We’re all-in: Canva backer Square Peg raises $850m fund

Tech veteran Paul Bassat says the carnage tearing through Australia’s start-up sector is providing new opportunities for investment, and he’s putting his money where his mouth is.

Square Peg’s Melbourne team: Dan Krasnostein, Jenna Sheils, Paul Bassat, Leila Lee and Ben Hensman.

Australian venture capital outfit Square Peg is undaunted by the market carnage tearing through the start-up sector, closing its fifth fund worth $850m and embarking on a hunt across Australia, Southeast Asia and Israel to back the next generation of high-growth technology companies.

The investment firm, co-founded by veteran tech entrepreneur Paul Bassat, is confident it can find plenty of companies in the mould of Canva, Rokt or Airwallex to invest in, despite the tech industry being hit by widespread lay-offs and depressed valuations over the past year.

Canva, one of Square Peg’s key portfolio companies, has had its valuation marked down by about 50 per cent this year, while some of its other tech companies, including HealthMatch, Stripe and Fiverr, have been forced to cut staff as economic uncertainty and a fluctuating sharemarket continues to hurt private tech companies. “It certainly is a tougher market now,” Mr Bassat said in an interview. “But what we’re seeing in this country is a maturing of the tech ecosystem. Increasingly what we’re seeing is people backing us over an extended period of time, vintage after vintage, and that’s HostPlus and AustralianSuper, our largest backers, and other investors including family offices too.

“The main difference is whenever you’re in an environment where you’re going through a degree of change – particularly negative change – people want to understand your view of what’s happening in the market and understand our perspective.

“Our view is that one, valuations are normalising, and two, the rate at which start-up activities occur in Australia across 2022, 2023 and 2024, the years when we’re going to be investing the bulk of these dollars, they’re likely to be really, really attractive periods to be investing capital in start-ups.”

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

Alongside existing investors Hostplus, AustralianSuper and Roc Partners, Square Peg has landed a number of institutional investors for its new fund, as well as a range of family offices, institutions and endowments, and the Square Peg team is also a significant investor in its funds.

Mr Bassat pointed out that Square Peg is the first Australian-founded VC fund to have raised a fifth vintage of funds. The company has returned over $900m to its investors across 11 exits, at an internal rate of return of 42 per cent. Square Peg’s new capital will be deployed across its core venture fund and an ‘‘opportunities fund’’ which is used to invest in the later stages of its best-performing portfolio companies.

“I don’t think we should see 2022 as an outlier year. I think the reality is that 2021 was the outlier year, and so far 2022 doesn’t feel dramatically different from other years like 2019 and 2020.

“Clearly there were some excesses through the market. I do think we did a great job of returning capital to investors through that period. But also I think that in hindsight, we could have been a little bit slower with our cadence in investing through 2021.

“If we were using the analogy of residential real estate market in Australia, it got to a very high level through 2020 and 2021 before it started to decline, and a lot of the experts are expecting that it might decline a bit further. I would say that the story of start-up valuations isn’t that different to the story of residential real estate.”

Canva co-founders Cameron Adams, left, Cliff Obrecht and Melanie Perkins. Picture: John Feder

Square Peg is competing against other high-profile local venture capital firms such as Blackbird and Airtree in wooing ambitious technology founders, and Mr Bassat described his team’s point of difference as having a culture of being ‘‘all in’’. “When you talk to the founders that we back, we are all in. We are a very, very high conviction investor,” Mr Bassat said. “We don’t make as many investments as some other funds do. We back our founders – we’ve now backed some companies six or seven times – and we are all in everything that we can bring as an organisation in terms of our knowledge, our expertise, our networks and our passion.

“Great founders usually have choice of who they want to take capital from, and everyone will make decisions based on what’s the right fit. But I think what our founders would say is with Square Peg you get the entire team and you get all of us 24 hours a day, seven days a week, whether business is good, whether business is bad, when you’re going through good time or tough times.”

The federal budget received criticism from parts of Australia’s start-up industry, and Mr Bassat called for a bolder reform agenda from all levels of government.