The local venture capital scene continues its bull run, with Global From Day 1 (GD1) announced the first close of its Fund 3 at $130 million, blowing away a $50m target.
Partner Vignesh Kumar says the raise was supported by institutional fund managers such as Harbour Asset Management, family offices, community trust and iwi investors, and NZ Growth Capital Partners, which chipped in $45m – the Crown fund’s largest single investment to date from its $300m Elevate fund.
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Last year saw record VC investment as tech startups benefited from the pandemic accelerating the digitisation of business, money washed in from funds across the Tasman, and the Super Fund’s dramatically goosed Government participation via its $270m contribution to Elevate.
Kumar is not predicting an end to the golden weather. He’s still confident Fund 3 will hit its $160m cap by year’s end. But he concedes there’s now a hint of murk in the outlook.
“I think we’ve timed this raise well,” he says. “It’s hard to read the tea leaves, but with inflation coming back up, there’s going to be a bit more pressure on fundraising in general next 18 months; that’s what we’re feeling.”
There is a broad expectation Reserve Bank Governor Adrian Orr will announce an Official Cash Rate rise later today. And that the rise – which would be the first since March 2014 – will just be the beginning.
“We expect a 25-basis-point increase in the Official Cash Rate at next Wednesday’s Monetary Policy Statement, and a projection for several more hikes over the next couple of years,” Westpac chief economist Michael Gordon told the Herald last week.
The RBNZ slashed the OCR from 1.0 per cent to 0.25 per cent at the start of the pandemic.
But rates had already been low for years. A generation of tech investors has grown up never knowing the aftermath of the dotcom boom (which saw the benchmark rate hit 6.5 per cent over2000 and 2001, or the tremors of the GFC that saw the OCR top 8 per cent during 2007 and 2008.
“Rising interest rates will inevitably make people think more carefully about where they put their money,” Angel Association NZ executive chairwoman Suse Reynolds says.
“But investment in high-growth companies in NZ has been on a pretty consistent uptick for over a decade,” she adds.
“And there are deeper motivations for angel and venture investment than just financial returns so I think we’ll continue to see interest in this asset class but the pace of growth in the quantum of capital may slow.”
And Kumar says there’s also a possible countervailing force. He says the VC community is hearing “whispers” about government plans to ramp up its Investor Visa programme, which sees an applicant (and their family) gain residency, with most of normal criteria waived, if they pledge to invest at least $10m in NZ over three years
Separately, new Icehouse chairman David Downs told the Herald the Investor Visa needed to be tweaked for more focus on business growth investments over government bonds and property.
Meanwhile, Kumar says GD1 is moving fast to deploy its Fund 3 capital, with recipients including Dawn Aerospace, Runn.io (a project management and business forecasting startup founded by Silverstripe director Tim Copeland) and JunoFem – an Auckland University Uniservices spin-out that’s developing an over-the-counter, wearable device for pelvic floor muscle training.
Earlier investments have included Tauranga electric motorbike maker Ubco, Rangiora-founded video creative company Shuttlerock, Spotlight reporting (the most popular reporting and cashflow forecasting app in Xero’s ecosystem) and a re-boot of smart wearables maker Stretchsense.
Like many of its peers, GD1 touts the contacts and mentoring that its partners can offer, on top of capital.
Wharton MBA Kumar came to GD1 after senior roles with Apple in Cupertino. And he says his firm has been adding operating partners who also bring offshore experience and contacts including Heather Gadonniex, who relocated from San Francisco to Auckland mid-year and Gary Wong, who worked for a video-on-demand BBC/ITV joint venture in the UK before roles with Apple, PowerbyProxi and ParkHelp.
Runn.io Copeland says GD1’s team offers “a deep level of operational insight that solves the most challenging roadblocks to growth. Their unique access to in-market talent and extensive global contacts are a game-changer for companies looking for rapid expansion into major offshore markets.”
And JunoFem’s Kruger says, “As a technical founder, the team has been given me invaluable advice, from go-to-market strategy to governance structure,which continues to ensure that we are wellprepared for our next round of investment.”
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