Govt puts up $40m for new firms

Gerry Brownlee wants more private investment in venture capital funds. Photo / Mark Mitchell

The Government's new $40 million underwrite for the New Zealand Venture Investment Fund will help fill a capital gap that hinders the progression of some firms beyond their start-up phase, says the fund's chief.

Economic Development Minister Gerry Brownlee, who announced the plan in Auckland last night, said: "The $40 million underwrite underlines the Government's commitment to partnering with the private sector to improve New Zealand's economic performance."

The Government had committed $160 million to New Zealand Venture Investment Fund (NZVIF) before yesterday's announcement.

NZVIF chief executive Franceska Banga said the $40 million underwrite would allow it to make new investment commitments through establishing up to three new venture capital funds.

"This $40 million underwrite commitment will enable NZVIF not only to make new fund commitments, but also enables us to reinvest the returns from our existing funds into new venture capital funds," Banga said.

She said the new funds would focus on investing in early-stage businesses, requiring $2 million to $5 million in capital.

Bill Payne, a United States angel investor who spent five months here this year, delivered a report at the end of his stay that highlighted the capital gap afflicting some early-stage firms in this country.

Kiwi angel groups - wealthy individuals who band together to invest in start-up firms - generally invested between $200,000 and $1 million in individual businesses, Payne said.

Businesses which passed through the start-up stage - around 10 to 15 per cent, he said - then needed to approach venture capital funds to progress further.

But he said few venture capital funds invested in rounds smaller than $4 million, leading to the capital gap. Banga said there had been a rise in angel investment in New Zealand in recent years.

"The most successful of those companies are now developing to the stage where they will require new investment to assist their growth, particularly as they start to look to build a presence in offshore markets," she said. "We hope that new venture capital funds can fill that funding gap for promising new companies."

Andrew Hamilton, chief executive of business incubator The Icehouse, said the funding gap was a reflection of angel investment's success in New Zealand. "In principle [the $40 million underwrite] is very encouraging because this is a clear response to market need," Hamilton said.

Brownlee said he hoped the Government's commitment would encourage more private investment in venture capital funds.

NZVIF's venture capital programme has invested about $75 million through six venture capital fund managers into 48 companies, he said. "Between 2003 and 2009 those 48 companies have earned around $675 million in revenue ... and exhibited strong growth," Brownlee said.