Australia-based investment outfit Artesian Venture Partners has been showing up in a lot of investment announcements lately, partly thanks to an operating model that takes some of the grind out of identifying startups they want to fund.
The venture firm has set up funds for Sebastian Eckersley-Maslin’s BlueChilli (100 startups over 5 years), the Sydney Angels’ $10 million Sidecar fund, Newcastle-based accelerator Slingshot venture fund, the University of Queensland accelerator ILab (100 startups over 5 years) and the University of Wollongong’s accelerator Iaccelerate seed fund.
Artesian Partner and COO Tim Heasley told Business Insider the firm operates on the principle of going in “early and often” with its investments, in effect making many small bets with the view that some of them are sure to pay out big.
Heasley said the firm operates its portfolio on the idea that 90% of its returns will eventually come from 10% of its startup investments. Heasley describes the team as numbers-driven. “We were bond traders originally,” he said.
Artesian has set a goal of investing in up to 1000 startups over the next five years.
“There are now an enormous number of startups in Australia,” he said, adding the lower cost of launching a business, including cloud technology makes it easy to launch.
“You can start a business on a credit card,” Heasley said.
Heasley said Artesian’s investment strategy is “at odds” with traditional venture firms but said it’s all in the numbers.
“We’re trying to do this in another way,” he said, adding other funds usually make far fewer investments and the business is usually at a slightly later stage.
He said the firm realised a rise in the number of startups as well as the support networks around them – including accelerators, incubators, angel groups, co-working spaces and university programs.
“Some of them are very good deal sourcing, deal screening, due diligence, investment and mentoring entities,” Heasley said.
“They’re good at attracting good deal flow and filtering out the duds.”
It is this strength and industry knowledge which drove Artesian towards its co-funding model where it pairs up with startup institutions and effectively outsources due diligence and validation.
“We’ll build a dedicated fund which sits alongside you and that fund will invest in everything that comes through your angel group,” Heasley said. “We invest a little bit early and see what happens.”
Heasley said if the startup makes it through an accelerator program it usually has a stronger market validation and is slightly more de-risked.
“You can’t pick winners at this early stage,” Heasley said, adding: “You can identify those that aren’t investable.”
Artesian is in the process of raising up to $100 million from high net worth individuals, corporate funds and institutions, including superannuation funds.
“Superannuation funds have been rightly very wary of venture capital in Australia,” he said.
“We’re looking though to increase the corporate investment into our fund,” Heasley said, adding the deal announced this week with KPMG is part of that strategy.
The idea started to come together about five years ago when Artesian began investing its own capital into about 45 small companies but Heasley said it was quickly realised the firm didn’t have enough boots on the ground to screen deals, keep an eye on the companies and provide mentoring.
“We didn’t have the ability to do it, we’re a team of 25 people globally,” he said, adding partnering with other groups removes “some of that burden.”
He said Artesian built its strategy around research from the Kauffman Institute in the US which found you need 15 startups in a portfolio just to get your money back.
So far the company has had some small exits but Heasley said “nothing that’s particularly newsworthy”.
“It’s still a little early.”