After fees, $8.3m remains to be deployed.

While investors’ ability to digest fees ultimately depends on returns, Paul says Icehouse’s fee structure has allowed it to invest $10m more than some of its rivals if they were dealing with the same-sized fund.

The local venture capital scene is often strongly associated with seed funding – which typically runs to a few hundreds of thousands of dollars for founders working out of their garages – and Series A, which can be limited to single-digit millions.

But Paul calls GF1 a “late-stage VC fund” on the basis that 81% of its funds allocated to date have gone to Series B to D raises (the alphabetical progression ends when a firm hits the wall or, if it’s successful, when there’s an “exit” – which might be an initial public offering (IPO) on the sharemarket, or a trade-sale to a larger firm).

Another signature feature is that 67% of GF1′s investments have been follow-on rounds, or putting more money into existing investments.

And there could be more to come on that front. The GF1 2024 report says: “We are actively considering follow-on investments into portfolio companies like Basis (a maker of smart electric switchboards), Hnry, Tracksuit and Dawn Aerospace.”

For example, GF1 put $745,000 into Halter’s Series A round $12.2m across the B and C raises (that makes the Auckland and Waikato-based maker of smart collars for cows the largest single GF1 investment).

The chart above shows the total amount of venture capital raised by all the firms in the GF1 portfolio. It includes the money raised from other VC firms such as Wellington-based Movac, Australasian player Blackbird and various offshore outfits such as Silicon Valley-based Bessemer, which led Halter’s Series C round in 2023 – which involved a total $85m – and Hnry’s $35m effort.

There was a venture capital boom in 2021 and 2022 in New Zealand and around the world, which most commentators saw as being fuelled by cheap money. Rising interest rates and the related factors of recession and falling markets saw the VC sector stall in 2023 – although Paul notes that firms with breakthrough products, such as Halter, could still manage significant raises.

He refers to 2021 (when 65% of portfolio companies raised capital) and 2022 (78%) as the “white hot years”.

That level of activity was just not sustainable. He frames 2023 – when a third raised funds – as a normalisation rather than a hangover.

Many start-ups are now “stretching their runway”, he says, or spending more parsimoniously to make funds last longer, wary that VCs are making fewer investments and, when they do, are often demanding a bigger share of the company.

Raising money at a lower valuation than earlier raises – a “down-round” in VC-speak – is an obvious negative for founders but can be a boon for a venture capital firm. Movac, for example, says it invested in only one long-time target, Tauranga-based LawVu (a GF1 portfolio company) after the 2023 VC slowdown brought its valuation down to what it considered a reasonable level.

And Paul says fast-growing firms like Halter and Tracksuit sit outside the cycles. “They raised magnitudes more than their peers in the ‘good years’ of 2021 and 2022, if you want to call them that, and they continue to raise magnitudes more.”

Going by its 2024 report, GF1 has escaped the dramatic writedowns we’ve seen in some quarters – such as Blackbird and other VCs chopping 37.5% from their valuation of Canva.

The report says 22 of GF1′s 32 portfolio companies have staged follow-on raises. Of those 22:

In terms of follow-on investments, down rounds (a total of $1.1m) involved much lower sums than the up rounds ($56.8m).

There’s no data on how many firms are in the black but GF1′s deck says that, in 2022, the fund’s portfolio companies were generating a combined $250m in revenue.

By 2023, that had jumped to more than $350m.

Twelve generated more than $10m in annual revenue, while six were above $20m.

Of the $90m invested to date, based on last-round valuations:

The hits

GF1′s five largest gains (holding value less cost)

Highlighted investments:

Other firms in the GF1 portfolio include Parrot Analytics, ArchiPro, Sharesies, Joyous, EasyCrypto, Spalk, LawVu, Formus Labs, e-waste recycler Mint (the Auckland firm that opened its first plant in Sydney due to Australia’s superior incentives and recycling laws) and the fog-busting Pyper Vision.

Three-and-a-half years into its 10-year term, GF1 has not had any exits (that is, an IPO or trade sale) or losses.

But from Icehouse Ventures’ broader experience with startups – where hits are inevitably accompanied by flame-outs and near-death experiences – Paul, like other VC leaders, has been in the trenches at times over the past year.

Once was online grocer Supie, which had money from Icehouse Ventures’ ArchAngels fund for women-led startups. It went into voluntary liquidation last year, with Paul serving as the voice of the VC community as other backers chose to keep their heads down (investor David Oliver and director Ben Kepes would later front to the Herald on Supie’s strategic mistakes and a decision not to throw good money after bad).

And earlier this year electric boat maker Vessev (formerly SeaChange) was close to being dead in the water.

“They didn’t have months. They had weeks or maybe days,” Paul says. “They knew that, once they proved their technology worked, customers and investors would come knocking.”

Vessev won the race against time, with a series of demo trips from Auckland to Waiheke, albeit “topless with no cabin”, as Paul put it.

The hope was that the success would unlock $1m in capital. Paul says in the end it was many times that, led by an offshore VC but with Icehouse – which earlier put in seed money and capital through its Sustainable Tech Fund – adding to its stake via its $100m Growth Fund II. Details of the round are expected shortly, but already Vessev has been able to name Fullers 360 as a foundation customer, with the ferry and tourism operator talking up the quiet and comfort of Vessev’s hydrofoil technology.

The ones that got away

The report also reveals two hot tech firms that GF1 would have liked to have in its portfolio. They’re listed as the “heartbreaks” (as opposed to several where there was a chance for GF1 investment but valuations or terms weren’t attractive, with many of these “do aways” clustered around 2021 and 2022).

One is the fast-growing Auror, the Auckland firm whose software makes it faster and easier for retailers to report crimes to police. A recent survey by Sense Partners said savings from Auror were potentially enough to fund the equivalent of 451 police officers (in real life, the Government’s two-year effort to add 500 officers is still very much a work in progress).

Getting an early foot in the door boosts a fund’s odds of participating in later rounds.

But Auror’s earliest round pre-dated Icehouse Ventures’ first seed round. The venture arm of Westpac Australia, then Movac, supported later rounds. Auror’s success created “significant demand for their recent capital raises”, the report says.

“We failed to access both their 2021 and 2024 capital raises.”

The other lowlight was Partly, the Christchurch startup founded in 2020 by ex-Rocket Lab engineer Levi Fawcett in 2022, whose platform automates car-parts procurement for repairers, suppliers and others (which involves countless combinations of parts and models but was previously often a manual process).

Partly had two small seed rounds – in which Icehouse Ventures participated but did not lead – before rapidly surging into a “very competitive” Series A round in 2022, raising an NZ-record $37m at a $180m valuation.

One of Europe’s largest VCs, Octopus Ventures, led the Series A round.

“Growth Fund 1 was unfortunately unable to secure allocation to this round,” the report says. “There were no pre-emptive rights to leverage nor had there been sufficient time to grow ownership or relationship capital.”

A broader “missed/regrettably declined” list includes Portainer, Mobi2Go, Fabrum, Alimetry, Oritain and Soul Machines. In the latter’s case, it proved a lucky escape. Soul Machines, which was unable to turn its early-mover advantage in AI chatbots into success, recently filed meltdown financials and has laid off most of its staff amid a wave of competition from cheaper Big Tech players.

And within the GF1 portfolio, some firms have faced “challenges beyond their control that they’d love to go away”, Paul says.

One is First AML (the initials stand for anti-money laundering). “New Zealand was so ahead of the curve with AML legislation, and so many people had so many headaches so quickly, so these guys just grew so fast. And where’s the most obvious next place to jump? Australia,” Paul says.

In 2020, First AML duly expanded across the Tasman, where it seemed a tightening of the AML laws was imminent – but four years on, it remains a work in progress. An Aussie real estate agent can still sell a house without bothering with AML paperwork, Paul says.

Off the bandwagon

During his recent visit to New Zealand for the Hi-Tech Awards, for which he was a judge, San Francisco-based venture capitalist Pat Kenealy (formerly of early Netscape, Baidu and Tencent investor IDG Ventures) told the Herald that every VC conversation in the US was about AI. The hype was such that it was hard to find an artificial intelligence company to invest in.

“Anytime that there’s a fad or hype or hot topic globally, I almost run from it in New Zealand,” Paul says.

“Because the companies that are building value and will extract value are often not the ones that jump on the back of a trend. It’s the ones who build the foundations. Are there companies that are leaders in the space in New Zealand? Maybe not.”

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.