Venture capital: Movac closes in on target as Govt fund chips in

Movac general partner Mark Vivian. The Wellington-based venture capital firm's greatest investment hits include Trade Me, Power by Proxi (sold to Apple), Timely, and Vend. Photo / NZME

New Zealand’s largest venture capital fund seems on track with its second major raise of 2023 - with a Government fund again helping to offset the VC slowdown as high-interest rates tempt investor money elsewhere.

The Crown-backed NZ Growth Capital Partners said this morning it was committing $15 million from its Elevate fund toward Movac’s Emerge Fund 4 at first close, with provision to increase that to $25m.

The final amount will depend on how much Movac ultimately raises for Emerge Fund 4, which is due for its final close in December. The Wellington-based firm is targeting $50m.

NZGCP chief investment officer James Pinner explains the investment will be “$15m at first close and then matching dollar for dollar until they hit $50m - at which time our commitment would be capped at $25m.

Last month, Movac partner Mark Vivian told the Herald that Emerge Fund 4 had $15m in the bag, with $15m-$25m from a cornerstone investor (who transpired to be NZGCP) close to getting over the line

The NZGCP contribution means up to $40m is now secure.

In May, Movac closed its Growth Fund 6 after raising $202m - meaning it now has commitments for $242m for the year so far.

“We are tracking very well and on our predicted timelines, albeit in the context of fluctuating financial markets,” Vivian told the Herald this morning.

“Fundraising for earlier - and riskier - stage funds is always tougher than for later stage ones, and that’s no different in this case, so we’re really satisfied to be where we’re at.

“On the dealflow side, it’s been consistently strong for the past two to three years.”

The firm’s last major drive to raise funds from investors - its 2020 drive for its Growth Fund 5, saw $250m secured (including a $30m contribution from Elevate). Now, between them, this year’s Growth Fund 6 and Emerge Fund 4 could sneak ahead of that total, despite the market turbulence.

Earlier this year, NZGCP chief investment officer James Pinnar said his agency was in talks with Treasury and MBIE to secure $40.5m for Elevate - an amount that would see it fully funded (the Government announced it as a $300m fund in 2020, but only allocated $269.5m at the time - almost all of which had been invested by the start of this year as NZGCP pursued its mission of investing in local VC funds).

Budget 2023 saw the outstanding $40.5m finally secured for Elevate, which was good news for Movac and its peers - even if the broader question of whether Elevate will be topped up with another $300m was left for another day.

Data released ahead of Budget 2023 confirmed NZ had been caught up in the global venture capital crunch, with early-stage companies pulling in $112m of funding during the second half of 2022 - a 43 per cent drop from the record-breaking first half of 2021.

Pinner told the Herald the sector was “normalising” after the 2021 bubble, fueled in part by historically low interest rates.

Vivian said while it was more challenging to raise money in 2023, software company valuations had fallen from their peak - meaning higher potential returns for those who did buy in.

The venture capital industry has its eyes on a set of recommendations that the Government’s Startup Council is due to deliver next month.

Earlier, Angel Association head Suse Reynolds said she was looking for measures that will make it easier and more attractive for Kiwisaver funds to invest in venture capital funds. Leaks suggest the Startup Council will almost certainly make recommendations along those lines.

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is technology editor and a senior business writer.