Paul Bassat likes to talk about the next phase of the evolution of the internet as “incredibly exciting but incredibly complex.”
The co-founder of the James Packer-backed venture capital investment giant Square Peg Capital is speaking of so-called Web 3.0, the so-called third generation of the internet where websites and apps process information in a smart, human-like way through technologies like machine learning, big data and blockchain technology.
“If I think back to 1995 when I was first introduced to the internet, even then it was clear the internet was going to be an important theme in our lives for the next generation.If you look at Web 3.0, the gap between the bull and bear case continues to be wide.There is a lack of clarity around what the applications are going to be, where they have advantages over traditional applications and managing challenges about scaleability,” Bassat says.
Read Next Bassat co-founded online employment powerhouse SEEK with his brother Andrew Bassat and Matt Rockman, when SEEK took on and decimated the so-called “rivers of gold” traditional print classifieds business model of Fairfax Media.
READ MORE: Murdoch, Square Peg back Rokt’s $US80m raising | Square Peg leads $22m raising for quantum computing start-up Q-CTRL | “The mistake people make is to assume technology is static.There are lots of smart people working hard to address the limitations of Web 3.0 applications,” he adds.
It is one of the reasons why Square Peg has recently – as Bassat puts it – “dipped its toe in the water” in the space with two cryptocurrency investments.Details will be announced over the coming months but one opportunity is South East Asian based.
The other was sourced by Square Peg’s newest investment principle based in the Israeli TECH capital of Tel Aviv, Yonatan Sela, and has an Australian connection.
Both were made from Square Peg’s so-called Fund Three, which closed to investors in December 2020 after raising $600m.
Brothers Paul Bassat and Andrew Bassat as co-founders of online employment website, Seek.com, pictured in Melbourne.Sela told Square Peg investors last year that he believed the $1.5 trillion crypto industry to be one of the most transformational and lucrative innovation spaces in tech.
“I’m excited for the future of crypto; it represents an entirely new way to interact with digital-native assets, and opens up a new canvas for innovation.There is more developer talent than ever working in the crypto space, and many outstanding entrepreneurs choose to build there,’’ he wrote.
Bassat is clear both of Square Peg’s initial crypto investments are in operating companies, not so-called NFTs or cryptographic tokens that exist on a blockchain and can represent real-world items like artwork and real estate.
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Sign up “It is incredibly exciting what is going on.
There is what appears to be a bubble in certain sectors, particularly NFT’s,” Bassat says.
“For the true believers, it is almost like religion.The important thing is you need to take a step back.It is easy to be a believer or non-believer.But we believe it is better to be a bit objective and realise there are lots of unanswered questions about the technology.”
Square Peg is not alone in its caution, especially given the price of Bitcoin fell in January to its lowest price since July last year.
The currency, as well as other crypto currencies like ethereum, has also seen new volatility in recent weeks following Russia’s invasion of Ukraine.
While many venture capital investors have been interested in crypto, only a small number of traditional venture firms, hedge funds, and family offices globally have so far invested deeply in the asset.
Former Swisse vitamins chief executive Radek Sali’s private investment group, Light Warrior, last year partnered with former Goldman Sachs hedge fund manager Raoul Pal to seed an actively managed portfolio of digital asset hedge funds.
Since it was established late last year, US$110m has been invested into the so-called Exponential Age Digital Asset Fund (EADAF).
Risk taking
The fund’s chief investment officer, Moritz Seibert, recently told clients that the current stage in the cycle was “full risk-on”, leading it to favour directional exposures to DeFi and earlier stage tokens.
“As the cycle matures, we will aim to position more defensively, increasing allocations to arbitrage, market-making, trend following, and yield farming while also taking advantage of deeply discounted value in the best small cap tokens and NFTs,” he said.
“We will adjust our asset allocation over time, keeping in mind that the stages of cycles vary in length.Our view is that the current cycle will have a longer run than most expect as institutions, sovereign wealth funds and retail investors continue to allocate significant capital into the first half of 2022.”
Paul Bassat says Square Peg has “dipped its toe in the water”.Picture: Aaron Francis In Australia, the Victor Smorgon Group – the company formed by the late patriarch of the Smorgon family, Victor Smorgon, and run by his grandson, Peter Edwards – has taken a stake in emerging crypto platform ZeroCap to make investments across the asset class.
VSG has also invested in the San Francisco-based Polychain Capital, a cryptocurrency hedge fund founded five years ago by entrepreneur Olaf Carlson-Wee, the former head of risk at Coinbase, the largest bitcoin company in the world.
VSG made its first foray into crypto funds management in October 2020, investing in Apollo Capital, which is backed by billionaire investor Alex Waislitz.
Waislitz was also a pre-IPO investor in Australian crypto payments firm Banxa, which listed on the TSX Venture Exchange in Canada last year.
But Peter Edwards has stressed VSG’s crypto investments highlight his attraction to the vision of blockchain: that these technologies could allow trusted transactions between parties, without the need for a middle man, particularly across the finance industry.
Other notable Australian investments in crypto over the past year have come from high net worth investors in a private capacity.
Seek co-founder Matt Rockman, Caledonia Investments chair Mark Nelson, former Ten Network chairman David Gordon and Canaccord Genuity Australian chief Marcus Freeman last year backed a capital raising for Australia’s first cryptocurrency asset management firm, Magnet Capital.
Paul Bassat stresses that while “obviously technology evolves and you have to be alive to new themes” and says Square Peg is “open to investing across Web 3.0 business models”, the group will continue to remain focussed on five thematic areas – Consumer interest, SaaS (Software As A Service), fintech, Edtech and the future of work, and healthcare.
“We are really thematic in our approach,” he says.
“For the past 6-7 years most of our activities have been across the five thematic areas – that is really the focus in the new fund to invest across those themes.”
Square Peg is currently raising funds for its Fund Four – which focusses on early stage investments across series A and B funding rounds – and its Opportunities Fund 2 for later-stage rounds for firms from Square Peg’s existing investments.
The combined raising will be worth US$550m across the two funds, with a first close expected later this month.It is understood 70 per cent of the targeted proceeds have already been raised, with support from local and offshore institutional investors.
In a recent private briefing with boutique wealth management firm Hamilton Wealth Partners,
The Square Peg Melbourne team: Dan Krasnostein, Jenna Sheils, Paul Bassat, Leila Lee, and Ben Hensman.
Source: Supplied.Square Peg co-founder Tony Holt confirmed the venture capital group had returned more than $580 million to investors from 10 exits – both full and partial.
They include firms such as Vend, Fiverr, UHG, Puresec and Shipping Easy.
Its remaining holdings in 47 portfolio companies such as Canva, Airwallex, Athena Home Loans and Rokt are worth $2.8 billion.17 new investments were made during 2021.
Holt, a former investment banker, said fintech was currently one of Square Peg’s “more significant focus areas”.
“There is no point in being right in the wrong decade.It is important to have proximity to the drivers that are going to cause the change and the value creation.
In terms of fintech, the timing is amazing.Because of the ability to disrupt incumbents and the lack of the ability of incumbents to respond,” he said.
He also said there was a strong pipeline of opportunities in the “future of work” given the impact of the Covid pandemic on global work habits.
He revealed Square Peg was currently making a significant proportion of its investments – as much as 40 per cent – in South East Asia.
Square Peg partner Tushar Roy moved to Singapore in 2000, while the firm also recruited Piruze Sabuncu from Stripe, reflecting its desire to capitalise on its strong presence in the region.
“Our position in that market, by some good fortune and by a lot of hard work, we think we can be a leading player in that market.Which is an enormous statement and not one I would have made five years ago,’’ Holt told the Hamilton forum.
In late January Singapore-based edtech Cialfo announced it had raised US$40 million in Series B funding, led by Square Peg and SEEK’s investment arm SEEK Investments, now run by Andrew Bassat.
In the pipeline
Cialfo’s tech platform includes school research, communication tools for counsellors and students, and Direct Apply, which helps international students find and apply to hundreds of programs with a single application form.
Square Peg’s current investments in Southeast Asia include “buy now, pay later” platform FinAccel, healthtech platform Doctor Anywhere, roboadvisor StashAway, and micro-mobility service provider Neuron Mobility.
Tony Holt also said that following the appointment of Yonatan Sela in Tel Aviv, Square Peg would invest about 20 per cent of its funds in Israeli tech going forward.Israel has been a strong focus for the firm’s investments over the last decade.
“A critical benefit we get from being in Israel is the perspective of what really great looks like.
The quality of the companies founded in that market is absolutely world class.
We see there what amazing looks like in terms of founders,’’ Holt told the Hamilton Wealth forum.
In late February Israeli 3D imaging, sensors and AI subterranean mapping platform Exodigo announced the completion of a US$29 million seed financing round with participation from SquarePeg.
Holt said the firm had doubled its investment and support team over the past year as it continued to look for the best and brightest minds to join its global operations.
“We look for passion for tech.We look for what we term horsepower – which is mental agility,” he said.
“The ability to think about what is important in trends, to be a first principle thinker, to own and debate views.To be strong in those views but be flexible.”
Damon Kitney Victorian Business Editor Follow Damon Melbourne Damon Kitney has spent two decades in financial journalism, including 16 years at The Australian Financial Review in a variety of writing and editing roles in Sydney, Melbourne, Canberra and Perth, including 5 …Read more @DamonKitney Damon Kitney, Inner Sanctum Square Peg dips toes into crypto world 1:17 AM Damon Kitney While not a true believer yet, venture capitalist Paul Bassat is cautiously interested and open to investing in the next evolution of the internet.
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