Auckland startup Quantifi Photonics has raised $15 million in a Series B round at a $36m post-money valuation. While we've seen a blizzard of raises this year, this one's unusual in that it's an all-Kiwi affair at a time when Aussie or US outfits are grabbing large chunks of many high-tech companies in fundraising mode.
It's also a notable example of a local venture capitalist reinvesting money in a local startup following a big win, and a local KiwiSaver fund backing an early-stage company.
Quantifi - founded in 2012 born out of research at Auckland University - makes equipment that global companies use to develop and test really fast telecommunications equipment, from subsea cable systems to optical kit in data centres.
The new trans-Pacific Southern Cross Next cable - which was dragged up Auckland's Takapuna Beach last week by Alcatel Submarine Networks, was developed and tested, in part, using Quantifi kit.
Now, Quantifi co-founder Andy Stevens says new markets are opening up for his company's technology - and the $15m will be used to develop new products to meet them.
"What has happened over the last 10 years is that all this amazing technology developed for telecommunications has enabled the development of new products for new markets and applications. For example, autonomous cars that scan the road using laser-based Lidar systems, and your smart phone's facial recognition are both built using fundamental photonics technologies," he says.
Google, Nasa and Cisco have been namechecked as customers in the past, but Stevens say contract terms mean he can't confirm or deny his company's current clients. But he says it has grown, and includes several market leaders in their respective fields.
Paying it forward
Lance Wiggs' Punakaiki Fund which led the previous Series A round in 2018, also led Quantifi's Series B round, investing $5m (and lifting its stake from 17.7 per cent to around a quarter share in the process, making the fund the largest single shareholder).
Punakaiki was recycling some of the profit it made from owning a slice of Vend, the Auckland point-of-sale software company recently sold to NYSE-listed Lightspeed for US$350m ($455m).
"We will receive, we estimate, $9m from the sale of our Vend shares, which was paid partially in cash, and the remainder in Lightspeed shares. Two-thirds of those shares are escrowed until later this year," Wiggs says.
"The cash, and funds from the sale of our initial tranche of Lightspeed shares only rested in a bank account briefly before being redirected into Quantifi Photonics [$5m] and [$1.25m] Mobi2Go. Each of these investments was part of a round of $10 million or more, leaving two of our existing investments very well set up for the medium-term."
(Mobi2Go - a Kiwi company that competes with Shopify - has boomed during the pandemic, quadrupling its staff as more small businesses move sales online.)
Stevens says the $15m in new funding will be used to ramp up research and development efforts, and create new products that will broaden Quantifi's appeal to the world's largest tech companies.
"We have significant opportunities with a number of existing customers, and we are one hundred per cent focused on becoming a leading supplier to the world's largest photonics manufacturers over the next five years.
"The company is on a clear path, even with the impact of Covid-19, to turn this into a US$100m revenue business for New Zealand".
He quotes stats saying the fast-growing market for photonics-enabled devices hit US$2.4b last year.
The Albany-based company grew staff numbers to 44 during 2020 (40 in NZ, plus four sales staff in the US) and is now looking for "much larger" digs as it adds employees and ramps up production. Some of new funds will go to adding bodies in North America and open new outposts in Europe and Asia.
And while detailed financials haven't been published, a Punakaiki fund portfolio statement says Quantifi increased revenue by 10 per cent in 2020 as it snuck into profit with "over $680,000" of operating earnings. Separately, Stevens told the Herald "we are forecasting revenue well over $10m for FY2022."
The founder added, "We have been profitable already in our journey, although not every year. We founded the company in 2012 and did not raise any capital until late 2017."
With its latest raise, Quantifi had been seeking to raise $12m, but in the end its oversubscribed round got to $15m. Its Series A effort four years ago brought in $3.2m.
The Series B round was also supported by KiwiSaver fund Simplicity, which invested $4m for a stake just over 10 per cent. Simplicity MD Sam Stubbs indicates more of the same is on the way - which could lead to dedicated fund.
"As part of our fully-diversified strategy, we will invest in privately-held companies with meaningful revenue and strong fundamentals. We intend to create, over time, enough holdings to have an index on strong privately held businesses in New Zealand," he says.
Pacific Channel, which recently closed a $55m fund aimed at "deep tech" companies (including a $20m contribution from Crown agency NZ Growth Capital Partners' Elevate fund) , chipped in $2m. MD Brett Ogilvy says the Pacific Channel II fund is looking to invest in 25 research-intensive companies.
$1m came from Nuance Connected Capital, which launched a new VC fund in May aimed at early-stage NZ companies with global opportunities in deep tech, science and innovation. Partner Ngaio Merrick says: "Our investment process focuses on the calibre of the founders and the ability of the company to carve out a global niche. We believe Quantifi Photonics is well placed to scale internationally with the investment and the support of their investors."
Existing investors including NZGCP's Aspire Fund and Sir Stephen Tindall's ubiquitous K1W1 (on the launchpad for a big Rocket Lab payday) also supported the round.
Other shareholders include Uniservices (Auckland University's commercialisation arm) and parent company Southern Photonics (also part of the Uniservices stable).
"We are one of only two companies able to meet the exacting requirements for manufacture of high-end optical transceivers and we are moving quickly to consolidate our lead," Stevens says.
"We started by providing leading-edge photonic test equipment to overseas R&D labs who were developing the fibre-optic communication technologies used in subsea cables such as the Southern Cross cable between New Zealand and the US, which carries most of New Zealand's internet and telecommunications data.
"Today, our equipment is used to test devices which operate much faster, but are much smaller and cheaper, and are being used in thousands of data centres worldwide."
Quantifi's equipment is used by multinationals in 25 countries today. Stevens expects that to expand as new markets like self-driving car systems and augmented reality smartphone apps broaden the market for photonics-enabled devices - and the kit for developing and testing them.
"Our main competitors are primarily multinational test and measurement companies whose revenue is measured in the S$500M to US$2b range," Stevens says.
"Good examples would be Keysight [listed on the NYSE) or Viavi [listed on the Nasdaq]."
These companies provide instruments to a broad range of markets, Stevens says.
"In comparison, we focus on a very specific niche. It is a small market for them, but a large opportunity for us. We develop our instruments specifically for this market alone, which ensures they work very well for that specific application."
The Quantifi co-founder adds, "More importantly, we do not just try to sell products from our catalogue. As we are experts in our field, we work closely with our customers to understand their requirements, then offer the best possible solution. Sometimes this requires building a bespoke instrument which the customer will pay for – because nobody else will offer such a solution.
"As an example, our largest customer this year is a global device manufacturer expanding their automated test capabilities. Our engineering team has been working closely with their engineers since the start of their project, helping them to understand the best way to test the optical properties of their devices and reduce their test time.
"As a result, our equipment is now being designed in to their automated equipment which will be deployed world-wide over the next few years."