Blackbird’s earliest fund, which closed in 2013 at $28.2 million, is valued 33.8 times higher at $952.7 million, while AirTree’s $60 million 2014 fund is valued 12.3 times higher at $740 million.
Square Peg said its first fund, called “Fund Zero”, operated from 2012-2015 and had grown by 10 times from $150 million invested, to a total value of around $1.5 billion.
Blackbird invested $3 million from its 2013 fund into Canva, which has since grown by an eye-watering 337 times. The company contributes just over 85 per cent of the 2013 fund’s current value, which it has begun returning to investors through a recent $150 million secondaries sale that valued Canva at $US25.5 billion ($39 billion.)
Across all of its funds, Blackbird has a Canva stake that was valued at $5.5 billion, before the recent sale.
Canva is one of the few companies that appears in the portfolios of all three of Australia’s most prominent VC funds.
On Monday, the Australian Prudential Regulation Authority said superannuation funds – which invest in local VC funds – had been too slow to mark down Canva’s valuation, after its VC backers chopped it from $US40 billion to $US25.5 billion last year. Even at its lower valuation, Canva still represents a big win for its earliest investors.
“Our first Blackbird fund is one of the best venture capital funds in the world for its vintage,” Blackbird co-founding partner Rick Baker said.
Tolerance for failed investments
“Venture capital is a power law business, meaning we expect the majority of the returns of any one fund will be made by a small number of the investments. The trick with venture capital is to not miss the really big successes.
“But this fund is not just a Canva story. The fund has a number of other standout investments such as SafetyCulture, CultureAmp and Zoox.”
Indeed, Blackbird’s books show that, from its first fund, its investment in SafetyCulture has grown by 39.9 times, Culture Amp has grown 13.7 times, and it has also made impressive gains on Zoox, Skedulo and Propeller.
The concept of power law is espoused by VC operators to explain the tolerance for failed investments, that would make professionals in other asset classes wince.
It means most profits are generated by a small number of a fund’s portfolio companies.
“Data over many decades shows that a handful of successful investments generate the majority of profits in the best VC funds. Some call this the Babe Ruth effect, as even though he struck out more than the average baseballer, he was one of the sport’s greatest hitters,” AirTree partner John Henderson said.
Paying out
AirTree’s co-founding partner Craig Blair said timing was incredibly important in the VC industry, and that he and Daniel Petre had started the firm at a perfect moment.
Its first fund contains three companies that have valuation growth multiples ranging from 20x to 168x in Employment Hero, Pet Circle and Canva.
“Multiples are an interesting early guide for our LPs, but really what they care about is cash returns,” Mr Blair said.
“We don’t want to sit on paper valuations, which is why we’ve already realised $260 million from our first fund at an IRR [internal rate of return] of 51 per cent for our LPs with a lot more to come.”
That $260 million returned has come from AirTree selling down its shares in all three of those companies from its first fund, including selling a portion of its Canva stock to new investors in the 2021 funding round that saw Canva briefly valued at $US40 billion. It also bought in from a later fund in that same round.
Having returned $260 million from its $60 million first fund, Mr Blair said there was still 68 per cent of the funds’ asset value still to realise.
“It is going to be 12x, and could still be much higher than that,” he said.
“In history only 12 per cent of funds return over 3x, and our return on $60 million is already 3.3x in cash. With another 6x to go, you are talking the top 2 per cent of funds globally.”
Mr Baker said Blackbird had already returned 3.5 times the invested capital of its first fund, and that a further 30.3 times the invested capital was still invested in portfolio companies, and still to be realised.
“The first fund invested in 20 companies. Ten of the companies are still active, five have been sold, and five have not succeeded,” Mr Baker said.
“We’re working on a liquidity plan over the next few years, which is focused on the trade-off between returning capital to investors sooner, versus maximising returns over a longer time. It’s a nice problem to have, but an interesting conundrum nonetheless.”
Square Peg’s head of distribution, Leila Lee, said it had already distributed $650 million back to investors from Fund Zero, with the returns coming from 35 per cent of the companies it had backed, and a remaining value of $850 million still to realise.
“Aligned with the power law dynamic of venture capital, we have a handful of Square Peg portfolio companies driving the majority of value across our investment geographies,” Ms Lee said.
“Some of the key contributors have included Canva, Fiverr, Rokt, PropertyGuru, Vend and UpGuard.”
