capital funds are here,” Matt Barrie, chief executive of the world’s biggest outsourcing company Freelancer International Ltd, told DataRoom. “Australian companies have a good reputation for engineering and have an operating discipline that has enabled them to get far down the track in terms of business development without VC funds.”
Each of the Silicon Valley funds is seeking to make investments of between $20 million and $50 million in return for significant minority stakes of up to 30 per cent. Australian technology companies are willing to give up some equity in return for a potentially future significant payout if a US backer can introduce them to potential acquirers, even if they have yet to make a profit.
Australian and NZ VC fund sizes are dwarfed by their US rivals. They cannot make the size of investments that later stage start technology companies out of Australia and NZ want, because such an investment would be take up too much of a the equity capital of the Down Under VC fund.
US venture capital funds find Australia and NZ attractive because the business environment and legal system is similar to their home market. In addition, the competition between funds to invest in promising companies is less voracious than in North America.
Thiel’s Valar Ventures, Matrix Partners and other investors have invested about US$200 million in Xero since 2012. The value of the accounting software company’s shares has climbed more than 400 per cent in the last 12 months, making it the seventh-biggest company on the NZ Stock Exchange 50 Gross Index.
Accel, which had a 22.7 per cent stake in OzForex, sold its shares in the company’s IPO. OzForex’s stock have climbed 29 per cent since their first day of trading on October 11.
Melbourne-based online graphic design market place 99designs has received investment from Accel, which has also invested US$60 million in Sydney-based software company Atlassian.
Technology Crossover Ventures general partner David Yuan, based in the firm’s Palo Alto office, visits Australia every three months scoping out potential investments.