Growth Equity; accelerating the trajectory of Australian technology businesses

30 November 2020

Left to right: Aaron Tan (Investment Associate), Grant Chamberlain (Partner), Dr Michelle Deaker (Managing Partner) and Nigel Dews (Venture Partner).

What is Growth Equity?

Growth Equity is typically seen as the nexus point between Venture Capital (VC) and traditional Private Equity (PE). Growth capital is provided to companies with a proven business model, strong revenues, and solid unit economics, who need a capital injection to fuel their next stage of growth. Example use of funds include geographic expansion, new product development, hiring staff, funding acquisitions or corporate restructuring. It is also not uncommon for the capital to provide partial liquidity for founders, who have often bootstrapped their business and reinvested any free cash flows back into the business up until this point. Debt is rarely employed in growth equity deals.

Growth equity has been the fastest growing pool of private capital over the past 10 years, and in 2019, growth equity was the 2nd most popular private investment strategy globally (after buyout funds) in terms of total capital raised, with well over US$40b raised across North American and European growth equity funds. Investors are now piling into the space, with successful VC funds and established PE funds alike, raising multi-billion dollar growth funds over the past two years, coalescing on the growth opportunity.

The Australian landscape

Despite the explosive global growth of this pool of capital, growth equity is significantly underrepresented in Australia, making up less than 5% of PE deals. There is a dearth of capital available in Australia for high quality technology companies that are growing quickly (but not quite as fast as early-stage start-ups) and have fallen outside of the VC fairway, which typically requires 100%+ YoY revenue growth. These companies are also not yet at a scale where they are able to attract PE investors, who acquire mature companies with a long track-record of generating positive cash flows. At the same time, banks are also reluctant to lend to cash-burning businesses. Bridging this funding gap is critical to ensure the technology ecosystem in Australia continues to thrive.

Without this source of capital available in the Australian market, companies have often been pushed into unsuitable sources of funding, or have been unable to raise any money at all, much to the detriment of their future growth ambitions. This gap in the funding mix for Australian technology businesses underpinned our decision to raise a new fund, OneVentures Growth Fund V.

I’m delighted to announce that we’ve just completed first close of the new fund at $75M and are now open for new investment, read more here.

What we are looking for

We’re looking to back scale-up companies with ambitious founders and management teams, ready to take it to the next level. These companies will also have established business models and proven their product/market fit. They are also likely to be:

  • Generating healthy revenues with established customers
  • Experiencing strong growth, with a desire to accelerate their growth trajectory
  • At an early expansion stage, seeking growth capital and/or partial founder liquidity
  • Looking for an experienced strategic and operational partner to unlock their full potential

With the new fund, we’ll be partnering with technology and tech-enabled businesses. We’re generally industry agnostic investors, but some examples of areas we’re particularly interested in are horizontal and vertical SaaS, data and analytics, healthcare, education, platforms/marketplaces and back office tech (e.g. finance, workflow automation, regulation and compliance, HR), where we have strong domain expertise and a track record of success.

How to pick a capital partner

From our own experiences, we know it’s not easy to pick the right partner to support you on your journey. It’s particularly difficult for founders to relinquish control, especially when they’ve bootstrapped the business from the ground up. Here are some questions you need to ask yourself, before making a decision.

  • How much capital do I need to achieve my vision?
  • How much ownership/control am I willing to give up? (PE Funds typically require a controlling stake, whereas Growth Equity and VC investors are comfortable with minority)
  • Are our interests aligned?
  • Can I see myself working well with them?
  • Can they provide the skills, experience, and advice I am looking for?

Our Investment Approach

OneVentures Growth Fund V Investment Approach
OneVentures Growth Fund V Investment Approach

With well over 10 years of experience as specialist technology investors, we know how to scale globally competitive technology businesses. OneVentures’ values diversity of thought and opinion, and we leverage our own track records as founders and business-builders, technologists, experienced Directors of both start-ups, ASX and NASDAQ listed corporates, and M&A and consulting practitioners, partnering closely with our portfolio companies to develop and execute strategic plans.

Since we announced our intention to raise Fund V, we have met with over 100 potential companies and have been delighted with the interest we have received from ambitious founders, and the quality of the businesses they are building.

We’re excited to support Australian technology businesses achieve their vision and compete on the global stage.

If you think your business could be a fit, or would just like to learn more about OneVentures, please get in touch. We’d love to hear from you: [email protected], or contact me on LinkedIn.

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