Govt extends underwrite to start-up investor, NZVIF, to 2022

Franceska Banga, chief executive of the NZ Venture Investment Fund. Photo / Sarah Ivey

The government is extending its underwrite of the Crown-funded start-up investor, New Zealand Venture Investment Fund, through to 2022 and allowing $12 million to be transferred to the investor's cash-constrained seed fund, but the level of support will drop from 2018.

The Crown's $100 million underwrite facility will be extended until 2018 and then reduced to $60 million until 2020, as returns to NZVIF from earlier investments become available for reinvestment. The move, along with a $470,000 increase in operational funding, allows the fund to make co-funding commitments to new venture capital funds and partnerships.

NZVIF hasn't yet called upon the underwrite, even in the depths of the global financial crisis, but chief executive Francescka Banga said it was a useful safety net that gave other investors confidence in dealing with the fund.

Economic Development Minister Steven Joyce said the NZVIF played an important role in developing the start-up and growth capital markets for New Zealand companies.

"It has been instrumental in building up New Zealand's angel and venture capital investor markets from small beginnings to the point where private and public venture capital investment since 2003 has reached $1.1 billion," Joyce said.

"The angel investment formal market has provided a further $353 million since it started in 2006."

Joyce said the government expects NZVIF to become self-sustaining over time and the extension of the underwrite guarantee gives the fund time to make that adjustment.

Banga said there had not previously been a deadline for the fund to become self-sustaining but that would now likely happen within the next four years as returns grow.

The $260 million Venture Capital Fund, which invests in start-up young growth companies through privately-managed venture capital funds, is already self-sustaining, she said.

But the $40 million Seed Capital Investment Fund, which invests in early-stage companies with angel investors, still had a way to go, she said.

Banga said it was NZVIF's idea to get government approval to transfer $12 million from one fund to the other as the SCIF, set up in 2006, was in danger of running out of money to co-invest at the levels it had been.

Many of the 115 companies the seed fund has invested in are still at an early stage - averaging four years of investment - and it takes on average seven to eight years for returns to come through.

Banga said the fund will gradually modify its level of investment as the time draws nearer for it to become self-sustaining so it could withstand the fluctuations in the market which can alter expected returns and cash flow.

Since its establishment in 2002, NZVIF has invested $147 million, alongside private investors, into 187 of New Zealand's most promising growth companies including Xero, Orion Health, PowerbyProxi, Vend and Booktrack.

It said in a report last week that it had broken even or made money on 21 per cent of its exited investments, which is said was in line with early-stage investment expectations.

The fund manager has exited 62 investments to date, of which 13 have broken even or produced a positive net return.

Eight returned between 1.0 and 1.99 times the total invested, one was between 2.0 and 3.0 times investment and another four realised more 3.0 times the total invested.

The seed fund has broken even or made money on five exits out of 26 while the Venture Investment Fund has had eight successful exits out of 26.

Banga said she was satisfied with returns to date given New Zealand is still a relatively young market for this type of investment.

"We'd always like to see more success, faster, but that's the nature of the market. It has taken time."