SEPTEMBER 6 2022

Published in The Australian Financial Review

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Some of the country’s most successful local founders have bought into OIF Ventures’ new oversubscribed $140 million fund, undeterred by the slowdown in private sector funding rounds.

Investors in the fund include Instaclustr’s Peter Lilley, and XM Cyber’s Noam Erez – cashed up from their recent M&A deals – as well as co-founder of education tech unicorn Go1, Andrew Barnes.

The venture capital fund, which was founded in 2016 and counts Jerry Stesel, Geoff Levy, David Shein and Laurence Schwartz as partners, has an annual internal rate of return for its first fund of 45 per cent, and 89 per cent for its second fund.

While substantially smaller than the country’s biggest VC funds, OIF has already had two complete exits and two partial exits to date.

Its first $50 million fund has already been returned to investors multiple times over thanks to the $US700 million acquisition of XM Cyber and the likely billion-dollar-odd acquisition of Instaclustr by US cloud tech giant NetApp. The terms of this acquisition were not disclosed.‍

It has also sold some of its shares in Assignar and EFTsure. The four deals have collectively returned a gross money multiple (a reflection of how much the fund has made on those investments) of 10.7 times.

Speaking to The Australian Financial Review, Mr Stesel said the success of the fund meant it was able to raise its first $100 million (its original target) in only 24 hours.

“We could have raised more than $140 million, but we wanted to close it there,” he said.

“We’re seed to series A, and we run a concentrated portfolio where we want to spend a lot of time with founders. It is harder to deploy a $500 million fund, just focused on Australia, in the stages we focus on.”

The bulk of OIF’s fresh capital comes from existing investors, with the majority of the founders of its portfolio companies buying in.

Other businesses backed by OIF include bot mitigation and automated cyber threat protection company Kasada, software company Clear Dynamics, robotics business Advanced Navigation, and people management software company Enboarder.

It has not raised capital from institutional investors for any of its three funds, instead favouring founders, CEOs of listed companies, family offices and high net-worth individuals.

“They’re founder-focused, value-adding and everything you would want in a partner. It’s great to be backing them in this fund and through them backing the next generation of Australian technology founders,” Mr Lilley said.

The new fund comes only a little over 12 months after OIF extended the size of its second fund from $75 million to $100 million.‍

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Valuations steady‍

While Blackbird Ventures, Square Peg Capital and AirTree Ventures have all marked down some of their investments, including Canva, on the back of the listed tech sell-off and rising interest rates, which put pressure on valuations, OIF has made the decision not to write down any of its holdings.

“We’ve held then steady,” Mr Stesel said.

“A number of our companies actually closed funding rounds in this quarter, which were big up rounds ... and in most cases, if anything, we should have marked them up.

“But we’re conservative. In our first fund, we held EFTsure at our initial investment value of $3 million the whole time, even though when we partially exited, it returned closer to $30 million.”

Not having institutional investors, Mr Stesel and Mr Schwartz said, gave the fund this flexibility because it doesn’t have limited partners needing to report on a quarterly basis.

“Valuations quarter to quarter don’t have a practical impact because you’re not being paid on the valuation at that point in time,” Mr Schwartz said.

From the new fund, OIF intends to invest in 10 to 15 companies, with first cheques starting at $2 million to $5 million.‍

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Follow-on fund‍

While the fund intends to stick to its core focus of early-stage investing, it is considering raising a larger growth fund next year.

“When companies like Go1 go onto series B and C raises, it becomes too late-stage for us with our current fund focus,” Mr Stesel said.

“With a growth stage fund, we’ll have the ability to follow on, so it’s something we’ll look to do in the new year.”