Private capital raising trends in 2023
- Written by Emily Heazlewood
- Published on
Chances are that if you are a company considering raising capital in New Zealand, you may have connected with Snowball Effect's Director of Partnerships & Growth, Emily Heazlewood. In addition to raising funds and launching her own venture (Romer app), Emily has also helped hundreds of high-growth New Zealand businesses to prepare for their own private capital raise.
In this article, Emily reflects on funding and investor trends that she has observed during the first quarter of 2023.
Many of the companies I've spoken with are deferring capital raises until later in 2023, hoping that the market will improve and investor confidence will grow. Some groups seeking to raise new funds have struggled to gain traction, as investors appear to be less interested in investing in technology-focused funds during this cycle. However, that's not to say there are no investors out there. There is a lot of capital out there for companies looking to raise capital, and it really comes down to reasonable terms, a strong strategy, and a strong team for execution. Plus, investors seem to be looking more to later-stage companies and are more focused on breakeven or positive cash flow businesses and strong margins over high-burn early-stage companies.
I've also observed that many companies that continue to use offshore venture capital have struggled to find a lead investor. However, once a lead investor is in place, these investment rounds are closing in good time. With many large funds and investors in New Zealand, many companies who aren't having as much success offshore are finding deep-pocket investors here.
I've also seen a real collaborative approach from funders, who are much more open to working with other similar funding groups and referring the opportunity to other groups.
Following some significant valuations in 2021 and 2022, down rounds appear to be a theme this year. I've also seen some sideways valuations, which, while raising dilution concerns, are frequently what's best in the current environment for the company and founders over the next 12-24 months.
Companies are generally realistic about the current investor appetite and are raising enough funds to get in some decent wins to then re-raise at a later date. It's a balancing act between raising enough funds for growth, but also not underfunding themselves. Some companies will be struggling, resulting in some rollups, which we may see more of later this year.
Follow-on rounds have been a big focus recently, both for investors and companies who are newer to investing. However, it is important to manage expectations around follow-on rounds and delivery. I've seen several examples of over-promised investors that have resulted in a lack of follow-on this year - meaning companies are left scrambling with disgruntled investors and new investors questioning why current investors are not following on.
I've seen some rockstar companies absolutely turn their companies around from high overheads to breakeven. I've observed many businesses realigning their strategy to focus on New Zealand and Australian markets, with less emphasis on entering new markets. Many businesses prioritise conversion and channels in existing markets over new markets with high set-up costs.
With companies dealing with their own hangover from Covid-19, we've seen question marks around their long-term goals. Companies are focussing more on steady growth or a dividend play rather than one to two-year exit strategies.
Capital does not solve all problems, and in this market, only companies with a clear strategy will be able to access it, as banks and investors are very cautious about what they need to see in order to support companies.
The next 6-12 months, in an investor's eyes, will be the best time to back companies wanting to raise funds. So if companies are considering raising, I recommend doing it in this market as there is a lot of capital out there and good investors to back you on good terms.
Getting your company in the best shape before raising is critical. Make sure you have access to the information you need prior to raising, a robust model and a clear strategy for raising capital.
If you are considering raising capital this year, I encourage companies to start having discussions with potential capital-raising partners such as Snowball Effect and investors early rather than leaving it to the last minute.
Check out this article for three top tips for raising capital.
Are you interested in learning more about raising capital for your business? I'm happy to answer any questions and can be contacted at [email protected]
