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Blue Sky is looking to raise a $200 million VC fund to invest in later-stage deals

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Blue Sky Venture Capital recently announced it was launching a new $200 million VC fund targeted at institutional investors to invest in later-stage deals in Australia and overseas.

VC fundraising in Australia increased to $368 million last financial year and since July alone, a further $400 million has been announced with Blackbird Ventures and SEEK co-founder Paul Bassat each raising $200 million funds.

But early stage VC still receives the lion’s share of funding. More than three-quarters of the capital raised this financial year was allocated to seed and early stage companies, while balanced and later stage companies received just $84.6 million.

Assistant Minister for Innovation Wyatt Roy said Blue Sky’s fund was a welcome addition to the innovation landscape.

“It’s great to see investment managers such as Blue Sky attract significant capital to develop and nurture the local VC scene and invest in later stage companies. This represents and exciting turning point in the development of the Australian innovation ecosystem,” Wyatt said.

What will Blue Sky use this fund for?

Blue Sky Venture Capital investment director Dr Elaine Stead said the fund would continue the venture capital strategy Blue Sky had pursued for the past 10 years and purposefully focus on late-stage and expansion deals.

“While VC is starting to reach critical mass in Australia, it’s important to ensure enough capital is available for the entire ecosystem and beyond the early stage,” Dr Stead said.

“We find the proportion of good quality investment opportunities is much higher at the later stage due to survival bias. But it is much harder for these companies to find more significant amounts of capital for late stage development or early expansion as not many funds are focussed on the late stage.”

Blue Sky is targeting the fund at institutional investors, in response to their increased appetite for VC investments.

“Venture capital needs patient capital that can tolerate a long-term investment strategy, and that fits comfortably with superannuation mandates,” Dr Stead said.

“Institutional funding is slowly re-entering the Australian private capital market, which means companies are able to remain private for longer, rather than having to explore the public markets before they are ready.”

The new industry-agnostic fund will also look to take advantage of Blue Sky’s ever increasing international deal flow.

In the last year, Blue Sky’s existing venture capital funds invested in on-demand consumer retail business Shoes of Prey, last mile delivery network and logistics technology company ParcelPoint, fast casual retail chain THR1VE, and Minneapolis-based medical device company Conventus Orthopaedics. The company recently exited head lice treatment company Hatchtech in a US$197 million deal with Indian-based Dr. Reddy’s Laboratories.

What has Blue Sky been up to lately?

“Half of our portfolio is now based or has substantial operations outside of Australia and we have had the privilege of co-investing with some fantastic international venture funds,” Dr Stead said.

“This activity, combined with Blue Sky’s unique 3,000 strong investor network, and multinational presence, has resulted in a substantial proportion of our venture capital deal flow originating outside Australia but usually with an Australia nexus.

“Many of the best quality deals come from referrals and we have invested in infrastructure to optimise our referral network including scouts and partnerships in strategic hubs focusing on the US and Asia.”

“The larger pool of capital will mean we can take advantage of the great later stage opportunities that come through our networks, through a captive fund instead of as stand-alone investments which allows us to move quickly and provide investors with a portfolio approach which we think is important for mitigating risk for investors, even at the more advanced stage we invest at.”

This is Blue Sky’s third venture capital fund.

VC2012, a $10 million fund, is fully deployed across:

  • Conventus Orthopaedics, a Minneapolis-based developer of a revolutionary, minimally invasive device for fracture repair which offers the patient lower complication rates and faster recovery.
  • Hatchtech, a Melbourne-based developer of a proprietary next generation head lice treatment.
  • Pet Circle, a Sydney-based subscription e-commerce company specialising in the sale of pet food, medicine and accessories. The company was placed 4th in the BRW Fast 100 list.
  • HeyLets, Australian founded and Silicon Valley based social app for sharing and discovering experiences.
  • Serene Medical, an Australian company commercialising a FDA approved device for the anti-aging/cosmetic device sector as a competitor to the phenomenally successful neurotoxin market.

VC2014, a $30 million fund, is expected to be fully deployed in early 2016 and has made investments in:

  • ParcelPoint, which partners with local stores to offer customers extended-hours locations where they can collect and return parcels when it suits them.
  • THR1VE, the nationwide fast casual food retail chain challenging the global super brands in Australia by providing high performance, real food-based healthy nutrition, using only the best locally sourced seasonal ingredients with no added sugar and allergen sensitive.
  • Shoes of Prey, the Australian success story. Now headquartered in the US, the online retailer has developed a unique and disruptive on demand manufacturing and retail platform allowing customers to design their own footwear.
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