Keep moving forward

Rob Vickery

Our investment strategy for this next phase of the startup market.

You know that times are a-changin when Y-Combinator starts taking a u-turn on its usual startup advice and Sequoia publishes a 52-page memo referencing Charles Darwin’s The Origin of the Species. 

Whilst we are avid readers of The Economist and every startup industry tome we can find, we will not copy and paste another chart showing lines trending to the bottom left. We all know that things are getting real in all manner of markets. 

We agree that the Animal House style party that the startup market hosted over the past few years is over. But we don’t believe this is a time to cower in fear. Instead, this is a time to keep moving forward, perhaps with more preparation than before. 

Inspired by a comment by one of the speakers at last week’s Private Capital Summit, we thought we would be the first New Zealand-based fund to come forward with our position for startup investment in this new economic phase that we have entered. 

Here are the headlines:

  1. We are still very much making new investments- we would be crazy not to. 
  2. We are not using the market environment to slash terms and hamstring founders 
  3. Our strategy is designed to weather phases like this – we are not suddenly allocating all of our funds to existing portfolio companies. 
  4. We think this is a time that several founders could use to close their current startup chapter and start writing a new one. 
  5. We are adjusting our internal budget to focus exclusively on services to help our founders grow their business—no more external sponsorship.
  6. Just being thrifty will not allow us to emerge strong. We must still push forward on a global scale, albeit in a sustainable, organic way. 

We are glad to confirm that not much has changed at Hillfarrance.

Over the past ten years, and having received over twelve thousand pitches, we have only funded thirty-eight startups, and this tight filter remains. Our conviction to invest does not waiver with the macro environment, good or bad. We have an allergy to FOMO. Our relentless focus on startups that successfully answer our “Why You”, “Why Now”, and “Why Us” question framework remains resolute and the close rate low.

We do not run an index fund or spray-and-pray fund. We look for the rare founders (about twenty per fund) who can inspire others, change the fabric of their customers’ lives and make the planet a better place for our next generation. By keeping our Village tight-knit, we can do what founders expect of us – helping with hiring, business development, future capital raising strategy etc.

As the sub-title states, regardless of the severity of the PEST factors pressurising the world, we will not change our investment volume cadence of 4-5 per year. This new landscape is just one of many phases in our business lifespan and just the statement I engraved on my watch: “Like time, keep moving forward”.

Is now really a buyers market? 

Over the last two years, we have seen the Series A and B market heat up in NZ but mostly in terms of the number of new capital sources for founders to choose from. We now have over a dozen funds for entrepreneurs to pitch. To put this into context, when I started as a VC in Los Angeles, there was a similar number of seed funds operating with even fewer Series A-C funds. Within five years, there were almost 90 VC firms. Whilst the population of NZ is half that of Los Angeles, Aotearoa still has a long way to grow as a startup capital market, and it is for this reason that its buyer/seller power ratio will remain pretty equal. 

Great founders building sustainable, exciting businesses with global prospects and strong fundamentals will get funded. They always will. 

We do not see this as an opportunity to start drastically cutting valuations suddenly or to reduce SaaS revenue multiples to 5x or worse. Last year we saw multiples of 40x and above, which were irresponsible and more damaging to the founder’s long-term objectives than the short term gain of a giant seed round valuation. 

The model we introduced to the New Zealand market in 2020 has been updated to show our views on funding round parameters. Most elements remain the same, especially founder equity levels. 


Please feel free to share but don’t plagiarise.

We believe that a 7-10x markup of recurring revenue (extra points for more extended contract periods and higher ACVs) is more than reasonable. This is to inform (amongst many other factors) a compelling pre-money valuation. 

Portfolio strategy 

One of the critical approaches that venture funds take during economic downturns is to allocate more capital to their existing portfolio companies to ride out this phase—in other words, shoring them up. With many years experience of working together, it can be a more logical decision to continue investing in our current portfolio. It is important to note that despite this logic, every reinvestment is re-underwritten as if it were a new portfolio company. 

We allocate 3x the capital invested in the first round for each portfolio company. This is released as the company grows from the Pre-seed/Seed, Bridge to the Series A.

If you haven’t already, I would recommend contacting your existing cap table to understand their follow-on investment policy and intentions during this time. 

Survival of the most conscientious 

A couple of weeks ago, we held a session with all of the founders in our Village and discussed the changing events and some ideas on how they can stay afloat and even thrive during this time. As most team members have run/worked at a startup before, we had some insider tips that we hope will make a difference. 

One of the key topics was about being hyper-attentive to their customer base. Please pay attention to your existing customers and how their respective businesses are performing in the current climate and ensure that you are acting as a partner as much as a supplier. Don’t shy away from random acts of kindness during this time. 

Ultimately, we are asking those with who we invest to do more with less and to make money last longer. This is a tricky balance to attain, but we think it can be achieved with optimum, not excessive hiring, organic sales and marketing strategies and a more honed product road map.

The Great Reset

As painful as this might be, several founders will face insurmountable odds in keeping their businesses afloat. Whether it be customers cutting budgets, an inability to raise capital or just losing the energy to keep fighting the good fight, many companies face challenging outcomes during these times.

We highly respect founders who have had a few startup failures under their belts. The muscle memory from those experiences has inordinate amounts of value for investors and automatically propels you through our due diligence process.

If the global economy does take a downturn, we recommend this as an opportunity to carefully consider if pushing water uphill with your existing is still a good idea. Great founders we know have dozens if not hundreds of other ideas in their back pocket, and maybe this is the time to revisit some of them. 

Nobody wins from running or investing in zombie companies. 

Re-allocating our budget 

To date, we have enjoyed partnering and sponsoring a range of market development initiatives. However, from here on in, any new external marketing spend is placed on hold. 

Instead, we will be utilising those funds to support our founders during this time. We will be hiring a Head of Platform whose role will further develop the service provision to our portfolio companies, including hiring, business development leads and third party partnership creation. This is not a community management position. 

We already include business development goals in our internal balanced scorecards. These will be increased to ensure that we are in the sales and customer success trenches fighting alongside our founders. 

We will also be continuing to offer and evolve our founder wellbeing programme with Working Minds to help our founders and their teams to be mindful of their most precious resource – themselves. 

Where do we go from here? 

Also, I heard one of the founders at the Summit request that we do not go back to our old ways of startup investment – bad terms, and excessively low valuations. I wholeheartedly agree. 

In addition to this, let’s not just go back to battening down the hatches and just focusing on domestic growth. While we recommend slowing down entering giant markets that require millions of dollars of access, let’s not cut the head off our audacity poppy. In our opinion, great startups are those that find unique opportunities that have just emerged and can execute a pull strategy to bring customers from them. We are already experiencing historic levels of inflation, rising cost of living, not to mention global conflict. But through these times, companies like Uber, Slack, Venmo and Airbnb were created and empowered by the economic environment surrounding them.

As investors, we embrace the fiduciary responsibility we have for our LPs capital, our founders’ success and for our own wellness as fund managers. Regardless of how rough the waters get, our coordinates were set when we formed our business and we do not intend to deviate from them. 

To close this memo out, I was reminded recently through a family-related incident that our time on this planet is fleetingly short. Make it count.