Accel Partners, the Silicon Valley venture capital firm with stakes in Australia's most promising start-ups, plans to invest another $120 million into local companies over the next two years, a move that could force local firms to adapt or die.
In a golden era of investment and growth for the Australian start-up industry, Accel Partners has been a major driving force; since early last year, it has invested over $120 million in Australia's best and brightest start-ups, including software developer Atlassian ($60 million), design marketplace 99designs ($35 million), and currency-trading platform OzForex ($70 million joint investment). The group has a US$1.5 billion investment fund.
Last week, Accel partners Richard Wong and Ryan Sweeney were in town for a whirlwind tour spanning Sydney, Melbourne and Brisbane that included an Atlassian board meeting, connecting with local start-ups and meeting industry players.
In an exclusive interview, Accel partner Rich Wong, who sits on the board of Atlassian, and led the firm's investment in Finnish developer Rovio (developer of popular mobile game Angry Birds) said Accel would like to "maintain or accelerate" its investment profile to date. It met with four "very interesting" companies in Australia this trip, he said, but said that the company wouldn't make investments for the sake of it. The courtship with Atlassian founders Scott Farquhar and Mike Cannon-Brookes was almost two years before any investment was committed.
"[The meetings] could result in two investments in the next year, or it could result [in] zero," Wong said. "If there were four Atlassians, we would do all four of them, because we have the capital to do it, and that would make life more efficient ...We'd like to do more, but we have to maintain a pretty high standard. There's nothing worse than lowering your bar so you can plunge in without really thinking about the specific company."
The characteristics of companies being considered are similar to their existing investments locally and globally, he said, which have all been highly profitable, scalable models, market leaders in their product segment, with customers around the world, specifically in the US.
He said the Accel sell is to help these mature companies grow to the "category-three" stage, becoming global market leaders and generating revenues between $500 million and over $1 billion. It also helps to establish deeper connections into Silicon Valley tech giants.
Due to the tyranny of distance and a lack of resources, it is very hard for Australian VC firms to play in this space, he said.
When asked why Australian VC firms missed out on this year's biggest deals with local entrepreneurs Wong said his observation was that the traditional responsibilities of a venture capitalist are being performed by incubators, such as Startmate.
However, Australian VCs can't afford to be complacent, as entrepreneurs have a growing amount of funding options available to them.
He said that Australian VCs need to carve out a niche and service the entrepreneurs eyeing growth at the category-one stage (turning an idea into a business) and the category-two stage (multimillion-dollar revenues, national footprint, over 100 staff).
He said that Accel is keen to develop informal partnerships with unique firms, and highlighted the efforts of Melbourne-based firm Adventure Capital, which has raised over $20 million and has shunned a conservative investment strategy, instead betting on lots of companies that have a chance at becoming a world beater.
"[Adventure Capital founder Stuart Richardson] has a very distinctive value proposition; it turns out that people with distinctive value propositions, it's a lot easier to be complementary and find ways to work with them."
"At the end of the day, we want to work with the local partners here, because there are subtleties that we won't be able to pick up. I can only be here four to five times a year."