When Julio Ribeiro began tapping venture capital firms last year for his Sydney-based medical technology startup, he feared it would be a hard slog. Instead, Inventia raised A$10 million ($6.8 million) in a matter of months and ended up turning some U.S. investors away.
The strong interest came from an unlikely quarter — venture capital firms backed by local superannuation funds. The typically risk-adverse money managers are embracing the sector as they diversify investments to generate higher returns. Funds including Hostplus and Telstra Super helped VC firms raise a record A$1.3 billion last year, up from A$200 million in 2014 before super fund interest took off, Australian Investment Council data show.
There was a "decade of darkness" where super funds didn't want to touch venture capital, said Craig Blair, the co-founder of AirTree Ventures, which for years had to rely on family office money and high-net-worth individuals. "It's completely changed the dynamics of raising funds."
For firms that manage A$2.9 trillion, the world's fourth-largest retirement savings pool, it's not hard to see the attraction — particularly at this point in the cycle. Ten-year U.S. Treasuries yield about 1.8%, some government bonds are in negative territory and volatility has become a hallmark of equities globally. Acorn Capital Investment Fund Ltd., a Melbourne-based investor that's raising up to A$50 million with Scale Investors Ltd. for a fund to back female-run startups, is forecasting average annual returns of 20% over the vehicle's lifetime, fund manager Xing Zhang said.
"The traction we've seen in venture capital is largely driven by institutional-level investment from domestic superannuation funds," AIC's Chief Executive Officer Yasser El-Ansary said. "And that's made a very significant impact."
More than one-quarter of venture capital firms in Australia now manage money on behalf of super funds, according to a July survey by KPMG and Innovation Bay. It's led to an increase in both deal activity and transaction size as investors hunt the next unicorn.
Hostplus, which has assets under management of A$43 billion, has put money into early stage companies such as Culture Amp and Canva Inc. via VC firms including Blackbird Ventures. The nation's largest super fund, AustralianSuper, meanwhile, favors co-investments in later stage rounds to minimize risk.