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We talk with :
The response have been cut for length and clarity .
Angus Blair, partner, Outset Ventures
pompousness is slowing . Does the possibility of few interest pace hikes in the future exchange your venture capital investing and fundraising strategies in the arrive quarters ?
Domestic interest rates play a significant role in domesticated appetite for investment firm investing since such a high destiny of capital is attach up in the place market . Though there will be less or no rate hikes in the coming six months , we do n’t expect important rate cuts or for pastime rates to materially affect our fundraising in this investment trust life bike .
As a pre - cum and germ investor , interest rates have a limited event on our investment . At the margins we stray toward higher stage of capitalization , seeking 24 month plus , rather than 18 months of runway give our perspective . We have understand limited impact on seed stage valuation and anticipate them to stay flat over the next 12 months .
Both the phone number and value of speculation deals decreased in Q3 . Are you expect the same trend to continue in Q4 2023 and into 2024 ?
For pre - seed and seed recondite tech pot , we ask the number of pot and valuations to stay flat into Q4 and 2024 .
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How does decline late - stage venture round of golf velocity in Australia and New Zealand impingement your investing strategy ? For those who chiefly invest in seed and Series A , does this make early stage more herd ?
For New Zealand , we are experience increased interest from off - shore funds ( Australia , U.S. and EU ) we foretell will net out to vapid or increasing speed at Series B+ for New Zealand firm .
Competition for other - stagecoach deals continues to increase , but this is largely from new fund newcomer rather than multistage funds concentrating earlier .
Climate tech has been a Brobdingnagian driver of private investment in both Australia and New Zealand . Are any of these players poised to become ball-shaped leaders ? What sort of incentive , Torah , or insurance would be helpful ?
The obvious campaigner for a global loss leader in climate tech isOpenStar . The Wellington - ground nuclear coalition fellowship that is building levitated dipole reactors with first spark schedule for December this year is already attracting global attention ( and talent ) from the physics and magnetics communities .
I think the domain learn not to trust on carbon economics to make sustainable venture after the clean tech roar of the mid 2000s — VCs look for the businesses to be both sustainableandeconomic on their own merits . Having suppose that , venture found in the U.S. or Europe often have significantly large grant programs if they are working on critical technology of national significance . We make up for that with a passel of other benefits , let in more clear ticket regulatory theoretical account , but to keep these companies here we ’ll finally have to match some of those fiscal incentives as well .
Blackbird opened a New Zealand fund , and many New Zealand investors look to Australia for new investments . What is the relationship between the two nation when it comes to funding each other ? Does your business firm choose to fund locally ?
All founders are excited to have more Australian house indue locally and the same is true for most VCs . For now it ’s largely one directive but that will change as relationships within the sphere figure .
There ’s structural reasons why we do n’t see more investment , though ; all of the large VC funds in New Zealand have New Zealand Capital Growth partners ( a NZ governing plunk for store ) as an LP , which qualify where Washington can be deployed , peculiarly for first investments . Similarly , the Australian ESVCLP complex body part ( typically used by firm with $ 250 million or less under management ) signify that to retain their capital gains taxation – free status , they are limited to how much investing they can do offshore . As and when this demarcation line change , we ’ll see more Australian business firm investing into NZ - based startup , which will be great for the market .
Funding in AI inauguration increased this year . What are the challenges that AI startups in Australia and New Zealand case , particularly as they tee up against giants afield ?
The same challenge that face VC - backed startups around the earthly concern and make AI such a intriguing category for VC .
No reward on data and distribution means a majority of time value will accrue to incumbents .
Truly differentiated pedestal model are too chapiter intensive for speculation funding , without incumbent seizure .
Less fragmented heap structurally means more value will be captured by officeholder ( see : GPTs from OpenAI this workweek exhaust thousands of inauguration ) .
investor are becoming more demanding in the current surroundings about deal terms to Diamond State - risk their investment . Have you found this to be the case ? How do you take the air the telephone circuit of de - risking yourself without overdiluting a young company and stifling increase ?
I think this is less dominant at pre - come and seed stage , especially for cryptical technical school , where rating did n’t reach the levels of inflation seen in other microscope stage , geographies and sectors . Just as before , former - leg VCs and brooder that seek to own too much too early will acquaint too much upper-case letter shaping risk , leading to fart downs or recaps . As the market let more sophisticated , this is decreasing but I do n’t see that , for this market , as being associate to the overall investment climate .
There has been a diminution in mega deal , venture deals worth over $ 100 million in Australia and New Zealand . Do you guess we ’ll see an increase in mature startup learning ? Shutdowns ? A resurgence of substantial funding to support growing ?
I think we ’ll see more bridging stylus stave and easy make our room back to a standardised capital market place over the next couple of years .
Are you attend value in ensure outside investor on the cap table ? How much metre do you drop try foreign co - investor ?
It ’s extremely critical to have a thick net of carbon monoxide gas - investor when you ’re funding companies in New Zealand since we simply do n’t have the uppercase profundity to go the distance for a legal age of our companionship . Furthermore , the markets are all overseas , so seaward capital is a critical part of building those in - market networks . On any given international trip , 30 % to 50 % of the meter is spent engaging with co - investor so that I ’m well positioned to back my portfolio , reach the correct offshore uppercase when the time call for it .
What advice are you giving your portcos right on now when it comes to raising money ? Are you suggesting they sell transmutable notes ? Or perhaps raise as usual ?
Fundraising is stage business as usual , just harder . The only way to get to fair grocery terms in any climate is to lam a operation — you may have an persuasion about what you want and what sort of terms you think are best but at last you ’ll only find that out by getting as many investors to the mesa as potential . It ’s never a good thought to swear solely on your insiders — run a process . Same as always .
In New Zealand in particular , there ’s been a spate of comparison between the current speculation environment and that of the 2008 GFC - earned run average investment clime . Of course , it ’s not as bad now , but the Bob Hope is that a Modern breed of companies along the lines of Xero , Rocket Lab , LanzaTech will go forth in this more ambitious financing environs . Are you seeing any early - stage startups in the area that could meet that pallium ?
They ’re not even slightly like epoch . None of those companies were funded by local venture capitalists — LanzaTech and Rocket Lab both lift from Khosla Ventures and Xero was fund first by an initial offering ( strange , I know ) . These days there are seven funds over $ 50 million , all with capital and all deploying . big companies can come forth at any time ; LanzaTech actually rear during a tip in climate tech funding ( its first circle anyway ) , so even though it was singular to materialise here , it was relatively unspoilt timing for that case of engineering .
There are utterly companies starting today that can pick up that pall ; OpenStar is well the most challenging company get going in New Zealand .
It ’s been a while since we saw a New Zealand unicorn . Why do you guess that is ?
Depends when and how you measure ; LanzaTech only listed this year as a unicorn . projectile Lab two years ago — of grade , they had individual market valuations in excess of $ 1 billion much sooner than that . I think Crimson Education passed at least a $ 1 billion NZD valuation in individual marketplace last twelvemonth , so does that bet ? My wager on the next one would be Mint Innovation , which I expect is only one pre - IPO round away from a $ 1 billion+ list .
Jo Wickham, partner, Icehouse Ventures
Our strategies stay unchanged , although hopefully it ’s easier to lift store and therefore have more capital letter to deploy .
Q4 is traditionally when we do the swell telephone number of investment , as a draw of companies are trying to close their rounds before the Christmas / summertime break so we expect Q4 to be busier than Q3 . That say , we are experiencing few Series A - D rounds and a slower pace at seed stage as compare with other years .
As remark above , we are vest in few Series A - D rounds and are experiencing less competition from seaward VC at that later degree . However , we have n’t experienced more crowding at the seeded player level — a lot of funds be given to be focused on either the come leg ( pre - seed , seed , pre - Series A ) or ontogenesis microscope stage ( Series A and on ) . So , I would say , it does n’t affect our investment strategy .
NZ companies and funds have huge potency . Three kiwi ship’s company were list in theInternational Climate Tech 50 to Watch tilt — Neocrete , TectonusandBspkl .
We ask to help these startups traverse the valley of death and bring technical school from paradigm to commercial ordered series within the next decade to have any promise of restrict global thawing to 1.5 degrees above pre - industrial levels .
Some representative of way we can speed up innovation include :
Icehouse Ventures ’ authorisation is to place in Kiwi - founded ship’s company . There are a number of AU funds investing in NZ inauguration , less NZ store invest in AU startups . The entry of Blackbird , AirTree and other AU funds to the NZ marketplace has been electropositive for bringing more capital into the country , leveling up local VCs ( a rising tide get up all boats ) , helping with memory access and connections to the Australian market , which is often the next market our startup exposit to outside of NZ . We often co - invest alongside AU fund like Blackbird — peculiarly in sexual congress to cryptical tech caller that need a lot of capital to get where they are going . That said , to the extent there are NZ unicorns and success stories , it would be keen to have at least some of those returns conk back to NZ investors to catch value for the country and recycle that back into the innovation ecosystem .
Fintech has historically been a bragging sector in Australia / New Zealand , but we ’re seeing a dip in funding empower into the sphere this twelvemonth . Why has investor appetite turn down ?
We are n’t project a lot of startups with a unequaled valuation proposition in the fintech outer space currently . I ’m not totally sure why that is but , in part , it may be because NZ ’s regulative environment for early - stage fintech is still evolving ( e.g. , we do n’t yet have open banking ) , which can make it hard for fintech fellowship to plan for the future tense and appeal investment funds . A lot of fintechs may need to discover cheap debt capital , too , which is difficult in a securities industry with high interest rate .
Funding in AI startups increased this class . What are the challenges that AI inauguration in Australia / New Zealand font , particularly as they tee up up against giants abroad ?
So far we ’ve see AI present more as a characteristic to be encourage as part of a inauguration ’s offer — so an program layer rather than a really unequalled introduction ( like OpenAI / ChatGPT ) . Using AI innovation to increase the productivity of your offering is really table bet in terms of what a good founder needs to be doing these days . We are yet to see and clothe in truly unique app of AI that are differentiated and have a inviolable free-enterprise moat , but hopefully they ’re come !
Yes , a lot of the deals we ’ve go through are more integrated than in the past . We stay very beginner concenter and attempt to offer balanced market standard term with usual downside protections but continue to focus on value creation and the upside — Icehouse only wins if we all acquire , so making sure founders stay incentivized and that they ’re not overly diluted is vital to our investment scheme .
There has been moderately of a hideaway from seaward VC in previous stage NZ raft . That think NZ startup need to bring up more capital from NZ investors to get to more meaningful milestones to draw in bigger checks and offshore investment . We have seen a number of our portfolio companies that might have raised at the peak in 2021 bulge out to ladder out of rail without having hit their milestone and are look at down rounds or are struggling to raise at all . Startups require to change their mindset and use tax income to fund growing rather than equity .
Yes , we do see value — we are invest in NZ companies with global ambitiousness , as the NZ market is n’t typically big enough to sustain venture - sized returns , so the upper-case letter and connexion and dispersion expertise they extend can be extremely valuable to our startups . We will make introduction to offshore VCs for our growth - stage startup .
check that you raise enough to have a good shot and enough runway to hit your milestone . Also , you have to hit your milestone , or you may not be able to raise . We are see more notes with bridge over rounds to get to those milestones , but ideally you wo n’t need to . Focus on capital efficiency — you want to have an exceptional visual sense and a check approach path to spending and operations to be best pose to bring home the bacon . Get to product - market fit , a clear path to gain and nonpayment animated as soon as possible .
NZ ’s venture ecosystem is commence to ripen . There has never been more evidence that NZ can bring out world leading technology companies . Macro stipulation are favorable to venture investing — valuations have decreased on the back of the economic downswing and while the figure of peck have omit , venture business firm like Icehouse still have dry powder . VC vintages berth downturns systematically outperform other investment periods and have resulted in above - mean returns in the U.S. market in special over the last two recessions .
NZ has all the right ingredients to be a lead conception economy . We are a high - income , developed nation with an emerging speculation ecosystem , unclouded regulation and government support , valuations are attractive as compared with other food market , ethnic differences in a global sense give Kiwi founders niche perspectives to leveraging and through a deficiency of available capital Kiwi founders are capital efficient by default . endowment is start to recycle in the ecosystem as laminitis and operator are emerging from previous achiever story like those you mention .
Vignesh Kumar, co-managing partner, GD1
I think the inflation rate change decidedly have a more noticeable impact on our fundraising endeavor , as in higher charge per unit periods we have to compete with more fluid yield - based investment merchandise and fundraising is therefore harder .
As an industriousness , we ’re likely operating in a “ default conservative ” modality , whereby those with investable monetary resource are a lot more prudent with deployment of capital and extremely attuned to avail live portfolio companies . This is certainly the case from the GD1 side , where we ’ve also been focused on a hard portfolio of company in each investment trust , with roughly 22 companies in Fund 3 . We have had the benefit of deploy this fund slow over the preceding three years , meaning we ’ve been well placed to participate in trough markets like this . We do n’t see this change for the next several quarters .
To some degree , yes . From the GD1 side , while we ’ve seen the infrangible routine of deals lose weight , along with the corresponding valuation , we ’ve also witnessed fair round size increasing ( i.e. , raising more Washington at lower valuations ) . Companies are raising larger rounds , undertaking more extreme austerity measures and stretch the Das Kapital as far as they can .
Valuations are lapse to the mean , and in most causa we ’ve witnessed sharp price and value chastisement . There are always exceptions to the regulation , and ultimately slap-up companies will always be well funded , and most likely fought over by VCs . We have certainly observed this across many of our portfolio company that have defied odds to grow some meaningful sum of capital at what I would call fully price levels . This is largely because a lot of money has flowed into venture capital in New Zealand in the come before 36 calendar month and ultimately demand to be deploy . That latent pressure to deploy capital will run and think of that expectant companies will passably defy gravity for the next little while .
GD1 has always looked to invest with a barbell strategy , centered on semen and Series A. Having this consistent scheme has meant that we are n’t overexposed to waning opportunities at the growth stagecoach like other much with child ontogenesis funds , and likewise has meant that we ’ve always been active in the early part of the ecosystem at semen , so we have a very hard handle on the opportunities number through .
At a wider ecosystem storey , we ’ve certainly observed others shifting tact and coming in sooner , which has definitely made seed round a more free-enterprise experience . We finger that this will be a impermanent experience as fund director settle into fresh strategy . Again from the GD1 side , not too fussed , establish we have a single investment company strategy rather than a multi - stock strategy ; those with multiple investment trust will postulate to be attuned to the shifting destination posts .
It ’s an interesting question , but one subject field to a number of nuanced responses .
Larger VC funds , whether Australian or New Zealand , are typically hold by apportionment and link limits implant into their LPA . This is true of the ESVCLP structure in Australia that require 80 % of an Australian VC fund ’s committed capital be allocated to Australian startups , and likewise for NZ funds such as ours anchored by NZGCP and NZ Super , we have limits that focalise our aid and power to place mostly to “ NZ Connected entity , ” with exchangeable 80 % rule as in Australia .
So , tl;dr : While we may have lots of Aussie VCs visit NZ , not many can induct here , and not many , if any , can meaningfully induct long - term here . As a NZ homegrown house , GD1 focuses exclusively on backing ambitious NZ founders and team going ball-shaped from New Zealand . We may look to expound this remission in the future , but our genesis is in NZ and we will remain focused here for the foreseeable future .
Speaking more broadly speaking about AI , I incline to largely agree with May Habib ’s comment about the country of AI startup in that folks are still scratching the open on AI - enabled technology , mostly building GPT derivative material . A mess of these tools are progressively commoditized and so build any AI inauguration probably needs to be either :
( A ) Focused on hone in on literal impactful use cases that require much more lie with - how and deep understanding for drive efficiency and gains in some workflow , or ( B ) chain together more valuable disparate view from the workflow of a certain industry or caper workstream , sort of like a turnkey solution likeWriterwith its own proprietary non - customer trained datasets , and capturing mellow - timbre customer this manner .
New Zealand AI startups have always typically built such eccentric of companies , and in my legal opinion are n’t at any unique disadvantage comparative to other geographies , except to say that our SaaS or AI - enabled solutions tend to start out out life as service / bespoke consulting - case arrangements , before morph into a more scalable productized answer after achieving some level of service tax revenue .
In order for our AI startups to compete meaningfully on the Earth stage , they are work to have to sweep over this design vault upfront and build up a more production - centric approach from Day 1 , get to a meaningful layer of orbicular grip with a diversified customer fundament , and do so somewhat expeditiously before others cut their lunch .
The other big elephant in the room for NZ AI startups is also natural endowment density , and not throw access to the right level of skills and experience to work up a more globally compelling and competitive ware from the first .
I think it ’s clear to see that investors worldwide are more and more returning to more fundamentalist scene of what VC is ultimately about , which is school great businesses with great capital efficiency , rather than fan the hype cycle and heavily subsidize top - product line growth with investor dollar . With that in mind , from the New Zealand and GD1 side we ’ve systematically flummox to our standard terms without acquaint any eldritch and antiquated measure to de - take chances our investment . rating is manifestly one lever tumbler to pull to de - risk , but we tend to protect our risk worry around other dimensions such as stratified discount on convertible instrument based on how long it takes to raise the raw equity round , or being more strategic around the purchase of secondary from exist investors . We would much favour to keep founders incentivized with fairness and focalize on grow their companies than worrying about getting a raw mint during a downswing . Both eyes should be focused on the recollective - term .
While deal volumes have generally slow down , great companies will continue to attract capital , and we have witnessed several rounds push company valuation north of $ 100 million . What has changed is how public or showy these companies require to be with their valuations . It seems folks would rather keep building in individual rather than get swept up in the celebratory fervor of foreground company valuations that tended to pass from 2021 through 2022 . I do n’t think we ’ll see a revival of material funding to sustain growth , but certainly a convergence to the better perform companies and ultimately a razing of the playing bailiwick where weaker company either consolidate place with strong players or shut down .
Certainly a bunch of the “ holidaymaker ” have eat at from the gross profit margin in the NZ startup and venture ecosystem , and I would postulate that this is a nett - cocksure termination given most of them were dead weight on the cap tabular array . VC in NZ is still fair oversupplied , but what is different now is the excessively heady elbow room in which capital is being apportion out , where investors are that much more discerning . One of our large strength at GD1 is our international internet strength owing to the fact that every senior team phallus has either lived in or built or operated in iconic companies around the globe . One of our fully grown end is finding succeeding capital mate for our portfolio companies who not only have genuine astuteness of capital to underwrite substantial capital risk for late rounds but also can open internet from a BD and customer linear perspective for our portfolio company . at long last if it comes from local or international sources we are n’t too plussed about it . The main expression is the utility of that majuscule and the tribe present that capital . Can we ferment these folks , are they human , and do they sum utility ?
I think our advice is that the mart will deliver what the market can bear , and great company generating free cash flow or that are on a path to such cash period will distinctly draw in a premium and have the ability to negociate hard with investor . We are n’t crusade companies any particular way toward a fussy type of instrument , but we are having heart-to-heart conversations around valuations and setting expectations appropriately before going out to market , because the incorrect locating can absolutely be fatal for next rounds . Ultimately investors may be favoring transformable notes and similar pawn for relief of complexness and kicking the valuation give-and-take down the route , but from the GD1 side we tend to try out to focus on clean equity terms given that we find endangerment is more appropriately covered with fairness - come to terms .
In NZ in particular , there ’s been a slew of equivalence between the current venture surround and that of the 2008 GFC - earned run average investment climate . Of course , it ’s not as bad now , but the Leslie Townes Hope is that a raw breed of companies along the lines of Xero , Rocket Lab , LanzaTech will come out in this more challenging funding environment . Are you seeing any former - point startup in the region that could meet that drapery ?
Absolutely . company such as Foundry Lab , Basis , Zenno , Auror , partially , Dawn , Hnry , and many , many more are all forge the itinerary to potentially become the big outlier success stories in NZ , but like most things , these take time . The original litmus run for a mass of these companies , many of which we ’re proud investor in , was originally beat to some sort of globally branch out revenue or marquise client . When you contain and think about that for a second , it really does fall into place on you that thing have changed dramatically in the NZ inauguration and hazard ecosystem in the retiring three years , where these sort of telling milestones are being met sooner and in the beginning in a NZ inauguration ’s life bicycle , and that at last we are draw to some sort of parity with global expectations around public presentation of a young company . A lot of those companies remark above are now easily doing north of $ 15 million in one-year revenue , which is phenomenal .
I think the NZ venture ecosystem is getting there . We are certainly seeing result of substantial scale like Vend ’s skill by Lightspeed , Seequent ’s learning by Bentley Systems , and those outcome are either almost at $ 1 billion or above $ 1 billion in dealings value . Certainly M&A interest group in NZ tech companies is growing , but in order for us to genuinely hit a “ unicorn ” private company in NZ , it does require true value generation and a certain grade of domestic speculation capability in damage of being capable to insure large growth polish for such fast - growing companies .
From the GD1 side , we ’re aim to play a belittled theatrical role in that transition , but this will also take time , and a mind - shift change , where investors ask to perhaps reframe perceptions of growth valuation being too expensive despite them actually being somewhat be neutral or below global parity when weighted by each buck of global revenue generated . issue of time , and a issue of more achiever stories . In the same style Rocket Lab ’s success separate the dekameter for other aerospace opportunities , I think more wins on the board in NZ tech will serve us finally organically hit loftier enterprise valuations that are truly deserved .
