Former JANA senior asset consultant, Alistair McCreadie, has opened a venture capital fund targeting technology businesses and a return of 20 per cent a year in the long term.
Melbourne-based RedFire Investments, which McCreadie is running with three business partners, is not your conventional venture capital fund, he said. “We’ve set the business up the other way around to a conventional fund. The traditional venture capital business is set up as a funds management business whereas this business was founded for investees,” he said.
Using a “sweat equity” model, RedFire initially invests in early stage businesses by committing the professional expertise of RedFire partners to build that business. Sweat equity is effectively paying for equity with work. The capital requirements of an early stage business are then reassessed further down the track, after the RedFire partners have worked with the businesses for a period of time.
McCreadie’s RedFire partner, Geoff Drucker, said this makes it a distinct business model that benefits both the investor and the investee. “Investees know that we’ve got a vested interest in making that business work because we’re going to be spending months and months getting that business to be an attractive investment for other investors, so we’re going to make it work or otherwise we’re going to risk all that time and effort and make no return on it.”
The funds management business was opened as a means to source capital to fund these businesses when capital eventually was required to build them. RedFire aims to take 20 to 40 per cent stakes – although it can step outside these goalposts – in up to 15 companies depending on how developed the company is: the more work required getting the business going, the more equity RedFire asks for.
The fund will be capped around $70 million. “We’re wary of raising too big a fund. The last thing you want to do is cancel a whole lot of commitments because that’s costly. We’re mindful of not running the risk of having a large amount uninvested.”
McCreadie said he expects the fund to return a minimum of 20 per cent a year in a ten-year time frame. There will be a three to four year investment period, followed by a six to seven year realisation period. RedFire has an Asian market focus – it will take the Australian-domiciled companies it builds to Asia to “grow the pie”. “Rather than go to the United States, which is a common route, but is one of the worst performing economies in the developed world, why not go into Asia? It’s on our doorstep, we know more about it with each day and there is a sustainable growth story there,” RedFire’s other focus is on technology businesses, with an inclination towards innovations with environmental impacts.
This focus came about as it was the common experience of the four RedFire partners in previous work they had done – and continue to do – with early stage companies. Apart from his JANA qualifications, McCreadie is also a director of Caerlaverock Capital, a boutique investment advisory firm, and an advisory board member of Quick-Links, a start-up collaboration technology firm.