The absence of new domestic venture capital funds in the past few years has reduced the availability of this type of capital. Meanwhile we have a growing pipeline of emerging technology companies, backed up until now by investment from our growing angel investment sector.
New Zealand offers a quality investment environment. We have a good regulatory regime. Our workforce is well-educated and skilled. We are entrepreneurial and, particularly in some areas of comparative natural advantage such as agri-tech, we develop world-leading research and technology. This package can attract offshore venture capital.
One of the benefits from an inflow of international capital is that it stimulates local capital to invest alongside. We have seen this with Valar Ventures. New Zealand Venture Investment Fund has invested in Valar Ventures with a number of private investors, including Wellington-based investment company Rangatira.
The Taiwan fund looking to establish in New Zealand is intending to do so with a local venture capital manager, which is a structure we would like to see emulated. New Zealand-based venture capital fund managers have built a capacity of expertise and experience over the past decade. They have, however, been hampered in raising new funds by the difficult economic climate.
Partnering of foreign venture capital and New Zealand investors is one way the local venture capital sector can continue its development.
An example of this is Israel, which has built one of the most vibrant venture capital sectors over the past two decades and has drawn significantly on international capital to build its funds. Like Israel, we are a small economy which needs to export.
Our young companies need capital and access to international networks, and foreign capital provides both. If foreign capital can bring in domestic investors, it means New Zealand retains a stake in these companies.
Perhaps the major benefit from the presence of foreign venture capital is that it reduces barriers to international markets for our young technology companies.
Because of the small size of our domestic market, fast-growth New Zealand businesses need access to world markets a lot earlier than a similar company in, say, the United States. Expanding offshore is not easy. Stronger international linkages can reduce the scale of the international challenge.
Take a highly promising company like Hamilton-based BioVittoria, which is backed by local venture capital firm Endeavour Capital and NZVIF. The market for BioVittoria's unique sweetener product is the world's major food and beverage companies. Last year it entered into a relationship with a major international ingredients company. Having established that partnership, BioVittoria won a crucial entry point into the US market and is going from strength to strength.
Valar Ventures brings significant networks to the US marketplace - not just through its knowledge of the technology sector but also its links to large sources of capital.
For the young New Zealand technology companies in which it invests, Valar Ventures can open doors and advise on execution based on years of experience.
The Taiwanese opportunity is also promising, given the growing importance of the East Asian economies to New Zealand. Taiwan's economy is strong with a vital technology sector and is at the forefront of many "green" technologies. It has considerable expertise in venture capital and is strategically positioned close to Asia's immense markets, particularly China.
The key to ensuring New Zealand benefits from this influx of foreign venture capital is through a partnership approach. Technology companies - if they are to succeed - have to expand offshore. International partnerships bring the capability, capital and networks which help our companies get a foothold much more quickly.
If New Zealand retains key stakes in these companies, it strengthens the prospect that key elements - the head offices or research and development components - will remain here while other elements - sales and marketing, for example - are more likely to be located closer to their markets.
Building more technology companies is a challenging task the Government has set itself. More capital and greater international linkages are parts of the puzzle.
Partnering with foreign venture capital funds is a welcome development in both these respects, and a sign of confidence in the New Zealand investment opportunity.
Franceska Banga is chief executive of the NZ Venture Investment Fund.
