How a Sydney VC made 13 times its money on one start-up investment

OneVentures’s founder and managing director, Michelle Deaker, said the $70 million transaction was structured in two parts: $30 million was made selling direct secondaries into the TCV-led funding round; then it also formed a $36.2 million continuation secondary fund with South-East Asian investors, managed by K Squared Capital.

A continuation fund is a vehicle created by investors to retain exposure to a company through a newer fund, while realising returns for investors in its earlier fund. Dr Deaker said the continuation fund was oversubscribed, and would continue to be managed by OneVentures.

“Secondaries in this format really work for investors, with those investors who want liquidity having the option to fully sell or part sell their position, and those who don’t require liquidity and value the opportunity of holding the asset for longer being able to do so,” Dr Deaker said.

Staying private for longer

Blackbird Ventures created a similar secondaries vehicle in 2019, and partner Rick Baker said he expected to see more created in the year ahead, as his VC peers look to exit their positions and return capital to the limited partners of their earliest funds.

He said successful portfolio companies such as Canva and SafetyCulture were also aware that their shareholders needed imminent liquidity and were setting up secondary transactions to facilitate it.

“Back in venture capital 1.0, an exit was basically either via selling a company or an IPO, so as a VC you could only get your money back when the company was at the end of its journey in the private market,” Mr Baker said.

“What’s happening now is that companies are staying private much longer, and often way longer than the 10-year term of a fund, so we need different methods and mechanisms to get liquidity.”

Dr Deaker said that while some secondaries attracted discounts on earlier valuations, this had not been the case with Employment Hero because there was high demand for good-quality secondaries from a range of potential buyers.

She has been Employment Hero’s chairwoman since its establishment in 2016, and remains on the board after the TCV transaction.

“In the current market, we know liquidity is more important than ever for our investors … We returned $77 million this year, which was more than we deployed, and we’d like that to be like a regular feature,” Dr Deaker said.

“Based on our projections, I think we will return $80 milllion to $100 million next year. So we’re obviously hoping the investors will recycle that capital back into new funds with us.”