Private equity firms best known for leveraged buyouts of established companies and “roll-ups” in consumer sectors like retail, fast food and healthcare are increasingly turning their attention to startups and software businesses. It’s a move that has the potential to significantly alter Australian startup funding, but one that has also raised concerns in some quarters about a potential clash of cultures between two corners of the investment landscape.
Quadrant Private Equity’s recent $500 million investment in Canva is the highest profile recent example of a traditional buyout firm making a venture style investment, but it could be merely the tip of the iceberg, industry sources say, with the likes of KKR, Five V Capital, Potentia Capital and Federation Capital all active players in the market in various different forms. “We’re starting to see PE take a risk profile where VC’s left off,” one founder, who asked to remain anonymous as they may imminently raise fresh funding, told Capital Brief. “But, that doesn’t mean they are taking those risks without asking for more.”
KKR-backed MYOB acquired Sydney startup Flare in late 2022; Five V Capital has made a number of technology investments in its private equity portfolio (it also has a separate VC fund focus solely on SaaS) while Federation Capital is an investor in Sendle.
One of the factors underpinning this funding shift is the dearth of capital at the series B stage and beyond in Australia, with the highest profile venture funds such as Blackbird and Airtree increasingly tilting their focus to early stage bets and avoiding later stage rounds.
The latest Cut Through Venture report shows that since the last quarter of 2022 rounds between $5 million and $19.9 million have fallen by about 50% . For rounds between $20 million and $49.9 million the reality is even more harsh with the number of deals near their lowest levels on record.