Team members of Crystal Solutions work in their incubator at the Icehouse, the University of Auckland business incubator.
Team members of Crystal Solutions work in their incubator at the Icehouse, the University of Auckland business incubator.
The Government's move to allocate $300 million to venture capital has been welcomed by the industry and one player says it could help fund 50 to 100 Kiwi start-up businesses.
But Icehouse chief executive Andy Hamilton also said the challenge would be getting the private sector on board to matchthe investment.
The Budget announcement will see the Government divert $240 million of contributions to the New Zealand Superannuation Fund and combine it with $60 million of assets held by the Venture Investment Fund to improve access to capital for growing mid-sized businesses that struggle for growth.
"This will help keep more start-ups in New Zealand for longer and support the proportion of New Zealand ownership," said Economic Development Minister David Parker.
The new fund would draw on the NZ Super Fund Guardians' advice for "a best practice commercial approach to support the NZ VIF in making venture capital investments to take start-up businesses to the next level."
Mid-sized companies in the $2 million to $15 million annual turnover range were not well supported by New Zealand's capital markets, although start-ups were able to get funding.
"Filling that gap will help reduce pressure on companies to sell prematurely to overseas buyers, which happens when you have weak early-stage capital markets," said Parker.
The Budget documents say that "multiple venture capital funds will be created at scale that will offer highly specialised capability and expertise".
To put the Super Fund raid in perspective, Parker noted the fund would still receive contributions from the Government of $9.6 billion over the next five years.
Hamilton said the $300 million was a really good effort.
"The fact they have been able to bring the Super Fund in as part of it is a good thing."
Icehouse chief executive Andy Hamilton welcomes the $300 million venture capital investment from the Government. Photo / Fotopress
He said it would give the industry a second wave boost which it had not seen in 20 years.
Hamilton predicted the investment would be allocated to between three and five fund managers and could see between 50 and 100 businesses funded.
"What it will do is broaden out and deepen out the system."
But he said the big question was whether the funds would be able raise private sector money to match the Government's investment.
Hamilton also said it would not be enough to fix the pipeline issues of getting more companies to list on the stock exchange.
"This alone is not going to solve the challenges of not having many listings. But it will be a positive thing."
Movac chief executive Phil McCaw said the move was broadly positive and would help bolster the venture capital sector but it said the devil would be in the detail.
"This is intended to be allocated to multiple fund managers - some of which will be new."
McCaw said he didn't want to see past mistakes repeated where money was invested in the sector only to see a couple of funds disappear.
That was the case 15 years ago but a lot had changed since then.
"When you look at the start-up sector now, it is like chalk and cheese."
He said the timing of the investment was way better. "The system is ready for it now."
But he said the big challenge was building the confidence of investors to allocate capital into the space.
"There is a massive issue with very lazy KiwiSaver managers."
He said KiwiSaver was broken in terms of investing into the sector.
Despite investment in the sector being proven he said KiwiSaver managers preferred to invest in easier areas.
McCaw said the middle wealth also didn't want to invest in the sector because they were too worried about running foul of the regulators.
David Snell, EY Partner, said he liked the idea of marrying up government governance with private sector expertise but said past government investment had had mixed success and it would be a wait and see on how successful this was.
NZ Super Fund chairwoman Catherine Savage.
Guardians of the NZ Super Fund chairwoman Catherine Savage said the Government's decision to give it a new mandate was a vote of confidence in its commercial expertise and track record.
"We look forward to working co-operatively with ministers and NZ VIF to put the new mandate in place. We will bring our knowledge of global best practice investment frameworks to this process.
"We do not anticipate any disruption to the management of the NZ Super Fund. This is an entirely separate mandate."
Just a drop in the ocean, says Sam Stubbs of KiwiSaver fund Simplicity.
Sam Stubbs, chief executive of Simplicity which recently committed to investing $100 million over five years in high-growth companies, said the venture capital would fill the gap in the short term but would be a drop in the ocean long term.
"NZ Super are the natural manager of this money, as they already outsource their private equity investments to managers all around the world."
He said it was a smart move to get the best people investing in high-growth New Zealand and would be another challenge to the relevancy of the stock market.
