New capital: Five up-and-coming venture firms to watch
While the tech sector is being plagued by lay-offs and cuts to valuations, savvy investors are seeing glimpses of opportunity.
Amid ongoing market carnage and lay-offs across the technology sector, venture capital firms are seeing glimpses of opportunity, and are diversifying into new sectors at amounts so small some outsiders would hardly consider it worthwhile capital.
The lower barrier to entry is being celebrated by early-stage start-ups, which now find that they can join venture capitalists along with other new businesses and learn the ins and outs of turning an idea into the next billion-dollar market darling.
Today’s venture capitalists invest amounts as little as $1000 for the right kind of ideas, while others offer a fellowship of sorts that for an investment of $100,000 allows future founders to learn the ropes with another start-up.
The Australian has flagged five of the nation’s up-and-coming VC firms and syndicates, which are hoping they can foster the next Atlassian or Canva.
AfterWork Ventures, founded in 2018 by a group of angel investors, is one of these new-age capital groups.
Since its inception, it has managed to raise a fund of $20m and invest in the likes of PropHero, a real estate investment start-up that has been dubbed the Tinder for property, as well as pet wellness company Lyka, and Samphire, a company developing a device to combat menstrual pain.
Investment principal Jessy Wu said that, long before AfterWork was born, its angel investors had enjoyed meeting each Sunday to discuss new deals. That same sense of community now exists in the VC, which offers a fellowship and regular masterclasses.
“Part of what makes it work is that these operators have also put skin in the game by investing in our fund,” Ms Wu said, referring to the VC’s unofficial fellowship, which requires investment of about $100,000.
“That really aligns their incentives financially and psychologically to the success of the fund.”
Ms Wu said the firm had since taken on 120 people, who ranged from mid-career professionals to family offices. She began as a fellow in August 2020. “It’s been heartwarming to see friendships form between portfolio company founders – we love to celebrate each other’s wins,” she said.
Galileo Ventures is another VC firm that began operating over the past few years and has since worked with some well-known start-ups.
Co-founder James Alexander admits when he and Hugh Stephens sought to raise capital in 2018, they thought the process would be finished in 12 months.
“We were very naive and we had no idea how difficult it was,” Mr Alexander said. “At the time we were in our late 20s, we had never managed a fund in our lives and neither of us had a finance background. A lot of people looked at us and said ‘are you guys serious?’ and told us to f..k off in a much politer way.”
Mr Alexander said those familiar with venture capital were less sceptical however, and the pair were able to close their first raise about three years later.
Galileo Ventures has invested in Relevance AI, which makes software providing insights, wellness game start-up Lumi Interactive and space simulation start-up Nominal Systems, which has won a UK defence contract worth $1.2m. These make up part of the 15 companies that have received first cheques that range from $100,000 to “the low millions”.
The firm is in the midst of a second raise, one Mr Alexander said was likely to result in the pair doubling their money by the time it closed at the end of the year.
“A lot of people said we needed to prove ourselves and now that we have our first results. It’s much easier now to close people,” he said. “Others have said it’s quite refreshing to see a young pair of venture capitalists who are openly gay too.”
One of the most impressive new funds to raise this year is Archangels, a former investment syndicate that has reached $32m of a $35m goal since it began a raise in late May.
Co-founder Rayn Ong said his fund had won over many for its extremely low entry point, which sees the fund invest $1000 in a good idea to help advance it into a business plan.
“We do have a pretty different strategy,” Mr Ong said. “And that lower point has been our personal thesis and strategy.”
While the entry amount is low, the firm invests as much as $500,000 in core investments and $2.5m in follow-on rounds. Among companies to get backing from the new fund are Pushas, a sneaker reseller network, investment platform pearler, B2B platform Aerotruth and NDIS software provider QuickClaim.
Folklore Ventures is the most mature of the newer VC firms, managing about $160m in funds since it started in 2013.
Founder Alister Coleman said when Folklore Ventures began, the VC market was still in its infancy.
“We felt there was an opportunity to be really fast, really diligent and really thorough,” Mr Coleman said. “We’ve continued to do that.” It helps to have a bit more of a concentrated than some VCs. We have around 20 people in the business and we can spread that support across different companies.”
Folklore’s investments range from $250,000 to $2.5m, and include up to $15m in a single company over multiple raises.
The firm has invested in autonomous drone company Swoop Aero, clinical trial recruitment company Healthmath, AI-backed education start-up CanopyStudy and crime reporting service Auror.
Mr Coleman said after several years in the industry, Folklore’s approach to investment was more “eyes wide open, not fingers crossed”.
“We’re known for being extremely diligent and that doesn’t mean we’re aiming for lower-end outcomes,” he said.
Side Stage Ventures is another pandemic-born fund whose first investment was made in hospitality payments platform Mr Yum, which on Tuesday announced a 17 per cent cut to its workforce.
The syndicate, which launched in April, has a group of about 80 angel investors ranging from first-time investors to those with years of experience.
Jaddan Comerford of Unified Music Group co-founded the syndicate with Emily Casey of What the Health? and Anthony Zaccaria of Linktree.
Asked why they had gone down the route of a syndicate rather than a fund, Mr Comerford said that building a syndicate required less of a time commitment while still allowing the “investment vehicle” it wished to drive.
“Standing up a fund is a huge commitment. Going out and raising that money is a very big time commitment too,” he said.
Mr Comerford said the group, which had invested in non-alcoholic beermaker Heaps Normal and instore audio group QSIC, had a particular focus on companies at the intersection of creativity and culture.
“A number of us come from a music and creative background. We’re looking at companies that we think are going to make an impact on culture,” he said.
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