AUGUST 4 2020

Published in the Australian Financial Review

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Local venture capital outfit Our Innovation Fund has closed the first tranche of capital for its second fund, banking $60 million from a mix of high net worth investors, family offices and founders of its portfolio companies.

The fund, which is targeting a final close of $75 million, has kept a relatively low profile to date. But, through its first $50 million fund it has backed emerging success stories such as workplace training marketplace Go1, Malcolm Turnbull-backed cyber security company Kasada and artificial intelligence powered navigation and robotics business Advanced Navigation.‍

Our Innovation Fund executive team Isabella Rich, Jerry Stesel, Geoff Levy, David Shein and Laurence Schwartz. have raised the first tranche of capital for its new $75 million fund.

Speaking to The Australian Financial Review, OIF partner Laurence Schwartz said though it had not yet had any exits from its first fund, it was tracking at a compounded annual rate of return of 32.7 per cent after tax, which would put it in the top quartile of global funds like Accel and Lightspeed.

"While not cornerstoning the fund, before the founders have had exits they're investing in the second fund. They feel like we've added value to their business," Mr Schwartz said.

"We see ourselves as an extension of the businesses we invest in. What's always worked well for us is to roll up our sleeves and add value ... and that's resonating in the market."

While the fund is yet to have its first exit, it is expecting two or three to come through in the next 18 months, with one of its 12 portfolio companies considering an initial public offering.

OIF invests purely in Australian businesses, not backing any offshore companies, and specifically targets those wanting to expand to the US, where it helps them set up networks with potential customers and new investors. Its portfolio companies have so far raised more than $250 million in additional capital from notable US funds.‍

Pandemic deals‍

OIF founding partner Jerry Stesel said despite the COVID-19 outbreak deal flow had been strong for the fund this year.

"We've already done two deals in the second fund and we have five deals at the pointy end of due diligence that we're very excited about," he said.

"Deal flow for our business is very much feast or famine. We could go two weeks and there's no opportunities [we're interested in] ... and then in the next week there will be 10 interesting companies.

"[The pandemic] makes you really focus on businesses that will be resilient in a down market. Then there's themes we're even more focused on now around things like remote work, remote operations and making businesses more efficient. On the revenue side, we're looking for things that help businesses convert more customers."

So far, Go1 has been one of the fund's most successful portfolio companies. It is the only company it has invested in to date off a "cold" approach, following a fortuitous breakfast meeting.‍

In mid-May the business, which has a partnership with SEEK and has also been backed by the job ads company, closed a $62 million raise, led by early Amazon investor Mardrona Venture Group. At the time Go1 reported a 500 per cent jump in usage of its corporate training platform, as employers sought solutions to help employees increase their skills while working from home.

Go1 chief executive Andrew Barnes said OIF had three core values – founders (supporting them), fund (generating returns for stakeholders) and fun – and they had upheld these since buying into the business a few years ago.

"The OIF team have been incredibly helpful – particularly with our US expansion where we’ve seen 5x growth over the last 12 months," he said. "Their networks are strong for both prospective partners and customers. For example, they helped organise an introduction to Walmart."

The co-founder of construction operations software business Assignar, Sean McCreanor, said the investors were pragmatic and empathetic towards its portfolio companies and their customers.

"They're not spreadsheet jockeys that hit the panic button when something comes out of left field (like, say, a Black Swan event like COVID) but they really add value especially in the early stages of a growing tech company," he said.

OIF still has 20 per cent of its funds from its first fund to invest, but this has been earmarked for follow-on investments in its existing companies.

When COVID-19 struck, OIF already had $50 million worth of funds committed and legally binding contracts signed, but the fund gave all investors the option to withdraw their capital regardless. Almost all investors opted to stay in, including the nine portfolio company co-founders who bought in and so-called "leading individuals" from companies such as Canva and Zip.

While the likes of Blackbird, Square Peg and Airtree have raised upwards of $250 million in the past few years, Mr Stesel and Mr Schwartz said $75 million was an appropriate size for OIF's fund two, given its focus purely on Australia.

"Funds like Square Peg have more of an international thesis, looking for opportunities in Asia and Israel too. But we're focused locally and we think this is enough capital to back local opportunities, but not too much capital that we spray and pray."