Finding Australia’s next generation of market leaders

For more than a decade, some of Australia’s most exciting growth companies have been built away from the public markets.

Blackbird Ventures has had a front-row seat, backing businesses including Canva, SafetyCulture, Culture Amp, Zoox and Halter at an early stage. Now, after more than $3 billion invested and some extraordinary winners, co-founder Rick Baker believes the Australian venture ecosystem is entering a new phase.

And that could be very good news for ASX investors.

Speaking at Livewire Live alongside Blackbird partner Samantha Wong, Baker argued that a pipeline of mature, venture-backed businesses could finally inject much-needed growth into the local market.

“I think it’s a tragedy that we don’t have a whole bunch of tech, venture-backed companies on the ASX. I think the ASX is screaming out for new growth companies. There’s not much growth left in there.”

Even more tantalisingly, Baker believes the dam could be about to break, with five to 10 venture-backed companies potentially listing over the next year or two.

Here’s where Blackbird is finding Australia and New Zealand’s next generation of market leaders, why Canva remains the ultimate example of venture capital’s extraordinary return potential, and which private companies could eventually find their way into public portfolios.

Australia has moved well beyond software

Australia’s venture capital ecosystem has changed enormously since Blackbird was founded in 2012.

Software produced some of its earliest successes, including Canva, Culture Amp and SafetyCulture, but Wong said Blackbird has always looked much further afield. Its first fund was around 70% software and 30% deep technology, including autonomous vehicle company Zoox, which Amazon acquired in 2020.

Today, that remit stretches from rockets and satellites to robotics, agriculture and medical technology.

“We’ve always looked for the most outstanding Aussie and Kiwi founders we can find. That naturally reflects the innovation happening across this region and among the diaspora, because our mandate is to back Aussies and Kiwis wherever they are in the world.”

Baker highlighted Queensland rocket company Gilmour Space Technologies, Adelaide-based Fleet Space Technologies, which uses satellites to assist mineral exploration, and Coherence Neuro, which is developing brain-interface technology and has begun first-in-human trials.

Deep tech can take longer to prove itself than software, but Baker believes combining the two can create a powerful portfolio.

“Deep tech takes longer because you generally don’t see the revenues as quickly. Software companies can scale incredibly fast, while with deep tech you’re relying much more on technical progress. That can make these companies harder to value and justify early on, but when they succeed, they can really take off.”

The $3 million investment worth more than $1 billion

No company better demonstrates venture capital’s asymmetric return profile than Canva.

Blackbird’s first fund invested $3 million into the company. Baker said that investment alone is now worth well over $1 billion, even after Canva’s valuation declined from its previous highs.

Blackbird subsequently invested more than $200 million in Canva and has already sold a significant portion of its holding.

“It’s literally hundreds of times. So our first fund invested $3 million into Canva, and that is worth well over a billion dollars even at today’s valuation, which has come down a bit from what it was. And so that’s the sort of scale that you can get.”

It explains why venture investing looks fundamentally different from traditional public-equity investing.

Baker describes it as a “power law business”. The objective is not to eliminate every losing investment. It is to construct a portfolio capable of surviving those losses while finding the handful of companies that can return an entire fund.

Blackbird’s first fund has generated an 11-times return, according to Baker, while the proceeds from the sale of Eucalyptus alone will return the firm’s 2018 fund more than two times over.

Wong added that the eventual winners are not necessarily obvious early on. For roughly the first five years of Blackbird’s inaugural fund, at least two companies were valued above Canva.

“It was only really in that second half of the fund’s life that you just saw this exponential of Canva.” 

Canva’s next big test is AI

Canva now faces perhaps its biggest technological disruption since it was founded.

Generative AI threatens to transform how people create images, presentations and other visual content, putting established software platforms under pressure. Baker believes Canva recognised the shift early and has already become one of the world’s most widely used platforms for AI-enabled creation.

The next stage, he said, is moving beyond basic generative tools towards a model where AI and traditional editing work seamlessly together.

“The big transformation Canva is making now is towards the next wave of AI-assisted creation, where AI can create something for you, but you can jump in and change it yourself at any point. The AI understands what’s happening on the canvas, and the canvas understands what’s happening in the AI.”

The challenge has been economics. Running sophisticated AI models at Canva’s enormous freemium scale is expensive, while the company has historically maintained a strong focus on profitability.

Baker believes solving that equation could prove extremely powerful.

“The holy grail, which I’m feeling pretty optimistic about at the moment, is that they can create this huge freemium AI tool that they have and do it in a profitable unit economic way. And that is a holy grail.” 

The private companies that could revive the ASX

For public-market investors, the most intriguing part of Blackbird’s portfolio may be what happens next.

Baker estimates there are around a dozen companies across Australian venture portfolios that could perform well on the ASX, including established software businesses growing at 20-30%, with sticky revenues, low customer churn and either profitability or a clear path towards it.

SafetyCulture, now known as Mitti, is one example he believes “really should be on the exchange”.

Another is semiconductor company Morse Micro.

“We have Morse Micro, which is a Wi-Fi chip company, which we’re hoping will go on the exchange. I’d love it to be this year. We’ll see if they get there this year. And then we get two or three other brave founders who take that leap.”

If those early listings succeed, Baker believes others could follow.

“I do think the market will love it. I think there’s enough expertise. These companies are not super complex to understand. And then I think there’s a chance. I’m pretty optimistic we might get five or 10 companies in the next year or two.”

Wong sees an even bigger opportunity. With the practical bar for a successful Nasdaq listing now extremely high, she argues the ASX could position itself as a destination not only for Australian technology companies, but for growth businesses globally.

Australia’s deep pools of superannuation capital, public-market liquidity and substantial retail investor base could make the exchange attractive for companies valued between roughly US$500 million and US$10 billion that might struggle to command attention in the United States. 

Blackbird’s next potential breakout

One company already demonstrating the power-law characteristics Blackbird searches for is New Zealand agricultural technology business Halter.

When Wong first invested in 2020, it had just three customers. Today, she said around 1.5 million of its collars are being used across Australia, New Zealand, the US and, more recently, South America.

The technology combines a collar with software that uses sound and vibration to move cattle, helping farmers automate activities such as moving dairy cows for milking and managing grazing.

“What they really needed was the ability to make human labour infinite. And that’s what this device does. They don’t now need to have a whole lot of farm workers shifting cows, mending fences, et cetera. The technology does it for them.”

Peter Thiel’s Founders Fund led Halter’s Series E funding round earlier this year at a $2 billion valuation, according to Wong.

It is exactly the kind of trajectory Blackbird is trying to identify earlier. Wong said the firm has increasingly moved towards investing before revenue and, in some instances, backing exceptional founders before they have settled on the business they ultimately intend to build.

The prize is meaningful ownership before the power law kicks in.

Australia’s biggest risk is losing its founders

Finding the next Canva is only useful to Australia if those companies are built here.

Baker believes the gravitational pull of San Francisco, particularly as the global centre of AI, is creating an increasingly difficult battle for talent.

His prescription is not simply lower taxes. Australia needs a genuine cluster of AI companies, founders, engineers and expertise capable of creating its own network effects.

At the same time, he warned against policy settings that incrementally make Australia less attractive.

“It’s just pushing them towards San Francisco. That’s what we need to change. We need a shift in mindset from government and society so that when a founder says, ‘I want to go overseas,’ our response is, ‘Please stay. Start your business here. What do you need to make that happen?’”

Wong pointed to the R&D tax incentive, venture capital tax concessions, tertiary education and skilled migration as existing advantages that policymakers should protect.

For investors, the stakes are significant. Blackbird has already demonstrated what can happen when Australian and New Zealand founders build globally competitive businesses.

The next challenge is ensuring the next Canva, Halter or SafetyCulture is built here and, perhaps this time, eventually gives Australian public-market investors the chance to come along for the ride.