Square Peg Capital has closed its latest fund at $US550 million ($861 million) setting a new high-water mark in Australian venture capital fundraising.
The new fund eclipses the previous record of $700 million set by AirTree Ventures early this year and compares with the $600 million raised by Square Peg for its previous fund.
The Melbourne-founded firm, which has grown to have additional investment teams in Sydney, Singapore and Tel Aviv, has now raised a total of around $2.4 billion and, significantly, has returned around $937 million to investors.
The new capital will be deployed via two investment vehicles, a core venture capital fund, which will invest from seed stage to Series B rounds, and a growth capital fund, which will make larger follow-on investments in the most successful businesses in the firm’s portfolio.
While the new raising is Square Peg’s fifth, the investment vehicles are titled Square Peg Fund 4 and Opportunities Fund 2.
Square Peg co-founder and partner Paul Bassat conceded that fundraising conditions had become less favourable in recent months and noted that most of the commitments had been made early in the year.
However, he said the most important factor in raising the larger fund had been the maturing of the LP (limited partner) ecosystem in Australia. Some LPs were now consistently allocating to the venture sector. LPs that had allocated to the new fund included super funds Hostplus and AustralianSuper plus fund-of-funds manager Roc Partners.
Bassat said Hostplus was the largest investor in the new fund and this was the fourth Square Peg fund to which it had allocated.
While venture firms around the world are increasingly specialising in particular sectors, Square Peg plans to remain a generalist investing across areas that have been successful for it to date such as software, internet businesses, health-tech and edutech and to invest across different geographies.
To date, Square Peg has invested in more than 60 companies and has received around a dozen returns of capital through full or partial exits. The internal rate of return (IRR) is running at 42%.
During the last few years, the title of Australia’s largest venture fund has turned over quickly and that may continue to be the case with Sydney-based Blackbird Ventures expected to close its current fundraising at over $1 billion, soon.
What happens after that will depend on overall economic conditions. Venture firms will find it much harder to raise large funds in a downturn despite such periods, historically, providing the best early-stage investment opportunities.
Image: Square Peg Capital co-founder Paul Bassat.