Fund focus: AirTree rides innovation wave

When Craig Blair joined UK-based online travel company Travelselect in 1999, the start-up incurred GBP5 million in costs just paying for servers. It paid off, as within four years of launch, the business was sold to Lastminute.com. The Australian start-ups Blair now backs as founder and managing partner of AirTree Ventures should enjoy a smoother initiation because costs are no longer so prohibitive.

"We looked at a business the other day where the start-cost was the founders investing A$5,000 from their credit cards," he says. "It's just easier to do it now, you can borrow things like servers."

This is one of the reasons why AirTree is now seeing 1,000 start-ups a year, up from an annual total of 100 not so long ago. These entrepreneurs are also inspired by success stories of Australian companies applying business models to global markets and encouraged by increasingly rich and varied sources of capital. AirTree is one of the latter, having raised A$250 million ($188 million) for its latest fund, the largest independent VC vehicle ever seen in Australia.

The fund is divided into two tranches of equal size: an early-stage fund that will support early-stage start-ups at the seed, Series A and Series B stages, committing between A$200,000 and A$5 million; and an opportunity vehicle that will back more mature companies in increments of up to A$25 million. Two local superannuation funds are the sole LPs in the opportunity fund.

This is in fact the third fund on which Blair and co-founder Daniel Petre have collaborated; they previously worked together at Netus, an investment firm acquired by Fairfax Media in 2012. Before that, Petre was at Ecorp, best known for launching eBay Australia. Both of these portfolios generated cash multiples of 4x, with Netus recording 3-5x on seven out of its nine deals. The first AirTree fund closed at A$60 million in 2014 and has yet to see any exits, although Blair says the portfolio is tracking well.

While software-as-a-service (SaaS) and marketplace business models remain central to the firm's strategy, they are joined by machine learning, augmented reality (AR) and the internet-of-things. This reflects AirTree's expanding competencies - John Henderson, who has extensive experience in these areas, recently joined as a partner and also the changing nature of internet-enabled technology as a whole.

"We see AR and VR [virtual reality] as much as an enabler as an underlying business model, and the same goes for machine learning," says Blair. "Are we going to see investments in underlying machine learning businesses? Probably not. But would we invest in companies that are utilizing machine learning at their core to get an advantage? Absolutely. Most businesses will have some sort of machine learning in the toolkit anyway."

He recalls looking at an accounting-focused SaaS start-up recently that uses algorithms to optimize performance of a set of tools. The next generation of this business will use machine learning as well.

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• Topics
• Australasia
• Technology
• Venture
• GPs
• Fundraising
• Australia
• seed
• AirTree Ventures