From an investment perspective, tech companies now dominate traditional industries, with new areas of technology influencing everything from food to cybersecurity to healthcare, but it’s in the private market where the serious returns are being generated, with M&A activity the exit strategy rather than an IPO. In this video we talk through the opportunity for investors to invest in technology via private markets with OurCrowd Managing Director Dan Bennett.
Tim McGowen: We’re talking today with Mr Dan Bennett, who is a General Partner and Managing Director of the Australian office of OurCrowd. Now, if you don’t know OurCrowd, it’s a global venture investing platform that empowers institutions and individuals to invest and engage in emerging companies, and the company is probably the most active venture investor in Israel, with offices across the globe. Dan, thanks for your time.
Dan Bennett: Great to be here, Tim.
Tim McGowen: Now, Israel is renowned as a technology hub, an innovation hub, if you like. Why has that evolved in Israel in particular?
Dan Bennett: I think they’re in a pretty tough part of the world, tough neighborhood, so, to survive, you need to ensure that you’re coming up with the very best technology to protect yourself. They’ve got compulsory service as well, compulsory military service. So, a lot of very strong training, capabilities around intelligence, cybersecurity, optics, semiconductors. But what I think personally is the most interesting is also the fact that, when you do have this compulsory military service, even if you’re just basically doing community service, the fact that you’re a 20-year-old kid and you’ve got a whole bunch of soldiers that you’re responsible for teaches you a very different level of responsibility. What you have here are people who, their lives are in the hands of these slightly older kids, but slightly higher-ranking soldiers. So, I think there’s a different level of responsibility, camaraderie, ability to pick great people in a group that they end up taking from that time potentially in the military, and then starting companies with, because they’ve trusted each other through the hardest of times, now it’s an opportunity to be successful financially together. It’s also a small country without any natural resources in many ways. So they’ve got to… You know, we talk in Australia all the time about mining minds rather than mining the ground. I think they’ve been forced to do that from their establishment of the country. They need to make sure that they’re really activating people’s intellectual property to grow the place successfully.
Tim McGowen: OurCrowd obviously looks at venture capital investing. What sort of areas of technology are you looking at at the moment?
Dan Bennett: The stuff that gets us really excited is deep technology, heavy-duty intellectual property-protected type companies. So, things in the cybersecurity space. About 40 per cent of global cyber deals last year were done in Israel, a country with 8 million people. Quite amazing. Of course, we’re focused on both Israel and the US, so we get great access in the US as well. But cybersecurity, healthcare, things around life longevity, digital health, personalised medicine is a big thematic at the moment you’ll be hearing about, things in the mobility space, so driverless cars, next-generation vehicles. There’s up to thousands of chips in a conventional car today. A car’s basically a moving computer. Artificial intelligence, robotics, quantum computing is a big one. We have great academic capabilities in Australia around quantum computing. It’s also about finding commercialisation in the space, and that’s what we’re focused on. And also food technology’s a really interesting thematic at the moment. We’ve got to feed 10 billion people pretty much, so the idea that we rely on conventional agriculture is very challenging. Conventional horticulture is very complicated. So, things like laboratory-grown fish, laboratory-grown meat. One of our companies takes cow milk molecules and proliferates it through a fermentation process in a laboratory. In a simple sense, they’re growing cow milk in a laboratory and extracting the lactose. So, lots of really interesting thematic. Of course, enterprise software and things like that. But really we’re thinking not what the world might look like in a year or two, but what’s the world going to look like in 10 or 20 years, and how do we invest today in those thematics that are going to be very influential later on?
Tim McGowen: Now, Australian investors… We were talking about this earlier. The venture capital markets in Australia have been… started off really small and growing steadily now. And Australian investors have always been well exposed to listed equities, but not so much the private markets. Why should an investor have some private market exposure?
Dan Bennett: You know, families are more and more understanding that there’s a lot of upside and a lot of return available in private markets. If you pick a great manager, you can do 20 per cent net IRR, so net return year-on-year 20 per cent or more. You know, Yale’s endowment fund is up to about 25 per cent of their overall allocation of their $20 billion high-performing fund is in venture capital, and they’re seen in many ways as a blueprint of the way that a lot of families and institutions are building their portfolios in the US. We look at Australia’s Future Fund, they’re almost a third in private markets, alts. Peter Costello talking about more productivity and more innovation, and size of market being greater in private markets than public markets today. Same messaging from SEC chairman in the US. Very significant family offices here in Australia… KPMG run a report annually on how the families are allocating to give people a view on that. So, the large family clients KPMG works with, they’re also about 30 per cent in alts or privates. If you include property, they’re up at 54 per cent in private markets. So, there’s a lot of innovation there, a lot of opportunity there. And, you know, the key thing is access. And I guess that’s where we come in. At OurCrowd, we want to make sure that our friends, our clients, our families are able to get access to that world in a institutional-like way, in a way where they’re investing alongside the biggest and best funds in the world. They’re not compromising on deal quality. We see the best markets in the world being, you know, US and Israel.
Tim McGowen: And can you talk us through a successful exit you’ve had and talk through briefly just an example in that regard?
Dan Bennett: Yeah, sure. So, OurCrowd, we were established about 10 or so years ago. I established the office here in Australia nine years ago. In that time, we’ve raised almost $3 billion. And in that time, we’ve also enjoyed 60 exits. We just had an exit last week, a remittance business which got acquired by Remitly that we’re very, very happy with. In terms of exits, I get excited about, most of our exits are actually private acquisitions, M&A acquisitions, which is quite phenomenal. When you look at the statistics over the last 20 years, generally between 90 and 95 per cent of exits, so liquidity events for private markets, are M&A transactions. So, it’s actually not even making it to IPO markets. So, again, back to your earlier question on why private markets, if we’re not investing in these markets and waiting for IPOs, 95 per cent of the companies never get there anyway, and even if they do, a lot of the juice has been squeezed out of the fruit. So, for us, those exits are generally M&A. So, Oracle, Intel, Nike, Snapchat have all bought at least one of our companies. So, big name acquisitions. And then a couple of IPOs. The IPO that was very fun to be part of was the Uber IPO because of obviously all the hype that was part of that, and that was super interesting to see the process. Another really interesting one was Beyond Meat. I don’t know if the viewers have tried the Beyond Burger. It tastes, looks, smells and even bleeds like a beef patty. It’s actually all plant protein. Really, side-by-side, one wouldn’t tell the difference. Being part of that exit, we did a very nice multiple on our money, and seeing that go public was a lot of fun as well.
Tim McGowen: And just finally, you’re launching another product in Australia or doing an equity raise for wholesale investors. Can you just give us an idea of what that looks like?
Dan Bennett: Yeah, absolutely. So, our key flagship strategy is a fund called OC50, OurCrowd 50. Unsurprisingly, it invests in 50 companies. The strategy was built with our institutional partners. So, we work very closely with SoftBank, with ORIX, with Stifel, with NAB here in Australia, who’s been our trusted partners for six years, with a number of other global banks, about a dozen global banks. And when we were strategising on this product, the idea was how do we really protect investors on the downside? Because when those banks are going out to their most valued clients, of course there’s nervousness about an asset class which is certainly not… We’re not investing in bonds here, we’re investing in something more high performance. So, we wanted to really ensure we were protecting on the downside. So, those 50 companies build you a really broad diversified portfolio that gives you a great chance of managing market fluctuations, changing dynamics.
We also have diversified the strategy across three different vectors. One is geographical spread. So you get a bit in the US, a bit in Israel, and a bit of rest of world. So, it’s sort of 40, 40, 20 rest of world. You get diversified by sector. So, all those sectors we enjoyed talking about earlier, a bit of AI, quantum, robotics, drones, climate tech, you get a little bit in each. So, if one overperforms, you’re in it. If one underperforms, you’re not overweight. And then really importantly, you’re spread on stages of investment. So, you get everything from really seed all the way through to pre-IPO. So, the whole early stage to late stage. We are concentrated in series A and B, which is more of the company’s got traction, they’ve demonstrated market fit, but they’ve still got a lot of growth to go. And we love really getting in and our hands dirty and sitting on boards and helping our companies out.
But having that broad spectrum of stages of investment means that the late-stage deals are going to harvest sooner and distribute capital faster. So you’re not sitting there for an inordinate amount of time waiting for returns. Within year one or two or three, you’re already going to have some exits hopefully, and some distributed capital coming back to you. But the earlier stage deals, which take longer to grow and then harvest, that really gives you your punch, your bang for your buck. Those are the deals that can get you 5, 10, 20 times your money. So the overall portfolio, you’re targeting a 3x+ return, but you’ve got a nice mix of distribution profile where you’re not waiting years and years to get your money back. You might get some money back earlier, which gives you a really good feeling as an investor that you’ve invested in a good strategy when money’s coming back, but you’ve still got lots of deals to come and give you the punch later on.
Our first three series with that strategy are all tracking around a 20 per cent net IRR. If we continue in that way over the 10-year time horizon, we’re going to do a 5x+ fund, knock on wood. We’d be very happy with 3x with the downside-protected strategy we’ve assembled here.
Tim McGowen: Dan, thanks for your time. A fascinating part of the markets. Good to have you here.
Dan Bennett: Excellent. Thanks for having me, Tim.
OurCrowd was founded in 2013 and has since vetted over 17,000 companies and deployed $2.5 billion+ in 320 companies. OurCrowd has exited 59 positions by either merger, acquisition or IPO. This includes acquisitions by leading multinationals such as Microsoft, Intel, Samsung and Uber. OurCrowd invests, on the same terms, alongside leading VC funds such as Sequoia, Accel, Insight Partners, Soros Funds and Norwest, as well as some of the world’s most respected and known angel investors, such as Mark Cuban, Jeff Bezos and Bill Gates. The firm is headquartered in Jerusalem with offices in Australia and 12 other global offices, spanning North America, Asia, Europe and the Middle East.