$27 million waiting for bright ideas

By Yoke Har Lee

The country's first major venture capital fund, No 8 Ventures, promoted by Wellington-based investment bank Morel & Co, has raised $27 million.

Jenny Morel, co-founder of the company and promoter of the fund, is very pleased with the result.

She stopped marketing the fund a month ago and is tying up loose ends to close it.

"We are very happy with it. We were happy when we reached $22 million. All that money has come from individuals, not from institutions. When we looked at how much money we had pooled, it represents a huge leap of faith. We really appreciate that and hope we can repay the investors' trust in us," she told the Business Herald.

Of the 20 or so investors who have put their money in No 8 Ventures, two are living overseas, one of them a New Zealander.

The company has made one investment so far, in software company Tacit Group, which provides financial institutions with software to manage their data. The initial investment is $1 million, to be followed by another $2 million.

No 8 Ventures is looking at a second investment and is poring over half a dozen business plans which it feels enthusiastic about.

Included in those are biotech, electronics, software and Internet-based companies, said Ms Morel.

The venture fund is expected to make two or three investments by July 2000.

The lack of institutional investments in the fund, she said, was not surprising given that there had not been a history of venture capital in New Zealand.

"It is quite a shame given that much of the money going to venture capital in the US is from institutions. It is the same in Australia," she said.

She added that of the institutions she approached, one was seriously interested but declined because it would have had to change its rules to invest in No 8.

Ms Morel said the lack of institutional interest came down to the immaturity of the sector. "If I was emotional about it, I would say it is a lack of vision [on the institutions' part]. But it is a leap of faith to put in someone doing something new," she said.

Besides No 8, the other main venture capital fund being promoted comes from Auckland UniServices, the commercial arm of the University of Auckland.

The fund, called New Zealand Seed Capital, is aiming to tap $15 million at first and later up to $30 million to invest in seed projects in biotech and other high-tech companies.

What was apparent to Ms Morel was a lack of entrepreneurial skills in this country.

"There is no shortage of good ideas but a shortage of good companies. There is a lot of commercial naivete, a lot of financial naivete among those companies."

Since news of her fund came out, No 8 Ventures had received about 50 approaches to look at proposals.

While this was a big number in the New Zealand context, Ms Morel said, in the American venture capital scene small funds would get hundreds of proposals.