Chasing capital Funding debate surrounds firms
New ways of supporting start-up Kiwi firms are being debated, writes Tom Pullar-Strecker.
Astorm is brewing over whether the Government should continue to support the venture capital industry in its funding of fledgling Kiwi firms.
Currently, the Government puts taxpayer money into venture capital funds – which invest in start-up firms – through its $300 million Crown-owned New Zealand Venture Investment Fund (NZVIF)
Now, it’s believed to be considering a change of mandate for the organisation, that would allow it to take direct, multimillion-dollar stakes in promising, but risky young companies.
But Venture Capital Association chief executive Colin McKinnon opposes such a move, saying taxpayer money could ‘‘crowd out’’ the private venture capital funds, which NZVIF was originally established to foster.
It has been a long-standing gripe that every time a Kiwi company wins an export award and looks to be on the verge of global success, a foreign buyer comes along to snap it up.
Navman, Software of Excellence, Greenbutton and Endace are among the companies that have prompted such soul-searching in the past.
But McKinnon said there had been no recent examples and the venture capital market was in relatively good shape, with more than $1b raised by funds last year. Active funds include Movac Fund 4, GRC Sinogreen, Global from Day One Fund II, and three Australian funds. International venture funds from further afield had also been attracted to the New Zealand market, he said.
‘‘Gig-economy’’ company 90seconds, virtual reality developer i8 and RocketLab have all attracted double or triple-figure investments that have allowed them to remain locally-based while forging top-tier overseas connections.
‘‘If NZVIF is to become a direct investor in competition with the private market, the Government needs to be clear about the market failure being addressed,’’ McKinnon said. ’’It is difficult to see that the problem is lack of capital.
‘‘The historic track record of government funds investing directly in competition with the private sector is poor worldwide. It is difficult to see the New Zealand experience potentially being different,’’ he added.
NZVIF chief executive Richard Dellabarca is expected to provide more clarity on the Crown company’s future direction soon.
The former Labour government established NZVIF in 2002, to invest alongside privately-owned venture capital funds in highgrowth companies, with the goal of helping grow the nascent venture capital market and plugging a gap in young company finance.
But last year, former Economic Development Minister Steven Joyce, said the Government didn’t want to put much more money into NZVIF and wanted it to become self-sustaining ‘‘soonish’’.
That would mean money for future investments would need to come from recycling the cash that will be freed up when its existing partnerships with venture capital funds are wound up.
McKinnon said he would prefer to see cash returned to the Government’s coffers, or invested in earlier-stage companies through NZVIF’s separate Seed Coinvestment Fund.
Venture capitalist Sir Neville Jordan voiced no concerns about NZVIF ’’crowding out’’ the private sector.
‘‘If they become their own venture capital company that’s fine. They have a lot of experience in the area, so they would be very qualified investors.’’
It is difficult to see the New Zealand experience potentially being different. Colin McKinnon.