Melbourne’s Square Peg Capital leads venture capital revival

Paul Bassat, Co-founder Square Peg Capital

Mr Bassat co-founded SEEK in November 1997 with his brother Andrew, as well as Matt Rockman. He then left the business in 2011 to co-found venture capital organisation Square Peg Capital – an innovation that’s now paving the way for technology companies internationally.

Now Square Peg Capital has raised A$233.7 million, including a A$50 million injection from industry superannuation fund Hostplus, to invest in early stage and growth stage technology companies, both in Australia and overseas.

It is a shift from the company’s deal-by-deal model that is used to operate under, but a move that has paid off for local innovators and startups.

“We are part of an overall story, which is seeing a significant increase in funding for venture capital in Australia, which from our perspective is an unambiguously good thing,” Bassat said.

Where the investment will go

Square Peg Capital has its sights firmly planted on the innovation and technology sectors, with early stage entrepreneurs now having access in investment that was previously difficult to secure.

Mr Bassat said it was critical for talent and capital to go hand-in-hand for technology start ups to be successful in Australia.

“The two most important elements for any successful startup is talent and capital. Firstly, you need a large number of highly motivated, energised and passionate people with highly relevant skills to get that business up and running and scaling,” he said.

“But also, you need the capital to grow it. So in order to have a successful startup ecosystem, we need both the skill sets and the people who want to work in early stage businesses, but we also need the capital to invest in those businesses.”

Tax incentives to drive further investment

From July 1 in 2016, the Federal Government rolled out tax incentives for investment in eligible early stage innovation companies.

This includes a non-refundable carry forward tax offset, which equates to 20 per cent of investments up to A$200,000 in each income years. Capital gains on qualifying shares held for at least 12 months and less than 10 years can also be disregarded, along with capital losses on shares held for less than 12 years.

Mr Bassat said these initiatives would bring more angel investors into the market to assist start ups.

“By providing tax incentives to angel investors, that’s hopefully going to increase their preparedness and willingness to invest in what is often high risk and speculative investments,” he said.

“They provide a great source of jobs, a great source of innovation, growth to help the economy grow.

“The successful start ups will employ lots of people, they are going to pay tax over time, they are going to contribute enormously to the wealth of our country.”

The revival of venture capital

Square Peg Capital is the most recent success story, but there are other venture capital firms rising from the ashes of the bust in the resurgence of the industry.

Australian Private Equity and Venture Capital Association reports that a record A$568 million from superannuation funds and other institutions was raised by venture capital firms last year.

And Square Peg co-founder and former MYOB executive Barry Brott said most of that money would be used to support local startups.

“The bulk of our team is based here in Australia. The largest component of the team is here. We want to back Australian companies. A good chunk of the fund will be backing Australian tech companies,” he said.