Junior bourse operator Catalist last week put out a call to retail investors to gauge their appetite for venture capital opportunities, but they don’t have too far to look for an existing example.
Fund manager Booster Investment Management has been offering that option for a few years, and its KiwiSaver members have a small exposure to it as well.
The Booster Investment Fund was stood up more than three years ago, listing on the NZX in March 2022 through a compliance listing, with about $6.5 million under management across 18 different companies.
It’s now got $20.6 million under management with 43 companies in its portfolio.
“Over the last three years we’ve been building up a diverse portfolio and getting momentum,” said Booster Investment Fund manager Melissa Yiannoutsos, a BIOTechNZ hall of famer with more than 20 years’ experience in the investment and science commercialisation space.
Venture capital and early-stage investing isn’t for the faint-hearted, and while a small exposure is often seen as a useful boost to a diverse portfolio, the predicted failure rate can be too much for some investors.
Booster Investment Fund’s product disclosure statement spells out the risks, pointing to the rule of thumb that two or three out of 10 deliver some capital return, and one or two provide a substantial return.
Just a sliver
Given Booster’s KiwiSaver funds provide a modest inflow into the innovation fund – about 0.2% of its $5.47 billion under management – Yiannoutsos is very aware of the stakes when it comes to retirement savings.
“We’re very cautious that people’s allocations into this world is right-sized to their risk profile,” she said. “You need checks and balances so you’re not losing someone’s retirement savings.”
Yiannoutsos said the Booster fund manages those risks by making sure the portfolio has a spread across different sectors, technologies, and stages of the venture space – spanning from seed funding in its infancy to when a startup is ready to start chasing growth. The fund also invests alongside other wholesale investors and syndicates with specific expertise to add value to the startup.
Its most recent investment was $250,000 in early stage education tech firm Kai’s Education, which develops mixed reality robotics to encourage school learning in science, technology, engineering and maths subjects. That accounts for about 1.2% of the portfolio.
The fund doesn’t break down how much each company makes up in the portfolio, although its three biggest investments have accounted for more than 25% in the past three years.
And much like other players in that space, the fund has its share of failures, the most recent being actuarial automation software developer Montoux, which was placed into liquidation in December when it was monstered by the threat of litigation in the US.
“People need to know things don’t always work out,” Yiannoutsos said. “If we weren’t seeing failure, then we’re not going to generate those returns.”
Long horizons
The fund aims to outperform the S&P/NZX 50 index over rolling 15-year periods after fees. The NZX50’s compound annual growth rate from the end of 2009 until the end of 2024 was 9.8%.
That’s a touch below the Booster fund’s 10% hurdle for a performance fee, where it collects 20% of anything above that threshold.
But unlike many smaller firms, the fund doesn’t get paid a management fee and Booster picks up the tab on other administration costs if they go above $30,000.
Yiannoutsos said the investment thesis is playing out.
The fund has generated an annual pre-tax return of 11.7% since its inception in August 2021, which includes a 4.7% decline in 2024.
The tide is turning in the broader venture capital space after several years of a subdued mood when surging valuations in the immediate aftermath of the covid pandemic stalled in 2022 as rampant inflation prompted investors to rein in their exuberance.
Yiannoutsos points to recent capital raisings by medical device wearable firm Alimetry and battery startup Allegro Energy as signs that the sector’s thawing.
And that means Booster can start asking how it can put a small allocation of those KiwiSaver funds to build a better future and keep smart founders in New Zealand for an extra day.
“It’s a really modest allocation in terms of what we look after, but the impact on returns that can be built from this is quite meaningful,” Yiannoutsos said.
Reporting by Paul McBeth. Image from ThisisEngineering on Unsplash.
