03.12.21

Private TechEquity

Tom Matthews


At Pemba, we have had the pleasure of partnering with numerous founders of technology businesses and helping them achieve their specific growth and legacy objectives (or to “scale their summits” as we call it, in keeping with our Sherpa theme). We have completed over 20 partnerships with technology businesses between 2016 and 2021, significantly more than any other Australian private equity investor.

We are exceptionally proud that we have been able to help these organisations grow exponentially. Some have listed on the ASX, some have joined larger organisations to continue their growth pathway, many have expanded internationally, whereas others are just at the beginning of their accelerated growth journey with Pemba (at “Base Camp” as we refer to it).

Background to Pemba’s deep expertise in technology

At Pemba, we were one of the first growth investors in Australia to specifically focus on the technology sector (both software and specialist IT services). In fact, when I joined Pemba, back in 2014, technology wasn’t a sector of focus for most private equity investors.

At this time, many small to medium sized tech businesses had real challenges accessing capital to grow:

  • Banks were often reluctant to lend to SME tech businesses and, when they were willing to lend, usually required personal guarantees from the founders or security over their private assets (e.g. property);
  • Private equity typically shied away from the technology sector;
  • The venture capital industry was nascent relative to overseas markets like the US or UK with just c.$300m of VC investment into Australia in 2014 versus the c.$3.5bn in 2021; and
  • The IPO market was also difficult for SME tech businesses to access. Lack of scale, inadequate reporting systems and the overwhelming cost and burden of regulatory requirements were all impediments for SME tech businesses trying to access this source of capital.

How things have changed

The Australian technology sector is now a critical pillar of the Australian economy and an important accelerator of jobs and growth. Accordingly to research from the Tech Council of Australia and Accenture, in 2021 the technology sector has grown considerably and now:

  • Has become Australia’s third largest industry, just behind mining and banking
  • Employs over 861,000 Australians
  • Has become equivalent to Australia’s 7th largest employer, employing 1 in 16 working Australians. In fact, there are more software and application programmers in Australia than plumbers, hairdressers or secondary school teachers
  • Contributes $167bn to GDP and is equivalent to the 3rd highest industry contributor to GDP (behind mining and financial services).

As the Australian Prime Minister, Scott Morrison said: Every business in Australia is now a digital business. The tradesman or woman who seeks work through Airtasker. The landscaper who finds most of their new business through search engine placement and social media. The farmer who keeps track of their herd with electronic tags or drones. The local Thai restaurant that sells through Uber Eats, Menulog, Deliveroo or any one of half a dozen different food apps. The gym where members book their classes through an app.”

The composition of the tech landscape in Australia

Interestingly, most of the firms in the direct tech sector are small businesses or sole traders.

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Many of these SME tech businesses are founder-led organisations. At Pemba, we specialise in backing founder based businesses. We find many of these founders are not just looking for capital to help them grow their businesses. In fact, with this historic low interest rate environment, capital has become somewhat of a commodity. Rather, SME founders are looking for a proven growth partner to help provide expertise, strategic support and access to its network and external resources to accelerate the journey.

The impact on the Australian workforce

Tech occupations are some of the fastest growing occupations in Australia. In fact, tech jobs grew more than twice as fast as average employment in the last decade.

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The rise in tech jobs is equivalent to an additional 340,000 new jobs in the tech sector since 2005 and 65,000 in 2020 alone. The tech sector’s rapid growth in job numbers and economic contribution made it one of the largest industries and employers in Australia in 2020-21, with 861,000 people employed in tech occupations. Overall, the sector would be equivalent to the seventh largest employer in Australia, providing jobs to 6.6% of the workforce.

How will this likely develop in the future?

COVID-19 has been a catalyst that has led to the acceleration of digitalisation across many industries in Australia. The technology sector is expected to be a key accelerator of economic growth in Australia in the recovery from the COVID-19 pandemic and into the future.

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How Pemba is helping

At Pemba, we have just raised a new fund with significant committed capital to be able back more founders of great Australian and New Zealand based tech companies. We are proud of what we have achieved to date, but are also determined to help Australia realise a tech-supported recovery, securing jobs and contributing significantly to GDP.

What next?

If you are a founder of an Australian or New Zealand based tech business and looking for an experienced growth investor to help take your organisation on the next stage of its growth journey, then please contact me to discuss how we might be able to help.

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