It seems all is not rainbows and unicorns in Australian venture capital.
A bit of the green-eyed monster is emerging against market leader Blackbird Ventures, according to today’s AFR.
The business paper has been talking to “industry sources”, anonymous founders and VC figures who won’t go on the record because they “need to eat”, painting a picture of Blackbird as the 800-pound gorilla (with wings?), gobbling up all the startup bananas, to the frustration of competitors reportedly “wary of paying high prices”.
It seems the venture kumbaya is starting to sound a little discordant.
Could it be a result of seeing the well of management fees starting to dry up? Do some LPs now fear a VC edition of the Hunger Games? Why have a few flicked the switch to 10 Things I Hate About Deal Flow (anonymously)?
“Others grumble that the fund has become an ‘Australian Tiger Global’, in a reference to the US fund that became a byword for indiscriminate investing at high prices,” the AFR says, starting with the premise that Blackbird is “using its financial heft to pay sky-high prices for stakes in many more tiny companies than its rivals, exposing a split in strategy across the country’s biggest startup investors”.
It goes on to say “Blackbird’s strategy has angered several smaller funds”, but no one will say anything publicly, especially because the funds often invest together.
To paraphrase the old saying: Canva has many fathers, but voluntary administration is an orphan.
A rival VC even compared Blackbird to Uber in its strategy to undercut competitors.
“They’re going super aggressive, super early,” that anonymous source said.
An anonymous founder said Blackbird “only back up the dump truck of cash on their best bets”.
An alternative view could be that this is the market being efficient with the allocation of capital, compared to 2021, when every founder won a prize in the three-legged egg and spoon funding race.
Given some of the high profile startup collapses this year, despite tens of millions of dollars in previous VC backing from leading funds, Blackbird is hardly be Robinson Crusoe on that front.
There’s been no shortage of Burke and Wills moments at the VC Dig Tree in 2023.
Milkrun, now owned by Woolworths, is among the most prominent after calling last orders in April having banked $86 million in venture funding. Tiger Global and Airtree were among its initial backers.
Another observer told the AFR that they don’t know how other funds can compete with Blackbird’s brand, cheque size or valuation
That carries a certain irony when a key premise of the startup sector is small newcomers taking on large legacy incumbents. Perhaps they said the same thing about Netflix 25 years ago after surveying a vast network of Blockbuster stores and turned down Reed Hastings.
But if we accept that’s the case, then surely that’s a good deal for founders, who all VCs purport to be there for? If more money, for less equity, at a higher valuation is a good deal for them and if they succeed, doesn’t everyone win?
Or is the complaint that risk is not being properly priced from an investor perspective, and Blackbird bending the light spectrum in the wrong direction?
A Blackbird spokesperson said they “politely decline” to comment when asked by Startup Daily about the AFR story.
We asked several other VCs for comment, especially with new data suggesting equity venture investment in 2023 has nearly halved to $4 billion, compared to $7.4 billion in 2022, which, in turn, was a drop of around a third on 2021.
While the responses were yeah but nah, we will repeat a small detail from a conversation with a VC OG a few weeks ago, who’s not associated with Blackbird and declared the firm “streets ahead” of others in local venture,.
So there is some love in the room for the old turdus merula.
Perhaps, in a year of consolidation in the startup sector, where hot tech startups such as hospitality ordering apps Mr Yum and Me & U merged (having raised $100m and $30m respectively), a question worth asking in a small market like Australia is: can we support so many VC funds? In recent years, it felt like so many emerged that Startup Daily braced for our Uber driver to tell us about their new fund.
Do venture firms need to start merging to compete more effectively with Blackbird too? Isn’t that how competition and what VCs tell founders: scale quickly to succeed?