Startup-land being a high-risk landscape, Blackbird has – like its peers – also suffered some bombs, including chicken-free chicken maker Sunfed Meats and some wobblers that could still come good, such as sub-letting platform Kiki – still trying to take New York after its frat-boy stumbles.

What’s next?

General partner Phoebe Harrop says Blackbird will be hiring a new investor in Auckland as it grows its Kiwi team over the coming months.

More broadly, the firm is gearing up for its sixth fund, with its first close at the end of May. Her broad-strokes expectation is that investors will chip in around the same level of funds as Blackbird’s fifth fund in 2022, which closed at an Australasian record A$1.03b, the current global chaos notwithstanding.

Harrop says there’s no set split between Australian and New Zealand investments – and lines blur with Kiwis drifting across the Tasman, or up to San Francisco – “but our rough ratio is that $1 in every $4 will be directed to a New Zealand opportunity”.

Blackbird funds (A$)

Harrop, who first appeared in the Herald as a New Plymouth Girls’ High School student after winning an essay competition with an effort on New Zealand cultural identity, went on to earn a law degree at Otago before embarking on an offshore career that ranged from the feel-good (as a growth equity director for Al Gore’s green-tech investment Generation Investment Management) to the more shark-toothed (a stint with Bain & Co).

By the time she joined Blackbird in 2021, the VC (venture capital) firm was already well-established.

After Australians Rick Baker and Niki Scevakin founded Blackbird in 2012, their first-ever investment was the design app Canva, which turned out to be a blockbuster (it most recently raised capital in May last year at a A$39b valuation).

Harrop says fate has seen capital-raising for Blackbird’s last three funds coincide with global crises “but it has never stopped us achieving our goals in fundraising”.

The firm’s third fund, in 2018, was against the backdrop of “a random crisis of confidence in SaaS [software as a service]”.

The push for the fourth fund began in February 2020.

“We thought Covid would have a huge impact on our ability to fundraise. But instead of raising [the target] A$400 million over Zoom, we raised A$650 million.”

The next couple of years would prove a golden era for the venture capital industry, fuelled by government stimulus spending and near-zero interest rates.

But just as Blackbird started to raise for its fifth fund, in 2022, tech stocks were diving and the post-pandemic hangover was kicking in as central banks hiked rates.

“But that didn’t put off our ability to raise our biggest fund ever. So while we would never celebrate in advance as we set out to raise our next set of funds, which will be about the same size as last time, we are hopeful that the macro conditions that are impacting public equities and business confidence won’t necessarily come through in the lack of confidence for venture capital,” Harrop says.

“We do see this kind of a disconnect, lack of cyclicality in venture relative to the stock market. And in some sense, investors are looking for alternative assets.”

Of course, a cratering sharemarket – especially when it’s combined with falling rates – is not necessarily a bad landscape for VC firms as investors seek higher returns elsewhere.

It also means that VCs can gain the upper hand in their Dragon’s Den-style negotiations with start-ups, getting a bigger slice of a company for less.

Wither Elevate?

But – on this side of the Tasman, at least – there’s a big difference to the lie of the land this time around.

Elevate, a key Crown-backed fund for venture capital investment – which has lured new players from across the Tasman and helped new local contenders like GD1 emerge – is almost out of capital, with any chances of a top-up appearing slim.

The situation is compounded by the Government’s recent decision to shutter another start-up investment vehicle, NZ Green Investment Finance, following the SolarZero debacle – a move that some see as throwing the baby out with the bathwater.

In March 2020, the Crown-owned New Zealand Growth Capital Partners launched Elevate – a $300m fund-of-funds designed to gee up New Zealand’s flat venture capital market by contributing large dollops to private VC funds under a co-investment model.

All of the large VC players benefited from Elevate, including Blackbird, which received $22.8m in 2020 and $30.0m in 2022.

Harrop says it played a key role, filling the breach.

But there’s been a dearth of Elevate investments in recent times.

Elevate is running dry. As of March last year, Elevate had allocated 81% of its investable capital – most of which, after a lot of Government nudging, came from the New Zealand Superannuation Fund.

In August 2023, a Startup Advisors Council convened by the previous Government recommended that Elevate be refreshed – this time with $500m in Crown capital (one of 25 of its recommendations, nearly all of which were ignored by the Beehive when it was released, with the cold shoulder continuing under the National-led Government).

Earlier this week, the Herald asked the Super Fund if it had any plans to contribute any more capital to Elevate.

“This is a matter for the Government, so we won’t comment,” a spokeswoman said.

In a submission to the Startup Advisors Council, the NZ Super Fund said: “The Elevate Fund is expected to continue to operate until such time as New Zealand’s venture capital markets have developed and matured to the extent that Government support or involvement is no longer required. This is expected to take a minimum of 15 years.”

It noted that Elevate’s first wave of investments wouldn’t generate a return until year seven.

“In a time of challenging market conditions, the [Elevate] Fund will have committed materially all of its initial Crown contributions and will be unable to further contribute to meeting the capital market challenges New Zealand faces,” the Super Fund submission added.

“This represents a serious public policy issue in that without further funding, there is a serious risk that the significant progress made to date in the development of venture capital markets will be lost.”

The Super Fund submission – made in March 2023 – said Elevate’s $300m fund was $40m under-funded (the difference between the Super Fund’s contribution and money promised from central Government funds). The Government duly chipped in the missing $40m in Budget 2023 (which ignored the Startup Council’s call for a $500m top-up).

Harrop says the manager layer is at a really interesting moment.

“It’s at risk of not being able to raise adequately sized funds, because Elevate is falling off, yet there’s no institutional capital wanting to wade into the pre-seed and seed stage.”

She adds: “We do see leadership from [KiwiSaver] funds like Simplicity and Generate, which is great to see, but that’s still a minority of funds under management.”

New Minister of Science, Innovation and Technology Shane Reti was travelling and couldn’t be immediately reached for comment on any potential Elevate refresh. But his predecessor Judith Collins had a clear stance. She supported the broad concept, but the cupboard was bare.

‘Not a handout’

“I think it’s a mistake to give up on Elevate this soon. It feels really premature, because I think there’s been such a great groundswell in the emergence of new VC managers,” Harrop says.

She wants to see the Government do two things.

“One is to continue making a commitment to Elevate of about the same size as it did previously, remembering that this is an investment programme that should return, you know, many multiples of what’s invested. It’s not a handout.”

The second is to take steps to encourage more investment from KiwiSaver funds. She says the large Australian super funds have more sophisticated direct investment teams.

In mid-2021, Global From Day One received a $45m investment from Elevate into its GD1 Fund 3, which closed around $150m.

Managing partner Vignesh Kumar says GD1’s fourth fund will be around the same size and that it should achieve its goal with a contribution half the size or less from the diminished Crown fund – but he says Elevate’s absence will make it harder for other new players to come through.

Downgraded

Elevate has fallen short of its lofty goals.

The fund is managed by the Crown-owned New Zealand Growth Capital Partners (NZGCP).

In its 2024 annual report, NZGCP says VC funds that Elevate invests in have raised $757m, short of the target $800m.

And in its 2024 annual report, the NZ Super Fund says: “Our conviction rating of NZGCP was downgraded to sub-threshold earlier this year due to uncertainties regarding any further Crown funding and the potential adverse impacts this could have on NZGCP as [Elevate] manager.”

On April 2 this year, Super Fund chair John Williamson and various members of his leadership team appeared for an annual review hearing by the Finance and Expenditure Committee.

National MP Ryan Hamilton, who chairs the committee, asked about the downgrade.

NZ Super Fund co-chief investment officer Will Goodwin said it was based on increased risk. He said while Elevate was performing well, a fund generally needed at least two rounds for momentum. There was a risk that funding would not be made available for a second round – that is the $300m or $500m Elevate top-up the sector has been pushing for.

Hamilton asked if the Guardians of New Zealand Superannuation have a mandate to redirect some of their own investments towards Elevate. He suspected not.

“The New Zealand Super Fund has a different mandate to Elevate,” Williamson said.

“Elevate has a mandate around market development for the venture capital space. The New Zealand Super Fund’s mandate is to maximise returns without undue risk. So as a fund, we don’t generally invest directly into venture capital.”

In short, the message seems to be that the Super Fund won’t chip in more funds to Elevate unless the Government again leans on it to do so.

The chances of that seem slim, but we’ll find out next month with Budget 2025.

Telco regulatory review, leaving out the major regulations

Regulation Minister David Seymour has announced a review of regulations in the telecommunications sector.

“It’s a little surprising to see this sector in line for a review of this nature,” Technology Users Association head Craig Young told the Herald.

“When looking globally, we have a reasonably well-functioning market which has well-defined and relevant regulation which, in our view, is leading to a drive for improvement – we’re certainly not saying it’s at the level we want it but I can’t see how any lessening of regulation would make it any better,” Young said.

“I am pleased to see the exclusion of some key, well-fought market structure regulation as any steps back in that space would be retrograde.”

The four areas excluded from the review – arguably the biggest four – are:

So what will be under the microscope? Seymour will work with Media and Communications Minister Paul Goldsmith, and various stakeholders, to come up with some frames of reference. Don’t hold the phone …

Muddying the waters, Goldsmith recently announced a series of regulatory changes and pending changes in a solo announcement, including mandatory dispute resolution membership, explicitly expanding telco industry rules to cover offshore players, and letting a regulator set the telco levy.

Gamekeeper turned poacher

Marty Cohen Cubitt – the Commerce Commission’s principal adviser on retail payments – has left the regulator on the eve of its major decision on regulating Visa and Mastercard fees.

The walking encyclopedia on fees and open banking posted to LinkedIn: “Some are saying that the future of banking is digital wallets. Well, my future is now with BNZ as product lead – digital wallets and international”.

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