Venture capital is a brutal game. The most dangerous end of the capital markets, an environment where few investors dare to tread.
It is an unlikely space for taxpayers to invest but, say supporters, if we want to develop a high growth, start-up sector in a small market, it is also one where companies need government support.
"It is high risk but always with the expectation that the business could deliver a good return for investors," says outgoing New Zealand Venture Investment Fund (NZVIF) chief executive Franceska Banga.
"We know that not all of them will, probably only a small number of them will. We also know that it is a numbers game. If you want 10 Xeros or Orion Healths then you are going to have to invest in hundreds of companies. But you are talking about high risk/high growth investment."
Banga, NZVIF's founding CEO, steps down next month after 15 years spent steering some $150 million of taxpayer money into 190 start-up and early stage companies.
There are some big names among the NZVIF alumni -- NZX listed Moa, Xero, and Orion Health among the best-known.
The fund hasn't yet delivered a massive return, although it hasn't cost taxpayers money either.
Its portfolio is valued at about $180 million but it has partnered with private venture capital funds which have invested $1.7 billion into the fledgling sector.
Given that the original brief -- drafted in 2001 at the height of Helen Clark's Knowledge Wave fervour -- was never to make a financial return, most people in the sector are comfortable describing it as a success, albeit a qualified one.
"We now have a rapidly maturing venture stage market," says NZ Venture Capital Association executive director Colin McKinnon.
But the mid-tier space is still extremely tough, he says.
"It is maturing from the angel level up rather than from the VC level down."
When looking at NZVIF's performance, it is important to consider its main venture capital fund and its smaller Seed Co-Investment Fund (SCIF) individually, he says.
Everybody in the industry would acknowledge that the activity, the leadership and the best practice market development that VIF has done with the seed fund has helped us come on a lot faster than we would have done if left to our own devices.
The latter, which can invest up to $4 million in angel stage start-ups, had been considerably more successful than the former, which can invest $25 million in a company.
"Everybody in the industry would acknowledge that the activity, the leadership and the best practice market development that VIF has done with the seed fund has helped us come on a lot faster than we would have done if left to our own devices," McKinnon says.
The seed co-investment fund has a total of $40 million available and invests alongside accredited investment partners, with NZVIF putting in up to $4 million per co-investment partner, with the potential for another $4 million subject to a partnership review.
But in the next stage, the true venture capital space, the job is far from done.
New Zealand, along with almost everywhere else in the world outside of Silicon Valley and Boston, is still struggling to get scale in the venture capital market.
"Taken overall, both programmes have been successful," he says.
"Did we get the outcomes we expected? With SCIF, yes we have and with VIF, probably not. With hindsight did we get value? Yes for both."
Banga doesn't disagree about the difficulty of the job in the mid-tier market.
"I think there is still a challenge there," she says.
The problem for high growth companies in New Zealand comes once they move past the first phase, having raised $2 million or so, "when they realise they need $5 to $10 million but they're nowhere near ready for the NZX," she says.
"We have always said that it is a 25-year game plan so I think we've made pretty good progress -- we've probably got another 10 years to run.
"When you look to other countries -- and the US is the standout -- we know that when they started out almost 50 years ago now ... it takes a long time to build an ecosystem.
"A fundamental view I have is that government support for very early stage investment is an ongoing thing. It doesn't matter where you look in the world, even the US -- that idea of providing funding for early or angel stage business is an accepted part of the role of government."
If we are serious about keeping high growth companies in New Zealand then some level of commitment from government is crucial, she says.
"We would do well in New Zealand to get past the should we/shouldn't we [debate]; the end game is you are trying to bring through some significant companies and that doesn't just happen out of thin air."
But it remains to be seen how committed this Government is to NZVIF in the long term.
Minister of Economic Development Steven Joyce has said his officials are reviewing the fund's performance and looking at its structure. It could be that there may be no more taxpayer funding and it moves to a self-sustaining model, or even an orderly government exit from the investments.
A fundamental view I have is that government support for very early stage investment is an ongoing thing. It doesn't matter where you look in the world, even the US -- that idea of providing funding for early or angel stage business is an accepted part of the role of government.
Banga says she accepts that the fund could become self-sustaining, with new investments being made with returns from the fund.
That has always been one of the long term goals, she says.
There are several international precedents for a self-sustaining approach, notably the Small Business Investment Company in the US, 3i and CDC, both originating in the UK, and YOZMA in Israel.
Each of these funds started off as a government backed initiative intended to increase capital for small high growth businesses in their home market.
That said, she is in no doubt about what she'd do if she held the political power to write the budget.
"Personally, I'd put some more money into this programme if it was up to me," she says.
"It has been an incredibly cost- efficient programme for taxpayers."
Short of stumping up more cash, Banga would also like to see some fresh policy developed to foster investment in the high growth end of the market.
In particular, she would she would like to see some more focused targeting of migrant investment.
"We could do so much better in how we utilise the capital that comes in," she says.
"In the $2 million and $10 million categories ... we know that most of that money goes into low risk capital. Even just the interest off that money would make a significant difference to the early stage end of the market. There is always nervousness about migrants coming in and losing money ... but there are ways to ensure that some of the money goes to growth and that engages them in the local market."
Personally, I'd put some more money into this programme if it was up to me.
For the record, Joyce, who confesses he is philosophically no fan of government involvement in start-up investment, has plenty of praise for Banga and what she has achieved.
"The early stage capital market was certainly not as healthy before VIF was there. It doesn't necessarily mean that VIF has catalysed that although I think the presumption is that it has," he says. "The hard part is working out what would have happened anyway."
Perhaps, as one market player who asked not to be named says, there is a concern that the fund can't maintain momentum without someone of Banga's calibre driving it.
Certainly, Joyce feels the departure of Banga after 15 years marks an appropriate time to take another look at its structure.
The Venture Capital Association's McKinnon thinks that is fair enough.
"VIF was best practice at the time," he says. "The problem hasn't been fixed but we understand a lot more about it."
The industry still needs some help but the help is not necessarily just capital, he says.
"I don't know what the answer is but I do think we need to keep some sort of government liaison role in that post-angel space," he says. "If we don't keep having that leadership then it will fragment and the market failure will become more apparent again. I just think we have to finish the job.
Over 15 years Banga had been a huge asset to the sector, he says.
"I'd say she has been outstanding. They've struggled with some big challenges and she has been an exemplary leader in this space and we're going to miss her."
As for what's next , the former Treasury and Reserve Bank economist is keen to make her mark in the private sector as a company director.
Franceska's advice for startups seeking money:
• Talk to entrepreneurs who have gone before. What does that mean for their company? A weakness in NZ is we don't learn from others' mistakes.
• Get really focused on the right sort of investors for your company. Avoid the scatter-gun approach.
• Don't waste time talking to investors who are not going to invest. Do your homework.
• Get your story right, your business plan. Be clear. You can't just go on raw emotion about how good your invention is.
• If your specialty is the technology or science side, make sure you've got access to the business expertise in your team. If you can't afford to employ people, look for people in your wider network who can help.
Planting the seeds of growth
Rollo Wenlock, chief executive of Wellington startup Wipster, says the seed funding his company got from NZVIF played an important role in bringing other investors to the table.
The company, which offers a cloud-based platform for video sharing and review, this week announced a major partnership deal with US video streaming giant Vimeo.
It received three rounds of funding from NZVIF at the angel stage.
"The value for us at that point was that the early stage angel investors, who were all private investors, felt they could take more of a risk on us," he says.
At the angel stage the company initially raised about $600,00 and NZVIF matched angel investors, Rollo says.
"So they [the angels] felt like their investment had been turbocharged. They were willing to take a bigger risk on us where maybe they wouldn't have. I was a first time entrepreneur, it was space they didn't all understand."
Wipster has now done three rounds at angel stage and every time NZVIF has joined the private investors.
"I really like that they are quite diligent," he says. "They don't just throw money at stuff, we report to them every month."
NZVIF attends all the big pitches that Wipster does, says Wenlock.
"They'll be in the back row and taking notes and they'll ring me later asking hard questions."
Wipster now has tens of thousands of users in 120 countries.