Canva downgrade triggers rethinking of assessments for local technology

“We took a synthetic position to gain exposure to Canva and the best way to do that is through some Blackbird funding,” he said.

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

“So the returns we’ve shown to date will be diminishing, but our internal rate of return is close to triple digits. Meanwhile it will settle back now [after Blackbird marking down its funds]it’s only going back 5 percent to 10 percent… we’re comfortably up in no time.”

Self-honest founders and true entrepreneurs know that at some point, they have to make a profit.

— Paul Wilson, Baidor.

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

However, Jasper said positions at Blackbird were an exception, and SecondQuarter was comfortable with other investment valuations. SecondQuarter’s portfolio includes Edrolo and Go1, both of which have stepped up new chapters in the last two months, but also Culture Amp and SafetyCulture – two unicorns whose valuation has yet to be tested in the current climate.

“We invest in high-growth companies. In most cases… we understated value because if the round was done a year or two ago, the company was then much bigger than when we invested,” he said.

“We don’t pay crazy multiples, and even if there’s some double compression, the growth outweighs that.”

AirTree Ventures will be writing to its investors this week to update them on portfolio valuation. Jeremy Piper

AirTree Ventures founder and managing partner Craig Blair will not comment on the fund’s revaluation intentions before sending his investor letter this week.

However, he said there was no argument that the technology market had “overheated over the years”.

“It’s just a statement of fact,” he said. “This is a healthy reset and a reset we have to do. Valuations get too high, investors underestimate risk, and in some ways this is what returns were like in the 20 years before the peak.

“But, that doesn’t change anything for the company. And what matters to most investors is what happens in the next five to 10 years, not now, except for super funds.”

Start-up revaluations have relevance beyond the VC funds themselves, as the biggest local players backed by pension funds include Hostplus, AustralianSuper, Sunsuper, TelstraSuper and Statewide Super.

Hostplus in particular has come under pressure to provide more clarity on the valuation of its unlisted assets.

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

This guidance is endorsed by the Australian Investment Board, and was last modified in March 2020 to account for the impact of COVID-19 on the markets. A revision of the guidelines is expected by the end of this year.

Carthona has digital debt collector Indebted, payments firm Paytron, New York-based property technology firm Cherre, auto finance fintech Driva and carbon accounting and reporting startup Pathzero among its portfolio companies. Mr Dorrell said the latest assessment had declined.

“It is inevitable that the technology industry will experience ups and downs. Lower valuations will occur from time to time, but this is a long term game and most funds have a 10 year lifespan,” said Dorrell.

Not all doom and gloom

“We have seen several rounds of downs in our portfolio, but there have also been companies that have gone up with 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 less and less on the equivalent of a flat spin.”

Mr Dorrell said it was important to note that VC firms like Carthona usually have preferred stock that protects their investments.

This means that a $1 reduction in the valuation of the company does not necessarily lead to a proportional reduction in the value of the fund’s holdings.

“Registered companies should not have different preferences, so this makes comparisons between listed and unlisted companies not ‘apples for apples’,” he said.

Citing a “megatrend” report released by CSIRO last week, which predicted the next wave of digital innovation would generate between $10-15 trillion globally, Dorrell said he remains confident that Australian investments in technology startups will pay off.

“Australia is in a unique position to invest long term through our pension system. The industry superfunds really take the lead in this – especially Hostplus,” he said.

Unlike many large VC funds, Rampsersand’s early-stage investors do not have a retirement fund LP, meaning they have less pressure to disclose valuations on a regular basis.

However, its co-founder Paul Naphtali says the fund is still revaluing quarterly to be transparent with its high net worth backers.

The fund also follows AIC standards. It has reviewed its entire portfolio in recent months and identified companies that are more vulnerable.

“It doesn’t necessarily result in a formal price drop, but we were honest with investors about where we were vulnerable, and we’re glad there wasn’t much,” Naphtali said.

Bailador Technology Investments is unique in Australia as a publicly listed venture capital fund and its listed status provides more liability than any other fund to disclose its portfolio valuation.

Bailador had a strong 2021 with $14.6 million realized in an initial public offering of travel technology company Siteminder, while maintaining a significant stake; $118.4 million out of sales of Instacluster; and $19.9 million for the sale of its stake in the Standard Media Index.

In his most recent portfolio review, completed at the end of June, he noted the value of the e-commerce platforms Nosto and Access Telehealth at 20 percent and 24 percent, respectively, while leaving the ratings of InstantScripts, Mosh, Brosa and Rezdy untouched.

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

Bailador co-founder and managing partner Paul Wilson said his fund had held back from gas in terms of private company investment in the two years prior to June 30, with only $48.3 million mobilized due to overvalued valuations.

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

“Last year our reaction to the market was to say ‘let’s see what we can sell and get some cash on this valuation,’ and we realized some well-priced investments,” Wilson said.

“We currently have more than 50 percent of our NTA (net tangible assets) in cash, and we are very happy with that as we see more reasonable valuation expectations in the private round.”

Fight the trend

While most venture capital firms make some downgrades, OneVentures stands out. Managing partner Dr Michelle Deaker said the fund did not intend to record any investments.

“OneVentures took a fairly cautious approach to technology valuation last year. Our auditors see no reason to bring in an external appraiser as our portfolio is already held conservatively. As a result, we did not experience a decline in value,” he said.

“Auditors said if we wanted to bring in external appraisers for the two companies we could do so to potentially record them (i.e. held too conservatively) but we felt this was unnecessary.

“Most of our companies are [profitable]or have a path to profitability, and a viable cash base, so there is also limited risk on funding with us also having capital reserves available to support future rounds.”

But with profitability still a long way off for most start-ups, Bailador’s Paul Wilson said founders would need to shift their focus to operating in the “new normal” for a potentially long term.

He says quality companies – like Canva – will be able to grow back to their previous valuation by showing performance and continuing to grow sustainably.

“Before the market rewarded founders for just trying to grow as fast as possible, and I think it’s always going to happen that we’re going to have a correction and readjustment to a good economic unit,” Wilson said.

“Self-honest founders and true businessmen know that at some point, they have to make a profit. And if they don’t think that way, then it might not end well.”

Canva’s response

After its valuation was written last week, Canva said it is confident that it will make it back to higher prices, and sees opportunities to grow due to its large cash reserves.

When asked to describe how it was intended to grow, and how staff handled changes in the value of their stock options, a Canva spokesperson said the attitude remained very positive.

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

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

“Ultimately, we are not bothered by near-term swings in the market. Instead, our team is very focused on continuing to deliver new products and category expansion opportunities that will grow and strengthen our long-term value. Companies with strong fundamentals will emerge from this period stronger than ever.”

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