New Zealand should focus on increasing the number of small, early-stage, high-growth companies fourfold by 2015 rather than aspiring to have five Fonterras in place by the same deadline.

That's the thrust of the Metro innovation project report which is upbeat about the potential for maximizing the high-growth potential for early-stage companies, and the case for improving early-stage investment.

The Metro report notes New Zealand faces a challenging time with our capital markets under extreme pressure and venture capital funding drying up. "This is impacting on the ability of our high-growth start-ups to secure early-stage and expansion capital, and will severely hamper their attempts to grow global companies," the report says.

It isolates early stage investing as critical to New Zealand's goal of getting back into the top half of the OECD's economic rankings. "Achieving this requires five companies of an equivalent size to Fonterra or 3000 'globally capable & competitive' firms - four times the current number. Five Fonterras is unlikely and unrealistic, therefore four times the number of 'globally capable & competitive' firms by 2015 needs to be the goal."

Michael Barnett, chairman of regional economic development agency Auckland Plus, which managed the Metro innovation project, says the business community has some leadership responsibility in this area: "When I look at the innovation projects, that's a story that we need to tell so people have a good understanding of what that pipeline of progress is going to be and the necessity for us to keep it full."

Andy Hamilton, chief executive of Auckland's The Icehouse incubator and chairman of the Angel Investors Association, says the report is "a call to action to say we could do a lot more if we got a number of things right".

It is a fundamental premise that plodding along at an organic growth rate might be acceptable to some - but the economic cost of doing so will be high. An estimated $250 million a year in the Auckland regional economy alone by 2018. "The report is trying to say: 'let's not just accept the organic growth rate, let's go a lot bigger," Hamilton says.

"The whole point is: how do we build this pipeline of internationally capable firms? It's a law of numbers and scale: the more good companies we get in from the pipe at the bottom, the more we're going to get out at the top end."

Hamilton - who also chaired the Metro Innovation Project - says the report's genesis came more than a year ago when a "group of people passionate about the future of the Auckland region" came together from the public and private sector to tackle the task of improving access to early stage funding for innovative high-growth companies. Five international experts were also consulted.

British research had found that only 4 per cent of start-ups seek external equity finance for growth, yet in 10 years time they would provide about 50 per cent of the employment of those firms remaining. Wider European research showed that high-growth companies make up 3 per cent of all companies in Europe but create 85 per cent of all jobs. These "gazelles" were financed by early-stage investors, with the objective of replacing about a quarter of the top companies that would "die" each year.

The investment culture in NZ is different to overseas in that most early-stage companies attracted angel funding first, and then venture capital came later.

Hamilton: "The reality is that the venture capital model is much challenged internationally and in NZ it's no different. They're struggling to get the returns and the support from the institutional investors, whereas there's a lot of angel money and people with angel money out there."

"It's easier to get angel money for start-ups: the problem though is that a lot of these angel companies will go on and need a lot of capital, which is where VC comes in and why that is actually very important."

NZ Venture Capital Association executive director Colin McKinnon says though there is no shortage of "investable deals," access to capital is the major issue. "There is plenty of capital around, but the problem is getting people across the hurdle to be able to invest in these types of opportunities.

"Are people going to go back to investing in property, are they going to stick it into corporate bonds, or look at other opportunities they've got?

"We're still grappling with the issue that we don't have a lot of sophisticated investors into early stage opportunities," he says.

The NZ VC industry, at just five or six years old, is "embryonic" and at a delicate stage amid the current financial crisis. "That means good angel opportunities will struggle to find follow-on funding from VCs in the NZ market, because they are too young and too small to successfully find offshore investment. It's a real, real problem for this market."

McKinnon says there is potential for angels and VC's to feed off one another so their investment strategies are complementary and ensure an uninterrupted funding pipeline for early-stage companies. "The problem with that is that we just don't have enough VC's to take part in that conversation."

He says there's no "easy answer" to this because at the private equity end of the market, young VC's don't have a sufficiently broad track record to successfully woo institutional investors like the NZ Super Fund and ACC.

ACC is taking a "more sophisticated approach" to investment and has a very low appetite to invest in VCs, which makes institutional investment hard to come by.