OneVentures has expanded its strategy into venture debt and closed the largest fund of its kind in the Australian market.
The Sydney-based firm announced the close of its 1V Venture Credit Fund at A$80 million ($56 million, €47 million) in late July. The firm hopes to recycle some of the capital and use this fund to lend up to A$120 million, OneVentures principal Nick Gainsley said.
The fund is the largest vehicle in Australia dedicated to venture debt raised yet.
The vehicle lends A$500,000 to A$5 million per transaction and is aiming to lend to about 40 companies over the next three to four years. The focus is on tech companies generating A$3 million to A$5 million in revenue. The firm held a first close on the vehicle in April 2019 and has been deploying capital since.
The fund has made five investments so far, including a A$3 million credit financing to business intelligence software program Phocas in February. The firm previously participated in a A$7 million equity round in June 2018.
Gainsley said that this product is a great opportunity for the firm, adding to its suite of three venture equity funds, and for the rapidly growing Australian market.
“There is a growing equity VC ecosystem but a gap in terms of product,” Gainsley said. “The guys saw that gap and saw the opportunity to build out.”
The firm partnered with the Viola Group, because the Israel-based firm also made an expansion from just equity to credit as well as an existing connection between firm founders.
Gainsley said through this partnership they were able to tap Viola’s expertise when designing and building the vehicle and now are able to share potential deals and co-invest with Viola, which allows Viola the chance to opportunistically invest in the country.
“We love how they have that multi-strategy approach,” Gainsley said. “That helps influence us as well in terms of the credit fund. We work in terms of building out the fund using their expertise and in turn they can access the Australian market. They like it; it looks like Israel many years ago.”
He added the pair are currently partnering on a joint deal in the mobility space, and he is happy to be able to tap Viola’s expertise in that area.
He said VC firms expanding into debt also benefits the broader market. A venture investor brings the knowledge of technology and the innovation ecosystem that a traditional mid-market debt lender or bank wouldn’t have. He added that it brings an added layer of trust to the conversation.
This type of strategy innovation within OneVentures is par for the course for the firm. The organization continuously expands its reach with each fund, jumping from early stage, to a healthcare-focused fund, to credit. The firm is also in the midst of raising its first growth equity fund with a A$200 million target.
This type of strategy diversification has been appealing to the firm’s LPs, as well, Gainsley said. The fund counts both new and existing investors in the fund, including some of Australia’s biggest family offices and high net-worth individuals.
He added that the fund lends senior-secured loans which makes it a safe way for LPs to diversify within the venture space and getting yields throughout the investment lifecycle is a definite perk.
Gainsley said the fund has seen good traction thus far and is a great option for companies as valuations remain uncertain due to market impacts of the coronavirus.
“We are seeing strong demand from borrowers wanting this type of capital,” Gainsley said. “It’s a great market to diversify in for OneVentures. We got off to a great start; it’s continuing. We’ve got a good pipeline of attractive companies.”