Budget 2006: $100m top-up of venture funds over five years based on VIF's performance review

The Government has earmarked another $100 million for high risk but potentially rich investments in fledgling firms that show high growth potential.

The additional funding for the Venture Investment Fund (VIF) announced in the Budget comprises $60 million over the next three years with another $40 million to follow over the following two years after evaluating the fund's performance.

The new funding comes on top of the initial $100 million sunk into the VIF in 2001.

Economic Development Minister Trevor Mallard said the last of that money would be committed to investments by mid year. He said the additional funding underlined the Government's commitment to work with business to develop a high value, export-led economy.

"We need more firms that can successfully compete at the leading edge in offshore markets. Innovation is vital to this, but financing young high growth firms can be a risky business.

"The venture capital market plays a critical role in this process as it helps New Zealand's innovative ideas to be commercialised and also helps to finance firms with good growth potential."

The VIF is intended to accelerate development of the venture-capital industry through investment with private investors. The VIF puts up one-third of the cash and private investors provide the balance.

The new money will go to either existing venture capital projects or new ones. The split will be determined by VIF fund managers according to the quality of the applications.

It is hoped the VIF will facilitate the commercialisation of innovations from Crown Research institutes and universities and aid private firms.

Selwyn Pellett, chief executive of London-listed New Zealand internet security firm Endace, welcomed the new funding and said the Government appeared to be signalling a new economic push.

"You simply can't transform New Zealand into a high-wage, high-tech, high-growth economy without taking risks and it is clear from this Budget that the Government is prepared to take those risks alongside private enterprise."

Canterbury Manufacturers Association chief executive John Whalley too was pleased with the Government's approach and said the VIF had tended to be risk averse in its early stages "as is normal when you get public money being spent".

However, "given the existing money's already been spent, it has to be seen as positive providing that we do have some acceptance of higher risk investments".

Risky business

* The Government has announced an additional $60 million in funding over the next three years for its Venture Investment Fund.

* The VIF is an equity investment project intended to accelerate the development of the venture capital market.

* It invests in young businesses alongside private sector investors through a series of privately managed venture capital funds.