‘Australian Tiger Global’: VCs firms split over investment strategy

“They only back up the dump truck of cash on their best bets,” said one start-up executive, on condition of anonymity.

Blackbird’s strategy has angered several smaller funds, but none will speak publicly because the Australian start-up industry is small and funds commonly invest together. They fear founders will be left exposed if they cannot show progress to justify Blackbird’s high valuations and may struggle to find other investors.

“I need to eat,” one venture capital figure said when asked to comment on record. Others grumble that the fund has become an “Australian Tiger Global”, in a reference to the US fund that became a byword for indiscriminate investing at high prices.

A third said Blackbird’s strategy was similar to that of a well-funded start-up such as Uber, which once used its greater financial firepower to undercut its competitors on price. “They’re going super aggressive, super early,” they said.

One investor, who admires Blackbird’s strategy, said it ensured the fund had access to invest again in its best performing companies. Even if Blackbird overpaid for mediocre or doomed companies, that would be a small expense relative to the size of its funds, the person said.

Rather than asking for board seats or fighting with company founders over price, the investor said Blackbird was asking for the right to invest more in future if it wanted to.

“I don’t know how [other funds] can compete with Blackbird’s brand, Blackbird’s cheque size, Blackbird’s valuations,” the person said.

A Blackbird spokeswoman did not answer several specific questions about its investments, but said the fund had always invested early and was not changing its strategy of backing companies long term.

“We choose to invest very carefully, investing in a dozen new companies a year in Australia,” she said. “The number of new start-ups we invest in every year has not changed.”

Blackbird has previously told The Australian Financial Review it made 21 seed or pre-seed investments last year, globally. That pace is much higher than other funds, which have all been doing a greater percentage of deals earlier, according to data on publicly disclosed deals from Cut Through Venture. This data is incomplete because it does not count private transactions.

Other funds are taking a different investment approach. Industry sources said Square Peg Capital, has only made about three new investments in Australia this year and is deploying its cash more slowly than in the past.

Partner Paul Bassat would not confirm that figure but said the fund always did a relatively small number of new investments, averaging around four to six in Australia.

“Our approach is a very high conviction strategy, so when we give a term sheet to a founder they know we’re absolutely committed to what they’re doing,” Mr Bassat said. He declined to address Blackbird’s strategy.

A spokeswoman for AirTree Ventures declined to comment on Blackbird, but said it had made six new investments in the second half of this year, half before the start-ups had any sales.

“There’s a compounding effect of consistency, and the number of deals and amount of capital we deploy this year is in line with our long-term averages,” she said. “Our pacing for our 2021 fund is slightly longer compared to our average, as we sat out when the market or a deal got too hot.”

Smaller funds Tidal Ventures, Black Nova Venture Capital, AfterWork Ventures, and Flying Fox Ventures all declined to comment. Folklore Ventures said the quality of deals mattered more than the quantity or size.

Galileo Ventures partner James Alexander said that large funds were important partners but often missed newer companies. Mr Alexander, whose fund writes cheques in the hundreds of thousands, said larger funds sometimes wrote cheques to keep their options open whereas Galileo committed to its companies.

“Many of our investments never spoke to Blackbird or the larger funds until after we had invested,” Mr Alexander said.