“We were taking a synthetic position to get exposure to Canva and the best way to do that was to use multiple Blackbird funds,” he said.
“When a fund is revalued, we reflect that value.
“So the returns we’ve posted to date will go down, but our internal rate of return was close to triple digits. Although he’s calmed down now [after Blackbird marking down its funds]it will only have retreated 5-10%…we will be comfortably in place in no time.
“Founders who were honest with themselves and are real business people had to realize that at some point they have to be able to turn a profit.”
— Paul Wilson, Bailador.
In addition to cutting Canva by 36%, Blackbird reduced the value of some of its funds by 30% from the previous quarter.
But Mr Jasper said the position in Blackbird was an exception and SecondQuarter was comfortable with the valuations of its other investments. SecondQuarter’s portfolio includes Edrolo and Go1, both of which raised new rounds in the past two months, but also Culture Amp and SafetyCulture – two unicorns whose valuations have yet to be tested in the current climate.
“We invest in high-growth companies. In most cases…we underestimate values because if a cycle was done a year or two ago, then companies are much bigger than when we invested,” he said. .
“We don’t pay crazy multiples, and even if there is a multiple squeeze, the growth has made up for it.”
AirTree Ventures co-founder and managing partner Craig Blair would not comment on the fund’s revaluation intentions before sending his letter to investors this week.
However, he said there was no argument that the tech market “got too hot for a few years.”
“It’s just a statement of fact,” he said. “It’s a healthy reset and a reset we had to have. Valuations have gotten too high, investors have underestimated risk and in a way it’s a return to what it used to be. company for 20 years before the peak.
“But that doesn’t change anything for businesses. And what matters to most investors is what will happen in the next five to 10 years, not now, with the exception of super funds.
The revaluation of start-ups is relevant outside of the venture capital funds themselves, as the biggest local players are backed by pension funds, including Hostplus, AustralianSuper, Sunsuper, TelstraSuper and Statewide Super.
Hostplus in particular has come under pressure to provide more clarity on the valuations of its unlisted assets.
Dean Dorrell, co-founder and partner of Sydney-based venture capital fund Carthona Capital, which counts Hostplus among its backers, said his fund conducts monthly assessments of its portfolio companies, using guidelines from the International Private Equity and Venture Capital Valuation (IPEV) .
These guidelines are endorsed by the Australian Investment Council and were last amended in March 2020 to reflect the impacts of COVID-19 on the market. Revised guidelines are expected by the end of this year.
Carthona counts digital debt collector Indebted, payments company Paytron, New York-based real estate technology company Cherre, auto finance fintech Driva and carbon accounting and reporting startup Pathzero among its portfolio companies. Mr Dorrell said his last assessment had gone down.
“It is inevitable that the technology industry will experience ups and downs. Lower valuations will happen from time to time, but this is a very long-term game and most funds have a lifespan of 10 years,” Dorrell said.
Not all dark and dark
“We have seen declines in our portfolio, but there are also companies rising at higher valuations. some companies have made significant progress but are getting reduced multiples, which equates to flat rounds.
Dorrell said it’s important to note that venture capital firms like Carthona typically hold preferred stock that protects their investment.
This means that a $1 reduction in a company’s valuation does not necessarily result in a proportional reduction in the value of a fund’s holdings.
“Listed companies are not allowed to have different preferences, which makes a comparison between listed and unlisted companies not ‘apples for apples,'” he said.
Citing a ‘megatrends’ report released by CSIRO last week, which predicted the next wave of digital innovation would generate between $10 and $15 trillion globally, Mr Dorrell said he remained confident that Australian investments in tech start-ups would pay off.
“Australia is in a unique position to invest for the long term through our pension system. The super funds in the industry are really leading the way on this, especially Hostplus,” he said.
Unlike many large venture capital funds, seed investor Rampsersand does not have a superannuation fund LP, meaning it has less pressure to regularly disclose valuations.
However, its co-founder Paul Naphtali said the fund still conducts quarterly revaluations to be transparent with its high net worth backers.
The fund also follows AIC standards. It has reviewed its entire portfolio over the past few months and identified the most vulnerable companies.
“It doesn’t necessarily translate into a formal drop, but we’re being honest with investors about where we’re vulnerable, and we’re glad there aren’t many of those,” Naphtali said.
Bailador Technology Investment is unique in Australia as a publicly traded venture capital fund and its listed company status gives it more obligations than other funds to disclose its portfolio valuations.
Bailador had a strong 2021 with a $14.6 million completion in the IPO of travel tech company Siteminder, while retaining a significant stake; a $118.4 million outflow from the sale of Instaclustr; and $19.9 million for the sale of its stake in Standard Media Index.
In its latest portfolio review, completed in late June, it wrote down the value of e-commerce platform Nosto and Access Telehealth by 20% and 24% respectively, while leaving the valuations of InstantScripts, Mosh, Brosa and Rezdy intact. .
Last week, it invested an additional $5 million in InstantScripts, an online digital healthcare platform, in a deal that boosted the company’s valuation by 10%.
Bailador co-founder and managing partner Paul Wilson said his fund had kept its foot on private company investments in the two years to June 30, with just $48.3 million deployed because ratings were overcooked.
The recent market downturn, he said, was bringing a “needed correction” to the private tech market, which presented opportunities for better business on the horizon.
“Last year our reaction to the market was to say ‘let’s see what we can sell and get some money at these valuations,’ and we made investments at good prices,” Wilson said.
“We currently have over 50% of our NTAs (net tangible assets) in cash, and we couldn’t be happier with that as we see more reasonable valuation expectations in the private rounds.”
Against the trend
While most VCs make writedowns, OneVentures stands out from the pack. Managing partner Dr Michelle Deaker said the fund had no intention of writing down investments.
“OneVentures took a fairly conservative approach to technology valuations last year. Our auditors saw no reason to bring in external valuators as our portfolio was already conservatively held. We had no impairments as a result “, she said.
“The auditors said that if we wanted to bring in an external valuator for two companies, we could do so to potentially write them down (i.e. overly conservatively held), but we felt that this would not was not necessary.
“Most of our businesses are [profitable]or have a path to profitability, and decent cash trails, so there is also limited risk on funding, with us also having reserved capital available to support future cycles.
But with profitability still a long way off for most start-ups, Bailador’s Paul Wilson said founders need to focus on a “new normal” for a potentially long time.
He said quality companies – like Canva – would be able to return to their previous valuations by demonstrating performance and continuing to grow sustainably.
“Before, the market rewarded founders for trying to grow as fast as they could, and I think it would always happen that we had this correction and an adjustment to a good unit economy,” Wilson said.
“Founders who were honest with themselves and are real business people had to realize that at some point they have to be able to turn a profit. And if they didn’t think that way, then it probably wasn’t going to end well.
After its valuation was reduced last week, Canva said it was confident it would return to its higher price and saw opportunities for growth due to its large cash reserves.
When asked to elaborate on how it plans to grow and how staff are dealing with the changing value of its stock options, a Canva spokesperson said attitudes remained overwhelmingly positive.
“We are using this time to continue to ramp up efforts like internationalization, new product offerings and the incredible opportunities ahead as we accelerate our efforts across teams and workplaces,” the carrier said. word.
“We are also seeing more interest than ever from applicants and over the past six months we have received over 200,000 applications and added over 700 people to our team with plans for continued growth throughout. year round.
“At the end of the day, we’re not distracted by short-term changes in the market. Instead, our team is hyper-focused on continuing to deliver new products and category expansion opportunities that will grow and strengthen our long-term value. Companies with solid fundamentals will emerge from this period stronger than before.