Evaluating Venture Capital Funds SaaS Investments Beyond the Valuation Matrix

When evaluating venture capital fund vintages, it is easy to get stuck in the valuation matrix from Series A, B, C, D etc. A more comprehensive analysis is to plot the SaaS companies venture funds invest in across Growth and Annual Recurring Revenue (ARR) by Company Age. Using the SaaS Capital research below, you can easily pinpoint where on the graph a venture capital portfolio companies are relative to  1,400 private B2B SaaS companies which make up the annual research study published in August, 2020.

It is a simple and effective way to compare a SaaS company performance without getting distracted by higher valuations, dilutions and various fund vintages invested over multiple rounds.

Evaluating General Partner performance across multiple funds to determine consistency is critical in early stage venture capital. To remove the statistical anomalies of a fund hitting it big with one investment, evaluation of subsequent vintages  is vital. This can be difficult where funds have lifecycles of 5-7 years and multiple partners move in and out of the venture capital firm.

Ensuring there is a slide in the Venture Capital Investment Presentation that breaks down IRR and, valuations of portfolio companies by partner/s leading the investment is also critical too. Many Limited Partners want to see individual partner performance versus the overall venture firm performance over multiple funds – ensuring there is a consistency or playbook by which successful returns are generated. While this is a good break out to see, it does not allow limited partners to view portfolio company performance  versus the field based on ARR and Company Age as does the SaaS Capital Matrix above.


Future Fund Leads the Way in US Venture Capital Deals

One of the central missions for Frequency Ventures is to assist hardworking Australians get exposure to the venture capital investment portfolios in the United States. In pursuit of this goal, matching the superannuation fund investment thematics with US venture capital fund management experience and fund thesis is crucial.

In a recent Pitchbook report, it was noted that the Future Fund (Australia’s sovereign wealth fund with AUD $205 Billion funds invested as at 31 March 2020) had invested in 3 early stage deals  and 29 late stage deals since 2006 .

We know that the Future Fund portfolio construction includes investing as a limited partner (LP) in well known Silicon Valley venture capital firms including Bessemer Venture Partners, Lightspeed Venture Partners and New Enterprise Associates. I was told this by several partners of each firm many years ago.

With the Future Fund leading the way forward, industry  superfunds in Australia are increasingly looking at venture capital as part of their portfolio construction. Given the multi-billion dollar super fund sizes and the need to write larger cheques, investing in smaller seed and A round Silicon Valley venture capital funds (typically $100M to $250M in size) often is prohibitive because the fund composition doesn’t work out.

In several meetings with Chief Investment Officers of Australian Industry Superfunds in recent years (who have invested smaller amounts into Aussie based VCs), they say their minimum investment size is $75M to $100M. This means the US VC fund would need to be $1B in order for the fund to feel that they have around 10% of the total fund size.

Moving forward, It is likely that the Australian Industry Superfunds fund sizes and their risk profile will see them contributing to later stage Series C, D and E rounds as the  Future Fund has done. If the deal participation rates of both the Future Fund in Australia and Sovereign Wealth Funds globally are any indication, then the larger Australian Industry Superfunds will follow suit into later stage deal flow.

Secondary Directs & Limited Partner Venture Investments for Sale

In 2016, SoftBank Group Corp. Chief Executive Officer Masayoshi Son  announced he was raising a $100 billion fund to make technology investments high growth start ups. Uber, WeWork, DoorDash, OpenDoor, Grab and received billions of dollars in investment from the SoftBank’s Vision Fund.

Fast forward 3 years and in early November 2019, SoftBank reported a $4.6 billion hit from its WeWork investment.

Having worked with multiple venture capital funds to place allocations with large institutional investors, there is opportunities for larger investors to acquire ‘secondary’ parcels of Unicorn companies at discounts to the most recent venture capital financing rounds.

Listed below are 22 blocks/sellers of Limited Partner interests and direct companies that Frequency Ventures has access to.


Secondary Directs & LP interests for Sale
  1. Didi @ $39.50 direct preferred shares (24% discount to last round)
  2. DJI @ 19.77 per share up to 150M
  3. Bytedance @ 46.50 per share up to 100M available
  4. Palantir @ $5.25 at $9.47B valuation (preferred shares 75M available 53% discount to the last round $11.38, $20.5B valuatino)
  5. Grab Taxi @ $6.30 per share- $40M (37% discount to current estimated val)
  6. Wework @ $17 per share (SPV not commingled no fees no carry)
  7. Coupang @ $4.95 at $7.9B val ($100M available 18% discount to last round $5.50 per share $10B no ROFR risk)
  8. Circle @ $2.68 at $500M val (direct shares common 82% discount to last round $3B)
  9. Juul @ $110 (65% discount to last round)
  10. Wish @ $95 ($130M direct shares available 35% discount to last close)
  11. Space X @ $212 per share 30M available
  12. Impossible Foods @ $30.50 per share ($40M available, direct shares)
  13. PayTM @ $262 per share ($15.5B valuation, 5% discount to round)
  14. Coursera @ $12 per share ($1.6B valuation, fair current market value, direct shares available)
  15. Textile $21 per share direct shares
  16. Microvast $8.44 per share direct shares
  17. Relativity Space (seller looking for bid)
  18. Ripple (seller of $50M looking for bid)
  19. Instacart @ $25.50 per share ($50M available)
  20. AirBNB @ $165 per share ($30M available)
  21. Sofi @ $8.70 per share (direct shares up to $20M)
  22. NextVR (10M available employee shares looking for buyer)

Just remember that Unicorn valuations is as much  about marketing a business and getting press to drive traction and future fund raising than it’s underlying market valuation. There are many examples of unicorns who went public and their share prices are now below the last private financing round when they attracted venture capital.

Venture Capital as a Retirement Plan

One of the mission statements for Frequency Ventures is to assist superannuation funds place funds into alternative investments in information technology venture capital funds.

The Australian superannuation system requires your employer to make regular contributions into an employees super account. This is the Superannuation Guarantee and it is equivalent to 9.5% of your wage. Super is compulsory for most employed Australians as a way to save for retirement. As the below graph shows, this will continue to increase over the next 6 years to 12.5%.

It is worth noting that Venture Capital General Partners also invest into their venture capital funds known as “partner commitments” – generally up to 2% of the entire fund (depending on size). The theory is that limited investment partners (LPs) are then aligned with General Partners who while operating the venture fund have substantial dollar amounts invested as well. Goals are aligned! General Partners often keep re-investing their profits into subsequent funds to show continuous commitment. Like Superfund contributions, General Partner contributions take decades to build up.

One such partner I’ve known for over 10 years is Michael Berolzheimer, Founding General Partner of Bee Partners, a San Francisco ‘first check’ venture fund with US$30M+ raised in Fund II and more recently closing of Fund III at US$43M. Michael’s own money saved from investing since the age or 12 years old has been ploughed back into his seed funds which landed him as an early stage investor in TubeMogul which Adobe acquired for US$540M in 2016. Another of Bee Partners successful portfolio companies is BuildingConnected’s $275M exit to Autodesk.

On a walk last week with Michael along the Piers off Embarcadero in San Francisco, we discussed being ‘lifers’ in the venture capital funds we’re involved with.

This is an important distinction Frequency Ventures make when working with US Venture Capital Funds as the partners have decided to not just dedicate themselves to the next 25 years of working in their venture funds, yet have invested a significant amount of their own capital for retirement committed. Michael’s commitment per Bee Partners fund is 5%, not 2% of committed capital.

This is the type of alignment we look for when selecting venture capital funds to work with the Australian Superannuation Funds.

Greater Risk = Potential Greater Returns for Aussie Super Funds

In June, it was reported that the Australian superannuation fund Hostplus invested $USD125 million (AUD$181 million) into Boston-based Safar Partners.

The Australian Financial Review article noted the Safar Partners fund “backs commercialisation of science and technology at three leading US universities ….. and claims deep links with the laboratories of Massachussetts Institute of Technology (MIT), Harvard University and University of Rochester.”

From reading this, Safar Partners looks to be a fund of funds structure.

It is a positive sign for hard working Aussies having some of their retirement savings being put to work in investments driving technology innovation at leading US tech institutions like MIT.  Side note: if you’re visiting Cambridge in Massachusetts, be sure to visit the MIT Museum.. It’s amazing.

What other Australian superfunds should learn from Hostplus is by investing into US universities, they are looking at venture capital  beyond the normal Series A, B, C round venture capital 6-10 year fund lifecycle.

It is visionary that Sam Sicilia and Neil Stanford at Hostplus have looked at their fund member cohort  (average aged of Hostplus  1.2 million members is 34) and matched it to the longer term horizon of return of capital coming from early stage investments in technologies being developed at Universities.

Frequency Ventures has introduced and set up meetings for Australian superfunds with US venture capital funds in the Bay Area (Silicon Valley) which  these typically have a 6-10 year fund lifecycle.

The model early stage US venture capital funds work to is that while about 1/3 of the capital raised will be invested in 2-3 years with a following 1/3 of capital invested in the subsequent 4-6 years in follow on Series A, B, C rounds, superfunds like Hostplus also want 10 to 15+ year time investment horizons – that match their cohort retirement ages when  retiring members want to start cashing out their super. 1/3 of capital in VC is saved for maintaining pro rata for very successful investments and for bailing out portfolio companies that are struggling.

It’s all about the expected lifecycle of return.  “Going early” and investing into tech being developed in labs at Universities has more risk as technologies are often undefined in university labs and use cases too early to wrap around an embryonic technology research and development process.

It’s good to see Hostplus taking a long term view and not relying on short sighted asset consultants.

MIT has an impressive record of significant innovators and inventions and if you are wondering which is the most successful University cranking out money machines then counting all degrees, Harvard University is the #1 US College by alumni who have created the highest amount of net wealth.


Inside Silicon Valley

Long before I starting writing ‘Inside Silicon Valley‘ in the fall of 2012, I had learned the schema of the Bay Area investing acting as advisor, seed investor and participating in post-seed and Series A venture rounds as a Venture Capital investment manager in Palo Alto.  It is these years of building relationships that facilitate the vision of Frequency Ventures and path ahead in assisting super funds, institutional investors of alternative assets, family offices and wealth management funds to allocating funds into either top tier US venture capital funds and direct investments in Series A, B & C rounds of disruptive technology companies.

Blue Run Ventures raises Fund VI with US $130 million

Blue Run Ventures, based in Menlo Park, has closed Fund VI with US $130 million. Frequency Ventures met with and spoke to Australian Superfunds and their asset managers during 2018 about participating in Blue Run Ventures Fund VI.

Previous Blue Run Ventures funds  have invested in PayPal, Coupa Software (Nasdaq: COUP), Waze and Kabbage, the SMB lending platform.

Congratulations to Cheryl Cheng who was promoted to General Partner for her amazing support in providing the opportunity for us to represent and pitch this very experienced team of venture capitalists to Australian Superfunds.

Asset Consultants Stifling Australian SuperFund VC Investments

Having spoken to and met with the top investment executives from more than 25 Australian Industry Super Funds in Australia over the past 12 months, bringing  allocation to over 4 top Silicon Valley venture capital funds raising between US $150 million and $300 million in their fourth, fifth, sixth and ninth funds, there are several insights to share:

1. More than 80% of Australian Industry SuperFunds with Funds Under Management of $5 billion do not currently invest in nor have current plans to invest in technology venture capital funds. 30% cited their ‘asset consultants’ as being influential in their investment decision making process. In meetings with these asset consultants in both Sydney and San Francisco, it was very clear that they were not convinced their clients (Australian SuperFunds) would be investing in US based technology VCs funds.

2. Two of the Asset Consultants representing large Australian Industry SuperFunds invest directly into US venture backed software start ups. StepStone Global and Hamilton Lane have funds within their operations that invest in technology venture funds and start ups directly.

US based Venture Capital Funds represented by Frequency Ventures have consistently 3 attributes: multiple fund cycles over 10 to 20 years of operation, history of returning invested capital to limited partners and large exits / IPOs of well known successful companies. Among the 4 top Silicon Valley venture capital funds Frequency Ventures has allocation into, PayPal, NetFlix, Nest, Coupa, Dropbox were portfolio companies. WOW! One of the funds has raised over US$3.1 billion in 9 funds since 1995 returning $1 billion in distributions.

Historical venture capital returns from US venture capital funds compared to Australian venture capital funds should be the focus for Australian Industry SuperFunds.

The main topic that asset consultants discussed with Frequency Ventures in meetings is cost cutting of management fees instead of focusing on the true reason for investing in venture capital as part of a diversified portfolio. That is, exponential returns that other asset classes do not have.

Australian Industry Super Funds need to understand that US venture capital investment has sprinted past decade-highs and shows no signs of slowing down. In 2018, U.S. companies have raised $84.1 billion — more than all of 2017 — across 6,583 VC deals as of Sept. 30, 2018, according to data from PitchBook’s 3Q Venture Monitor. In 2017, companies raised $82 billion across more than 9,000 deals in what was similarly an impressive year for the industry.

The 4 US Venture Capital Funds that Frequency Ventures have over $150 million of allocation circled and presented to the 25 Australian Industry Super Funds in Australia over the past 12 months is an opportunity to participate in a rapidly growing asset class.

How long can Australian Super funds ignore this market and asset consultants stifle Australia SuperFund venture capital investments in the technology companies that become the largest businesses on earth?



Thematic Investing is a Good Start for Australian Super Funds Investing in Venture Capital

I’ve just arrived back in San Francisco from visiting Super Funds and their asset consultants in Australia to the news that investors put $33.1 billion to work across all stages for U.S. and Canadian startups in the June quarter. That’s an increase of 16 percent from Q1 of 2018 and a whopping 43 percent increase from Q2 of 2017.

While there is healthy skepticism that mega rounds of venture capital will not last forever, you only have to look at the super-sized fundraising by Index Ventures announcing it has raised $1.65 billion for two new funds and Lightspeed Venture Partners closed its twelfth flagship fund with $750 million and its third “select” fund with $1.05 billion.

Part of our mission here at Frequency Ventures is to facilitate Australian superannuation funds making alternative investments in US based venture capital funds, ensuring the utmost transparency and proper governance. As  the super funds net inflow of contributions rise, so does the importance of diversifying beyond publicly listed technology stocks and technology index funds to get exposure to high investment returns.

With almost $100B of current venture capital being raised annually in North America, Australian super funds should not ignore investing into the US venture capital asset class.  There are several observations I would like to share based on my recent conversations with super funds investment teams and their asset managers.

1. Super Funds invest in Venture Capital to Reflect their Member Cohort.
One investment professional remarked to me that HostPlus invested in venture capital funds in Australia as part of a broader marketing proposition for their members, many of whom are younger working in hospitality and tourism sectors.  HESTA Super Fund, the national industry superannuation fund for people working in health and community services, recently allocated a further $40 million to the HESTA Social Impact Investment Trust (SIIT), which is managed by Social Ventures Australia who invest to obtain both financial and social returns. As I mentioned to HESTA in recent conversations, Social Ventures Australia might be able to help the dire homeless situation in San Francisco as access to affordable and stable housing is essential.

2. Thematic Investment Opportunities
Without getting too high on my tech soap box and handwaving the ‘amazing’ benefits of technology, I believe it is reasonable to say having spent the past 6 months talking in-depth with industry super funds in Australia, that their senior investment management teams are not fully aware  of the extent of transformative changes to their industry that technology is making. I appreciate it is difficult from Sydney or Melbourne to be exposed to what is going on at the cold face of innovation in Silicon Valley. Super fund investment officers are not engineers either.

While in Australia in June, I saw Tesla’s driving around, people very comfortable using the Uber app on their phone and this television commercial from MTAA Super. The logical conclusion to draw is that MTAA Super (a $10 billion national industry-based super fund that has proudly served the motor trades and allied industries for over 25 years) should be investing in autonomous vehicle technology as many of the motor mechanics and motor services members would be fascinated with this technology.

MTAA have an opportunity to leverage their member cohort and take advantage of being involved in US Venture capital funds that provide exposure to early stage investments in autonomous vehicle technology.

Over coffee last week at Coupa Cafe in Palo Alto with long time colleague David Ehrenberg, he mentioned that the 3.8 million truck drivers across the USA are at risk of semi-autonomous vehicle technology being developed by Uber, Google’s Waymo and others. Keith Nilsson, a venture capital colleague who was on the team at TPG who invested into the early rounds of Uber recently shared with me his investment into Peloton, a trucking automated vehicle technology company hard at work solving the two biggest challenges facing the $700 billion trucking industry:  crashes and fuel use.

There are many opportunities for Australian superfunds to find venture capitalist in Silicon Valley who invest thematically in sectors which correlate to their industry funds. In Sydney recently, I met with Cambridge Associates. Cambridge Associates represent LG Super, who  manage over $11 billion in superannuation assets for approximately 90,000 members, including  current and former New South Wales local government employees. Our conversation centered around different investment verticals that would appeal to their constituents. There is a lot of education that needs to take place with various super funds who traditionally feel more comfortable investing in commercial real estate funds and equities!

3. Defining a Venture Capital Strategy for Australian Super Funds
It is encouraging to have begun the dialog with Australian super funds and their asset managers. These conversations  help define what the investment opportunities in venture capital need to look like, which goes above and beyond aligning the cohort of members for Australian super funds with the investment thematics of US Venture Capital firms.

A real strategy for venture capital for Aussie super funds needs to be underpinned with knowledge of both the US venture capital market and Australian super funds objectives. Preparing investment memorandums that articulate the rationale, process and returns for Aussie super funds is a key part of  Frequency Ventures mission is to help hardworking Aussies get exposure to this technology investments.

4. Later Stage Co-Investment is a Strategic Requirement
It is apparent that Australian super funds can support the growing trend of venture backed technology companies to stay private longer, to generate more growth and profits without having to tap into the public market via an IPO.

The trend toward unicorn companies (valued at $1 billion plus) staying private longer (think AirBnB, Uber, SurveyMonkey) is an advantage for super funds who often want to write bigger checks as part of later stage preferred co-investments.  It is interesting to note that late state deals dominated the global venture capital market in Q2 of 2018, accounting for nearly two-thirds of total investment. Overall, investors put an estimated $57 billion to work in later stage rounds in the June 2018 quarter more than double year-ago levels.

In summary, Australian super funds are in the initial phase of their venture capital investments life cycle as limited partners with domestic Australian VC firms. They should be expect longer periods before liquidity when compared to US VC funds. We continue to help the Australian super funds understand the mechanics of the high growth venture capital investment, how to structure strategies around investing to share in returns being achieved by experienced Silicon Valley venture capitalists while providing compliance, governance and transparency.

Aussie Superfund Visits US Venture Capitalists

Lat month, a senior investment officer of one of the largest Australian Superannuation funds and Marc Phillips, Investment Director of Frequency Ventures, met together with general partners of several venture capital firms in San Francisco.

Frequency Ventures has confirmed allocation into US Series A Venture Capital funds which is sparking interest from Australian Superannuation funds who look to invest in new markets.

While some in the capital markets in Australia have argued venture capital investment by Australian Superannuation funds are token marketing exercises to appeal to the younger cohort of their members, there is much more to it than  chasing unicorn status investments like Lime Scooters which elegantly lined the sidewalk in South Park as we walked between meetings.

The surge in Australian Superannuation funds under management and investments into local Australian VC funds has provided international opportunities where local Australian tech companies attract later stage A & B  capital rounds from US investors.

Frequency Ventures provides access for Australian Superannuation funds to serial Silicon Valley venture capital funds with proven return on investment and disbursements to limited partners.

Through our extensive relationships built over decades, helping hardworking Aussies achieve higher returns from their industry superannuation fund by securing allocations into higher return asset classes such as technology venture capital is our mission.

Networking is a large part of how Silicon Valley operates and we also enjoy helping Australian superannuation investment executives meet our network of investors and start up technology executives. Enjoying a ball game watching our beloved San Francisco Giants at AT&T Park in downtown San Francisco was a great way to end the day of intense investment roadshow meetings. #GoGiants.