New Zealand’s largest venture capital firm, Movac, has updated on its raises for two new funds. Its chief has also explained why he thinks its total tally - still shy of its previous effort, as things stand - could ultimately beat the $250 million pre-tech wreck.
Movac’s Growth Fund 6 closed on May 1 after raising a total of $202m from investors, including a $70m contribution from the NZ Super Fund.
That’s shy of the $250m raised for its Growth Fund 5 in 2020, which included a $30m contribution from the NZ Super Fund-backed Elevate, run by NZ Growth Capital Partners.
But general partner Mark Vivian says this time around says he’s bullish on ultimately raising more than $250m in Movac’s current push, which also includes the new Emerge Fund 4, which has a $50m target and closes on December 1.
In terms of money actually, in the bank, Emerge Fund 4 is still well below its goal. But Movac says it has momentum.
“Today, we’ve got approx $15m in commitments so far for Emerge Fund 4, and another $15-25m strong indications of interest that we’re working through,” general partner Mark Vivian told the Herald this morning.
Vivian sees the overall fundraising effort as a win.
“It’s on target to be the same size despite market conditions having changed so much,” he said.
Emerge Fund 4 will offer seed funding for early-stage companies. Growth Fund 6 will invest in companies with at least $2m in revenue who are at the Series A, B, C or later funding level (typically the three stages of ever-greater funding before an IPO).
Bull to bear
“The market and conversations have really shifted,” Vivian said.
“We raised Fund 5 in 2020 in what I would describe as peak-bull market conditions for venture capital globally, as investors sought returns in a low or zero rate environment the capital flowed in from all directions.
“This has changed and investors can now get 5 per cent by keeping their cash in the bank or buying government debt. So the investment case for venture has tightened up.”
Additionally, institutions are now having to rebalance their overall portfolios given what’s happened in equity markets in the past 12 months, the general partner said.
“As public markets dropped in value, private markets are always slower to adjust, so they’ve found themselves rather overweight in private allocations.
“As a result, further allocations to private markets - like venture capital - have been under significant scrutiny, and funding is scarce for all but the top tier firms with demonstrable track records.”
Bear to eternity
But while VCs now have to pedal faster to get money in the door, the new landscape also has a number of very attractive elements.
The sudden paucity of VC money means early-stage companies can no longer play off venture capital suitors against each other, and valuations have crashed - meaning a VC can get a bigger slice of a startup for less.
“Software company valuations have dropped approximately two-thirds from their peak, and therefore venture is an asset class where there may be significant returns to be had in the coming years by ‘buying well’. Historically funds raised and deployed in this part of the cycle have done well,” Vivian said.
“For others who’ve invested like kids with chequebooks, spraying and praying with scant due diligence, it will be a much-needed shock. Like the GFC, I think you’ll see a reduction in the number of VCs in the market, in NZ and globally.”
Vivian also points out that startups who do manage to bag funds now have it a bit easier in terms of their largest cost: labour.
“The talent tap has started to flow again with migration and there’s been some tech company downsizing which has brought some relief to what was a rabid tech employment market.”
Mystery Growth Fund 6 investor named
Earlier, Movac said the Super Fund had earmarked $50m for Growth Fund 6, with another $20m possible. Today, he confirmed the Guardians had chopped in the full $70m, after Movac meet the criteria - raising matching funds - to receive the additional $20m.
Generate KiwiSaver was earlier named as a $20m contributor, with a second mystery KiwiSaver fund also investing. Today, that party was named as Fisher Funds, which has chipped in $40m.
Movac’s greatest hits include Trade Me, Power by Proxi, Timely and Vend.
Elevate still hangs in the balance
The $300m Elevate fund, managed by Crown agency NZGCP, was created in 2020, primarily via an injection of capital from the NZ Super Fund, which contributed $240m.
The goal was to pep up the sluggish local VC scene by putting money behind private VC funds.
Today, the Elevate fund - which ultimately only saw $259.5m allocated - is nearly dry.
Should the Government renew Elevate with Budget 2023?
“I think that Elevate should be topped up, while keeping the bar high as to who they allocate to,” Vivian said.
String of major raises
Meanwhile, a string of local startups have managed major raises in 2023 from local and international sources, the various challenges of VC funding notwithstanding.