Canva Downgrade Leads to Rethinking Appreciation for Local Technology

“We took a synthetic position to gain exposure to Canva and the best way to do this was through multiple Blackbird funds,” he said.

“If a fund is revalued, we will reflect that value.

“So the returns we’ve shown so far will decrease, but our internal rate of return was close to three digits. While it has now calmed down [after Blackbird marking down its funds]it will only have gone back 5 percent to 10 percent… we’ll be comfortable in a short time. ”

The founders who were honest with themselves and are real business people must have realized that at some point they have to be able to make a profit.

Paul Wilson, dancer.

In addition to lowering Canva by 36 percent, Blackbird reduced the value of some of their funds by 30 percent compared to the previous quarter.

But Mr Jasper said the position in Blackbird was an exception and SecondQuarter was satisfied with the valuations of its other investments. SecondQuarter’s portfolio includes Edrolo and Go1, both of which have delivered new rounds in the past two months, as well as Culture Amp and SafetyCulture – two unicorns whose valuations have yet to be tested in the current climate.

“We invest in fast-growing companies. In most cases… we underestimate the values ​​because when a round was done a year or two ago, the companies are much bigger than when we invested,” he said.

“We don’t pay crazy multiples, and even if there’s some multiple compression, the growth has outpaced it.”

AirTree Ventures will write to its investors this week to update them on the portfolio’s valuations. Jeremy Piper

AirTree Ventures co-founder and managing partner Craig Blair declined to comment on the fund’s revaluation intentions before sending his investor letter this week.

However, he said there is no argument that the technology market “has gotten too hot for a few years.”

“It’s just a factual statement,” he said. “It’s a healthy reset and a reset we had to have. Valuations got too high, investors underestimated the risk, and in some ways it’s a return to what the company looked like 20 years before its peak.

“But it doesn’t change anything for companies. And what matters to most investors is what happens in the next five to ten years, not now, except for super funds.”

The revaluation of start-ups is relevant beyond the venture capital funds themselves, as the largest local players are supported by pension funds, including Hostplus, AustralianSuper, Sunsuper, TelstraSuper and Statewide Super.

Hostplus, in particular, has come under pressure to provide greater clarity on the valuations of its privately held assets.

Dean Dorrell, co-founder and partner at Sydney-based VC fund Carthona Capital, which counts Hostplus among its lenders, said his fund values ​​its portfolio companies on a monthly basis, using International Private Equity and Venture Capital Valuation (IPEV) guidelines.

These guidelines are endorsed by the Australian Investment Council and were last amended in March 2020 to take into account the effects of COVID-19 on the market. The revised guidelines are expected by the end of this year.

Carthona has digital debt collection agency Indebted, payments firm Paytron, New York-based real estate technology firm Cherre, auto finance fintech Driva and carbon accounting and reporting start-up Pathzero among its portfolio companies. Mr Dorrell said the most recent valuation had fallen.

“Inevitably, the technology industry will have ups and downs. Lower valuations will occur from time to time, but this is a very long-term game and most funds have 10-year maturities,” said Mr Dorrell.

Not all doom and gloom

“We’ve seen some downturns in our portfolio, but there are also companies that are raising against higher valuations. It’s not all doom and gloom out there – especially for companies dealing with ESG and especially carbon – and there are companies that have made significant progress but are getting fewer multiples, which amounts to flat rounds.”

Mr. Dorrell said it’s important to note that VC firms like Carthona usually have preferred stock that protects their investment.

This means that a $1 reduction in company value does not necessarily result in a commensurate reduction in the value of a fund’s holding.

“Publicly traded companies shouldn’t have different preferences, so this doesn’t make a comparison between publicly traded and privately held companies ‘apples for apples,'” he said.

Citing a “megatrends” report released last week by the CSIRO, which predicted that the next wave of digital innovation would deliver between $10-15 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 industry super-funds are really at the forefront of this, especially Hostplus,” he said.

Unlike many of the major venture capital funds, Rampsersand, a seed stage investor, has no retirement fund LPs, meaning he is under less pressure to release valuations on a regular basis.

However, 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 been scrutinizing its entire portfolio in recent months, identifying companies that are more vulnerable.

“It doesn’t necessarily result in a formal write-down, but we’re being honest with investors about where we’re vulnerable, and we’re glad there aren’t many,” said Mr Naphtali.

Bailador Technology Investment is unique in Australia as a privately held venture capital fund and its listed status gives it more commitment than other funds to disclose its portfolio valuations.

Bailador had a strong 2021 with a $14.6 million realization in the IPO of travel technology company Siteminder, while retaining a significant stake; a $118.4 million exit from the sale of Instaclustr; and $19.9 million for the sale of its stake in Standard Media Index.

In its most recent portfolio review, which was completed in late June, it wrote off the values ​​of e-commerce platforms Nosto and Access Telehealth by 20 percent and 24 percent, respectively, while leaving the valuations of InstantScripts, Mosh, Brosa and Rezdy untouched.

Last week, it invested another $5 million in InstantScripts, an online digital healthcare platform, in a deal that boosted the company’s valuation by 10 percent.

Bailador co-founder and managing partner Paul Wilson said his fund had kept its footing off the gas in terms of private company investment in the two years leading up to June 30, with only $48.3 million staked because valuations were overcooked.

The recent market decline, he said, provided a “necessary correction” in the private tech market, which opened up opportunities for better deals on the horizon.

“Last year our response to the market was to say ‘let’s see what we can sell and what we can get money for at these valuations’, and we made some investments at good prices,” said Mr. Wilson.

“We currently have over 50 percent of our NTA (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 venture capital firms are making some valuation cuts, OneVentures stands out from the pack. Managing partner Dr Michelle Deaker said the fund had no intention of writing off investments.

“OneVentures took a fairly cautious approach to technical valuations last year. Our accountants saw no reason to engage external appraisers, as our portfolio was already held conservatively. As a result, we have not had any write-offs,” she says.

“The auditors said that if we wanted to engage a third-party appraiser for two companies, we could do this to potentially write them down (ie kept too conservative), but we felt it wasn’t necessary.

“Most of our companies are [profitable]or have a path to profitability, and decent cash runways, so there is also a limited risk of funding as we also have reserved capital available to support future rounds.”

But with profitability still a long way off for most start-ups, Bailador’s Paul Wilson said the founders needed to shift their focus to the “new normal” for a potentially long period of time.

He said quality companies — like Canva — would be able to grow back to their previous valuations by demonstrating performance and continuing to grow sustainably.

“In the past, the market rewarded founders for just trying to grow as quickly as possible, and I think it would always happen that we would get this correction and an adjustment back to a good unity economy,” said Mr. Wilson.

“The founders who were honest with themselves and are real business people must have realized that at some point they have to be able to make a profit. And if they didn’t feel that way, it probably wouldn’t end well.”

Canva’s response

After the valuation was written off last week, Canva said it was confident it would make its way back to the higher price, and saw opportunities to grow due to its large cash reserves.

When asked to explain how the company wanted to grow and how the workforce was coping with the changing value of their stock options, a Canva spokesperson said attitudes remained broadly positive.

“We are using this period to continue to focus on efforts such as internationalization, new product offerings and the incredible opportunities ahead as we accelerate our efforts across teams and workplaces,” the spokesperson said.

“We’re also seeing more interest than ever from candidates, and in the last six months we’ve received over 200,000 applications and added over 700 people to our team with plans to continue growing throughout the year.

“Ultimately, we don’t let ourselves be 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 enhance our long-term value. Companies with strong fundamentals will emerge from this period stronger than before.”

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