Having lived in Silicon for many years, the single question I am asked by most Australians is how to best invest in US technology stocks. Having started my career in licencing US technology for the APAC market and eventually investing directly into Silicon Valley technology start ups as an angel investor and then as a Managing Partner of a venture capital firm, I have reached the conclusion there are better returns for Australian investors to have their superannuation member fund invest in a range of venture capital firms in the USA rather than investing directly via crowdfunding platforms.
While crowdfunding platforms like AngelList, Kickstarter or Indiegogo are accessible to anyone with money, they are perilous to say the least. US Venture Capital firms with a track record of performance and return of funds to limited partners are infinitely better investment funds to attain exposure into US technology start ups. There’s the dilemma… how does the Sunday BBQ crew in the leafy suburbs of Australia park their money into a US VC fund.
The founding vision of Frequency Ventures is to provide Australian superannuation funds who represent hard working Australians often not in the technology sector with access to invest into US Venture capital funds who have demonstrated returns on multiple funds. We can’t and won’t compare Venture Capital as an alternative sector in Austraila to the US Venture Capital market. That’s a superfluous conversation lamented by Australian VC general partners for many years.
Over the past 6 months, I have met with and received feedback from dozens of Investment Officers from Australian superannuation funds. My conclusions are:
1. Australian superfunds do not possess necessary technology skills on their investment teams.
Nor are they expected to. Our principles have deep experience investing directly in technology start ups and managing investments on behalf of investors. Like most things, the more you do it the more skilled you become. Frequency Ventures has this experience and provides superannuation funds in Australia access to experienced and successful venture funds, not first time funds that have not previously returned capital to investors.
2. Australian superfunds require alternative asset allocation into both geographical and vertical segments that Australia’s start up technology does not offer.
Software is not changing the world. It’s ‘transforming’ the world. Our lives are being impacted at every touch point with technology from listening to Spotify on our phone on the way to work each morning to apps we use to do our banking, order an Uber and pizza. Australia has 22+ million people and only via investment in US venture capital firms have investment into technology that penetrates the major markets globally that being transformed at massive scale. India and China are moving from 3rd to 2nd, and 2nd to 1st world economies via technology. Australia will not, at mass, build enough technologies that penetrate these markets globally. The venture capital ecosystem in Australia while slowly changing can’t compete with the capital and connections of Silicon Valley to fund global technology venture backed companies that provide exponential returns to shareholders.
3. Chief Investment Officers think public stocks provide exposure to technology stocks
And they should not. While we all agree public tech stocks are over valued as are private start ups, the Australian Stock Exchange is full of technology companies that have less than 1 million in revenue and have ridiculous valuations of 30-60x price/ sales. The ASX is a slot machine for technology companies looking for Series A funding. The entire lack of venture capital infrastructure and culture in Australia is why Silicon Valley Series A Venture Capital funds finds the best Australian tech start ups such as Atlassian (funded by Accel) and ThreatMetrix (funded by August Capital). I can name dozens more Australian companies that have avoided the doomed penny stock market route of raising money via an IPO in Australia to pursue a real return for all shareholders from the USA venture capital market.
Having allocation into some of the premier Series A Venture Capital firms in Silicon Valley, Frequency Ventures has opened the door for Australian superfunds to engage in technology start up investing with the leading venture capitalists in the world. It’s time for investment fund managers at Aussie superfunds to offer these returns to their members.