If I could go back to 2019 I would tell myself that combining an unconventional approach with no proof would make fundraising much harder. I would then tell myself to take that approach anyways.

What do I mean? Most investors were used to VC funds that operated a single late-stage fund, took board seats in all investments, and built a concentrated portfolio of a dozen or so holdings.

Our proposal: Invest in Growth Fund I, a $100m fund which will invest across 30 companies (occasionally actively, mostly passively), while we also continue to run our Seed Funds, operate an angel network (two, actually), and host hoards of founder and investor events around New Zealand. And by the way, the average age of the team is 28 and we are trying to develop our own funds management software.

621 investors declined us over a 12 month fundraise. And I would understand if many more simply filed our pitch in the rubbish folder.

Why were we so convinced? Because we could see that big companies come from small companies - and that being there from day one puts you in a better position to invest when the companies raise growth rounds. By 2019 we had invested in 188 startups - as many as anyone in New Zealand - and could see the advantages of investing early. (I undersold the advantages using jargon like "pre-emptive rights, information, and relationship capital” but they were real nonetheless.) 

Missing Rocket Lab’s 2017 Series D

The “small company -> big company” hypothesis was most acutely influenced by failing to access Rocket Lab’s 2017 Series D.

To be clear, there was no good reason we should have secured access to Rocket Lab’s US-led, $70m+ round. They were raising more in one round than we had funds under management at the time. Nonetheless, Pete accepted a meeting, I toured around the factory with him, and we agreed on an investment by IV as part of the round.

That was Thursday. By the close of Friday Pete was in the Valley and the round was way oversubscribed. As outsiders, we were late to the table, we had no pre-emptive rights, and had limited relationship capital or strings to pull with Pete or others. And so we missed out on the company of a generation. 

Very delayed gratification

We were fortunate 560 individuals and Simplicity collectively committed $110m to Growth Fund I. This was possibly our single chance to prove ourselves as later-stage investors. Missing the next Rocket Lab with this fund would be existential.

So, what to do? We could not simply wait for the next startup to show promise and then try to invest. Once a company got to that point we would, again, find ourselves competing against global investors.

We doubled down on our unconventional approach. We expanded our seed stage activity and scaled up our community building at seed stage, hosting 50+ events per year. We even supported the likes of Outset, NZ Fintech Fund, Brand Fund, the Sustainable Technology Fund, and New + Improved to scale up their seed investing.

It took a few years but it worked. Our chaotic seed-stage activity led to Growth Fund I securing access to the small-turned-important companies like Crimson Education, Hnry, First AML, Dawn Aerospace, and Halter. With these proof points, we were excited for a much easier raise for Fund II.

You have no track record

Growth Fund II was the hardest raise of any of our funds. It took nearly two years. Had Sam and Henry from Generate said no, we probably would not be here today.

We learned there is a big difference between great investments and great returns. Most people agreed Crimson Education, Dawn Aerospace, Halter were on great trajectories. But where was the “DPI” (distributions to paid in capital) to prove it?

Like our seed vs growth stage focus, this led to a second test of persistence: Sell out early or hold on for the returns that could truly deliver venture-style returns. At the time, we could have sold some of our higher performing investments like Crimson Education and Halter to “prove” our strategy. (This would have been a major mistake considering they have now increased in 5x and 10x.)

Instead of selling, we emphatically (albeit not that effectively) made the case that venture returns take time. "You can’t take popcorn out of the microwave after 60 seconds and expect many popped kernels.” was but one of many failed attempts. Nonetheless, the reality is that great companies typically take 10 to 15 years to become so. Most of our investments were 5 to 10 years old and we just needed to hold on. 

A track record and the next Rocket Lab

Growth Fund III has had many more commitments than declines. Including verbal commitments, we are on track to raise twice as much as Fund II in half the time.

Our track record of returns has certainly improved. We have paid out >$100m as a group over the last few years and Growth Fund I has had three positive exits (with one more signed this week). We could whip out any number of “top decile” fund claims.

However, it is not cash returns that is driving all the commitments. Frankly, we still need more time. The track record is attracting investors relates to the tenure of the team, the consistency in our reporting and communications, and the persistence of our strategy and position in the market.

And then there’s Halter. What started as a very small company, is now large, growing, and very important. They have deployed two million collars across New Zealand, Australia, the US, and now South America.

Investors can agree or disagree with me that Halter has the foundations to become more valuable than Rocket Lab. One thing I will not concede is that, like Rocket Lab, if you were not invested in the early days you are not going to get in today. We have been contacted by dozens of global investors who are trying to get access. Billionaires and mega funds have missed out.

Growth Fund III invested in their Series E earlier this year. We are poised to invest more if and when they raise again. This is not because of who we are and what we are doing today. It is because of the foundations we have been laying for many years. 

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Robbie Paul is the CEO of Icehouse Ventures, New Zealand's most active venture capital firm. Icehouse Ventures is on a mission to transformative investors in transformative Kiwi companies. 

This article represents the personal views of the author and does not constitute financial advice. Past performance is not indicative of future returns. Readers should seek independent financial advice before making investment decisions.

Connect with Robbie here.