By BRIAN FALLOW economics editor
Science Minister Pete Hodgson is confident that private sector money will turn up to boost the Government's planned $100 million venture capital fund.
This is despite the fact that the fund is a response to a perceived market failure when it comes to backing Kiwi innovation and intellectual property with seed and start-up capital.
State money, to come from the balance sheets of crown research institutes and state-owned enterprises, will always make up a minority of investment in any such venture. Most of the money will come from New Zealand and overseas private investors.
Asked why the private sector would come to the party now, Mr Hodgson said the Government would dilute the risk for private investors and provide a stable partner.
And there might be a further incentive. An investment might be set up so that the Government fund could be sold to private-sector partners halfway through the deal. This would be at a price that would return to the Government the long-term cost of its money - such as the five-year bond yield.
"We are not entering the market to make money, but to accelerate the formation of high-risk, seed capital and start-up companies," Mr Hodgson said.
Eventually, those ventures which flourished would expand the tax base.
Up to $100 million would be invested in 10 funds over the next two or three years. They would be between $30 million and $50 million in size and operate for seven to 10 years.
The Government contribution in each fund would normally be up to a third, but the scheme's advisory board would have discretion to exceed that.
Each one would be run by professional venture capital fund managers. It will be able to invest a maximum of 15 per cent of its capital in any one venture.
Certain sectors are excluded - property development, retailing, mining, hospitality and reinvesting or relending.
"We haven't said the ventures have to be high-tech, but they have to be high-value added," Mr Hodgson said.
It was not Government policy to stay in the venture capital business long term.
Investors to come to the party: Hodgson
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