Venture capital: A winner and a loser as a rollercoaster 2022 wraps up

ANALYSIS

Movac is pumping, facing a business drought.

The Wellington-based VC has just received a $20 million injection from Generate KiwiSaver for its Movac Growth Fund 6, which was followed by a $70m injection.
from the NZ Super Fund (which will provide half of Fund 6’s initial $100m, with the option to invest another $20m).

“We’ve done more than $120m in 10 weeks, which is amazing in this market,” Movac partner Mark Vivian told the Herald. He said Generate was the third organization to invest after the NZ Super Fund and an unnamed third party.

The allocation of NZ Super Fund funds to Movac was noted.

At the beginning of 2020, the Government moved to a large part of the VC with the creation of the $ 300m Elevate fund – which will be combined with startups and private VC funds (or, at least, $ 300m – we’ll get to that. ).

Most of the Elevate funding – about $240m – came from the NZ Super Fund, marking the first time Guardians has entered early stage investment.

Elevate is managed by Crown agency NZ Growth Capital Partners, which also manages the very small Aspire seed fund (for fashion that is in the fall). one or two people doing things in the garage area).

NZGCP Chief Financial Officer James Pinner said his agency did not invest in Movac’s Fund 6 because it was outside of Elevate’s specifications.

But there is a wider problem: NZGCP hasn’t got $70m or, at least, barely.

Pinner said at the end of the week that Elevate had already distributed $196m.

And he confirmed that, so far, only $259.5m has been raised (which means $63.5m left in the bag).

Forget whether Elevate will get another $300m for the next three years – that’s still an open question. The NZGCP needs an additional $40.5m from the Government to meet the initial $300m.

“We are negotiating with the Treasury, MBIE and The [NZ Super Fund] Police can deposit the money to the $300m that was originally announced.”

Why is there a struggle just to collect the first Elevate money?

“The initial plans were open to where the extra $40.5m would come from and when,” Pinner said.

Discussions are taking place on the back of the economic slowdown and rising interest rates that are challenging many of the private sector VCs—presumably making power even more difficult. it’s for more – and the NZGCP’s ambition is not just to revive Elevate with another $300m. but get another $100m for a new “pre-seed” fund.

Another complication: Although Elevate’s performance track record is limited, the fund’s life cycle is only too short to provide much of a ride on its returns. from (see data in the chart below). Pinner points out that Elevate has been successful in its quest to raise private sector investment – and then some. The VC funding that Elevate backed raised $700m two and a half years ago.

The parties said it was “unfair” at this stage of negotiations. It will be the New Year, at least, before any kind of clarity comes.

But Pinner and his colleagues will be well aware that the NZ Super Fund has just allocated money to Movac, cutting out the middleman, and that, as well as its Growth Fund 6, has just been issued by Movac has a new seed fund in the table called Emerge.

Vivian said that Emerge will focus on “pre-seed, seed, re-series A and Series A”, while Growth 6 is focused on “Series A and beyond” (the “beyond” which Pinner sees changing beyond the wider NZGCP) .

National technology spokeswoman Judith Collins said her party is still working on its policy, which is expected sometime next year. Last election, the party’s technology policy included a provision for three funds of VCs, one each at $ 100m (or $ 200m, expected similar funds from the private sector, such as current model) and target companies at different stages of growth.

Down cycle ahead

Vivian said that although the acceptance of Fund 6 seemed to be strong, “Investors always understand that because of the markets this year, and the models we have made are more difficult than ever time, it’s a good thing. The main questions are focused on how we showed the management of investments in the flower of the last few years.

And for businesses and startups in general, he sees tough times ahead.

“I think there will be less sources of other capital because the first time and the second time the fund managers may struggle unless they have a track record of investment returns to show the increasing the awareness of the business community,” he said.

“As in previous cycles, I think we will see improved conditions for investors. And I have no doubt that we will see down-cycles in the next 24 months for companies that cannot justify their financial calculations in their last cycle when they need to recapitalize.

(A down cycle is when a startup makes money at a lower price than its previous cycle.)

“We’ve seen this in previous cycles, and it could be worse, because of some of the ridiculously competitive prices that have been done in. And that’s all over the world, not just here in New Zealand,” he said. said Vivian.

Series: Increase performance

“It’s very early days at Elevate and we don’t expect to be able to tell the true nature of our investments for some time to come,” said NZGCP chief investment officer James Pinner. .

As of June 30, the audited figures show that the TVPI ratio (which holds the value of the assets of the Funds Underlying Funds at the amount stated by them) is 0.92x and free of charge implementation of the program, the TVPI is 0.86.

“I notice that a lot of funds are holding large provisions at that time because of uncertainty and uncertainty in the markets,” Pinner said,

“As of September 30, 2022 (the most recent quarter for which data is available), these unaudited numbers increased to a total TVPI of 0.99 and 0.91 net – attributable to the implementation of capital investment and they still own. important situation due to the instability of the economy mentioned above.”

He added, “Financial performance is very much as we expect it to be at the beginning of the fiscal year and it will be four expected to increase as they mature and increase their investment.”

A former employee with a private sector fund told the Herald, “Although Evate’s 0.84 return on fees from the first period is very bad, we still think it is an investment. in the general partner / limited partner structure for common funds will have a first drop in price, because the fees are paid as a percentage on all capital, not just drawing capital, so the initial performance is usually easy to mark down and difficult to mark, and the investment cycle for capital is seven. to 12 years.”

He added, “There are some bad investments on the portfolio – especially anything to do with crypto – but the main thing is a business thing. There were also some good wins – especially Halter itself. Halter is a startup founded by a former Rocket Lab engineer. An Elevate update released in September also includes Mint, Quantifi, Tradify and Seequent in the fund’s success stories.Elevate is often the company’s co-backer, after investing in funds managed by partners including Movac, Blackbird and GD1.