Australian venture capital outfit Blue Sky will close out its second major fund this week, raising more than $20 million as it looks to hit $30 million by the end of the year to invest in startups and companies on the rise.
This will be Blue Sky Venture Capital’s second fund with the first $30 million vehicle investing in the likes of Australian startup HeyLets and online pet food company Pet Circle. It is also expecting its first exit this year through its Hatchtech investment.
Blue Sky’s head of venture capital investments, Elaine Stead, hasn’t wasted any time setting the new fund to work. Together with Adrian MacKenzie and the Family Office of ‘Aussie John’ Symond, Blue Sky recently invested $7 million in Parcel Point, a last mile network and logistics startup based in Sydney. The VC firm has a 13% stake in the startup.
Stead is also at the term sheet stage for a second Australian-based investment opportunity which she hopes to execute on when the fund closes.
Founded in 2006, the Blue Sky venture capital and private equity teams currently manages over $100 million in invested capital. It runs the ruler over more than 200 new venture capital opportunities each year.
The latest fund is looking to invest between $500,000 and $5 million in companies which have a product already developed, customers using it and are revenue generating but not necessarily profitable. The company said potential investments must be willing to hand over a “meaningful equity stake” of between 5% and 50% as well as have an enterprise value of up to $50 million. Blue Sky is looking at investment horizons of up to four years.
Stead explained while it’s not a tech fund, she is interested in e-commerce, education, tech companies, infrastructure, care and agriculture. In particular, Stead said agri-tech is a “huge opportunity” which, in her opinion, has been “overlooked by venture capital”.
Over the next 18 months Stead is looking to make between 7 and 10 investments but stresses it’s not about quantity, it’s about being able to “invest more deeply” in fewer companies. It’s this strategy which means investments could be as high as between $6 million and $8 million in each company, Stead said.
While the fund has been in the pipeline for a while now, Blue Sky stopped raising after a few months as it was rounding up about $200 million in funding last year and the new fund wasn’t time sensitive, Stead said.
But it was reignited in April this year and Stead hopes the Federal Government’s Significant Investment Visa reforms will boost venture capital investments in Australia. The changes, which come into play on July 1, mandate that at least 10% of the $5 million investment requirement will be allocated to venture capital or private equity funds.
“For the first six months, there’s probably going to be a decline in the number of applications. Not because of the reforms but because there was a flurry of application before the halt in April,” Stead told Business Insider, adding by nature it’ll probably be a slow six months on the SIV front as everyone tries to understand what the reforms will mean.
Nonetheless, Stead says is “has the potential to make a significant impact on venture capital in Australia” to the tune of about $150 million a year if applications were to continue at the same rate.
If 200 visas are granted under the new regime there will be an extra $100 million flowing into Australian venture capital and private equity. It’s move which should be a big win for startups and SMEs.
Stead said Blue Sky has decided to leave the fund open until the end of the year to give SIV applicants a chance to participate in the six-year fund which has an investment horizon of two to four years. It’s a timeframe which aligns well with the SIV which has a term of four years, Stead said.
“We’re also not expecting the demand to be incredibly high over the next six months so I’m not sure that the Significant Investment Visa is going to make a significant contribution to the current fund,” she said.
“But ourselves, and many other fund managers across Australia are looking at ways that we can accommodate these reforms over the next 12 to 24 months.”