Square Peg seeks $US500m for tech funds

Square Peg Capital is embarking on the biggest capital raising in its history to back tech companies in Australia, Israel and Asia.

Square Peg Capital co-founder Paul Bassat. Picture: David Geraghty

Square Peg Capital, the venture capital firm backed by a host of the nation’s richest people, is embarking on the biggest capital raising in its history to back technology companies in Australia, Israel and Asia.

The Melbourne-based Square Peg, which counts James Packer, the billionaire Liberman family, Moose Enterprises boss Manny Stul, Evans and Partners founder David Evans, Seek chief executive Andrew Bassat, RBA director Carol Schwartz and retired UBS chief Matthew Grounds among its investors, is raising $US500m ($738m) for two new funds.

The first $US300m fund, to be known as the Square Peg Fund 3, will have the same strategy as the group’s three prior funds: investing in technology entrepreneurs across Australia, Israel and Southeast Asia with a focus on Series A and B funding rounds. It will invest in up to 20 companies.

The second $US150m fund, to be called the Opportunities Fund 1, will focus on later stage investment rounds of companies that Square Peg already invests in.

Those investments will be focused on up to 10 companies in Square Peg’s portfolio. The fund will have lower fees than Square Peg’s existing three funds, which are known as Funds Zero, 1 and 2.

The rationale behind the establishment of the Opportunities Fund is that a number of Square Peg’s portfolio companies have grown to a significant size and the venture capital firm doesn’t currently have the financial firepower to back them as aggressively as it would like to.

Square Peg’s founders and partners, who include former investment banker Tony Holt, former MYOB executive Barry Brott and a member of the billionaire Liberman family, Justin Liberman, are also board members on a number of the investee firms.

Meetings with Square Peg’s current and prospective investors have been scheduled in Melbourne and Sydney this week and next to discuss the capital raisings ahead of closing the allocations in late March.

Square Peg principal and co-founder Paul Bassat declined to comment specifically on the details of the raisings, but said they highlighted the growing maturity of the Australian technology ecosystem.

“If you look at the formation of companies that have $100m valuations, it is three times the rate it was when we started Square Peg in 2012,’’ Mr Bassat said.

“There is real momentum in terms of what is happening in the evolution of the industry.”

In October Square Peg’s rival Airtree, founded by Daniel Petre and Craig Blair, closed its third fund at $275m.

It came after AirTree’s $250m fund in 2016 and a $60 fund in 2014.

When Square Peg closed its Fund 2 in 2018 at a value of $US235m, which was then the biggest venture capital fund raising in the nation’s history, it was backed by industry super fund giant Hostplus and two other local super funds.

They and other super funds are expected to support the new raisings.

James Packer’s Consolidated Press Holdings has around $95m directly invested in Square Peg and co-invested with the venture capital firm in a range of companies, including ride-sharing giant Uber, Israeli freelance marketplace Fiverr, southeast Asian property portal PropertyGuru and Singaporean search engine Wego.

Last year Fiverr and another of Square Peg’s portfolio companies, small business lender Prospa, successfully listed on the Australian and New York stock exchanges.

Another, cross-border payments fintech Airwallex, became a unicorn with a private valuation of more than $US1bn.

Mr Bassat said Square Peg’s portfolio of more than 20 companies generated $1.2bn in revenue last year, up 50 per cent on the prior year.

“You are seeing real growth in a very objective metric,’’ Mr Bassat said.

Since 2012 the portfolio companies have also raised $4.5bn, excluding capital raisings by Uber and payments group Stripe, which is also backed by Square Peg.

Square Peg is currently also hiring four investment managers and a chief financial officer and relocating some of its partners to strengthen its positions in Asia and Israel.

Venture capitalist Philippe Schwartz, who has been based in Boston, is moving to Tel Aviv to work alongside former Seek executive Dan Krasnostein, who opened Square Peg’s Israel office in 2014.

“Having both Dan and Philippe based in Tel Aviv, with an investment team on the ground, gives us more critical mass,” Mr Bassat said.

Partner Tushar Roy is also moving to Singapore in the next three months, opening Square Peg’s first office in Asia.

Former Telstra chief executive David Thodey is also a special adviser to Square Peg.