Why a Ukrainian in Queenstown is raising $20m for NZ startups

Everything’s relative.

An investor presentation that Mark Pavlyukovskyy put together for his new $20 million venture capital fund, NZVC, touts New Zealand as an oasis of political stability. And it promotes the way our social cohesion helped us unite to beat Covid.

The Omicron surge and recent Parliament occupation took some of the gloss off those claims. But next to the invasion of his home country – Ukraine – and the mayhem in the US, where he’s spent most of his career – we still look pretty good; in fact, very good, to Pavlyukovskyy.

“New Zealand kind of shines in this era of geopolitical instability,” says the Ukrainian, who is now coming up to the two-year anniversary of how he “accidentally” became a resident (more on which below).

“I have friends and family in literally every part of the country.A lot of them have either left or are trying to leave, and some are hiding in bomb shelters. It’s so unexpected, chaotic and crazy,” he adds.

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“One of my friends has engineers in Ukraine, and now he’s spending his time trying to evacuate them. Those are not the kind of things that you want to be spending your time doing, if you’re trying to build a world-class company.”

And he says while Covid has been a huge disruptor around the globe, “If you’ve been in New Zealand during the last two years, your work is probably disrupted the least out of any other country in the world.”

The 'accidental' Kiwi

The pandemic is also the reason why Mark Pavlyukovskyy became an accidental Kiwi – he arrived here, one day before the borders closed in March 2019 on an Edmund Hillary Fellowship.

The fellowship is a partnership between the Hillary Institute and Immigration NZ that created the Global Impact Visa for entrepreneurs interested in spending time in New Zealand. Pavlyukovskyy would end up being part of the last cohort before the programme was interrupted by Covid, although that was not apparent at the time.

Pavlyukovskyy definitely had a Hilary Fellowship-friendly CV, albeit one filled with interruptions and transitions.

He left Ukraine for the US when he was 9. After his junior year studying molecular biology at Princeton, in 2010, he travelled to Ghana on a health scholarship, where he developed a game to help teach children about malaria.

After Princeton, he became a doctoral fellow at Oxford University where, on the side, he founded Piper, a startup that created an educational toy – based on a Raspberry Pi computer, where a child’s real-life changes to a computer hardware kit flowed through into a game of Minecraft (see clip below).

The Ukrainian dropped out of Oxford to focus on Piper. He relocated to San Francisco and raised US$15m for his startup from backers including VC veterans includingGlen Anderson,who led Google’s machine-learning group for a decade, and Ajay Gupta, an ex Merrill Lynch head of equity trading, who introduced him to a number of high-profile investors.

Gupta and Anderson (both based around San Francisco) joined Pavlyukovskyy as founding partners in NZVC, along with venture partners Vishal Chaddha (a Delhi-based Web 3 entrepreneur who is also a Hillary Fellow – albeit one who got stranged outside NZ during a visit back to India amid border-rule changes), Silicon Valley-based blockchain expert Rich Bodo and Jae Yoo, a youthful Kiwi crypto advocate who first featured in the Herald in 2018 when he raised $1m from Smales Farm rich lister Bill Smale for his app that aggregated student discounts.

NZVC has so far raised $13m and Pavlyukovskyy says it could raise up to $20m before it closes.

It’s after local backers to join its investor base so far, which includes former Disney COO and current Spotify director Tom Staggs, Skype co-founder Jaan Tallinn and Ed Baker, a former head of international growth for Facebook and VP of product and growth for Uber.

There’s a raft of other Silicon Valley names in there too, and Pavlyukovskyy says access to their skills and know-how is a key part of the package.

“Part of the criteria for being in our fund is that you actually need to contribute your time to talk to and help out these startups”, Pavlyukovskyy says.

“We give our portfolio founders access to all our advisors and investors to help them grow, learn and succeed in international markets while being based in Aotearoa.”

100 per cent pure hobbits … and sheep

Before applying for the Edmund Hillary Fellowship, “The only thing I knew about New Zealand were that Lord of the Rings was filmed there, and that there were more sheep than people, from a fourth-grade social studies project.”

But when he researched New Zealand, he soon liked what he saw, from Xero in SaaS (software-as-a-service) to Rocket Lab in deep space tech.

He saw a crew of “incredibly scrappy and tenacious founders who under promise and over deliver” and “a high density of technical talent, but also a very nascent funding ecosystem that mainly consisted of angels and some venture investors neither of whom had much experience actually building companies.”

He saw a gap in the market for an “operator-run” fund made up of founders who had experience founding, running and exiting companies.

He says he and his partners can help early-stage Kiwi companies “avoid making the same mistakes we did”, as well as hooking them into their networks in the US, Europe and Asia.

NZVC has already invested $4m into companies that include Auckland short-term lease platformEasyRent, local cryptocurrency exchange Easy Crypto, Wellington electric ferry startup Seachange and Dotterel, a Kiwi startup that makes noise-dampening technology for drones used on Hollywood film sets.

Not all of NZVC’s investments have been local, however, and none of its partners are Kiwi citizens (although under his Edmund Hillary Fellowship, Pavlyukovskyy will have a permanent resident option after three years).

That proved a sticking point when NZVC had exploratory discussions with NZ Growth Capital Partners, the Crown agency – backed by $300m from the NZ Super Fund – that often co-invests with venture capital firms (which has been one of the key factors behind our VC scene’s recent pep-up to record-high activity).

The Ukrainian shrugged that off. He says NZGCP money comes with too many restrictions about how it can be spent.

Pavlyukovskyy says NZVC is looking for opportunities across the board, with the three partners bring different areas of focus.

“Ajay does a lot of med-tech and health tech. Glen has a lot of experience with deep tech, and I do some of the crypto and blockchain stuff.”

Silicon Valley post-Covid: More a network than a place

The Ukrainian spoke to the Herald from Queenstown, where he says he enjoys the lifestyle and the hiking. “When I arrived, Covid was taking over the world, and I realised it was probably the best place to stay for the time being,” he says.

Now, pandemic restrictions are starting to lift around the world. But Pavlyukovskyy says he’ll stick around regardless.

While San Francisco, and Silicon Valley to its north, is still the hub of the global venture capital scene, many people now participate in the scene from afar in the new era of remote working and Zoom everything.

“A lot of my friends have left SF [San Francisco] and the Bay Area for other cities in the US, or other countries,” he says.

Pavlyukovskyy says he’s brought partners and investors on board, and made NZVC’s first investments, without meeting anyone face-to-face. “It’s great to meet in person, but you can probably do 80 per cent of what you want to do from New Zealand,” he says.

He says NZ is physically well-placed to capture those leaving Silicon Valley, being just three hours behind the US West Coast (albeit the next day). And it also suits Pavlyukovskyy that we’re just five hours ahead of China, where he has to keep an eye on supply chains for his Learning with Mochi – the educational startup he founded after exiting Piper three years ago (after selling 100,000 units), this time involving physical games that teach programming skills without involving any screen time).

Why a social contact matters to venture capital

And he just likes our general vibe, which he reckons we’ve illustrated with our Covid response.

The thing that made the biggest impression, arriving from the chaos of Trump’s America, was what he calls, “The strong social contract between the Government and its people which allows the people to trust the Government and sacrifice when necessary for the good of the entire country.”

And while that social contract has been torn at the edges by last week’s events around the Beehive, and a health system that’s begun to come under pressure, it’s still nothing compared to America, where he thinks the lack of a safety net has pushed more people to extremes.

As he told his followers back home in an essay, “In the US, going into lockdown has an uncapped downside for the vast majority of people. You lose your job, then your health insurance. God-forbid you get sick because then you have to pay out of pocket or be saddled with debt and risk getting evicted and living on the streets.”

He says that’s why so many people tried to end lockdowns prematurely in the US.

“It’s the only rational thing for them to do to not end up homeless and in debt. And their plight ricochets across all social strata: whether it’s Jeff Bezos who gets his house graffitied and derided in the press or your takeout and groceries that don’t get delivered or the overloaded hospitals.”

He says the contrast between the tumult and inequality of the US and the relative calm and egalitarian nature of NZ matters to venture capitalists and startups.

“A more equitable nation is just more stable and more predictable. And when you have the choice of where to start a business, you want to control your risks.”

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