Venture funds 'need Govt help'

The growth in New Zealand's venture capital market is "encouraging" but the industry will need a further 15 years of Government support to see it become established, a report by a Harvard business expert has found.

Professor Josh Lerner and Auckland economic policy consultant Stuart Shepherd were commissioned to review the industry by the Government's New Zealand Venture Investment Fund (NZVIF).

NZVIF has committed more than $200 million to the industry since it was set up in 2002 by the Labour Government and is presently under review by the Ministry of Economic Development.

Lerner and Shepherd found New Zealand had jumped up the ranks of OECD countries since their last report in 2005 - from 20th to 11th place - with 0.04 per cent of GDP invested in venture capital in 2007.

But they also believed the funds had been detrimentally affected by the financial crisis and would struggle to raise money from the public without ongoing Government support.

"The global financial crisis will have slowed the ability of the VIF Venture Capital funds to grow and exit their investee businesses over the medium term.

"In reality, given that four of them are now more than half way through their 10-year terms and face these added difficulties, fund managers may find it challenging to raise further funds without Government assistance."

Lerner and Shepherd said this support was likely to be needed for at least the next generation of funds.

"If this is accepted, it suggests the Government should be viewing its involvement in this sector for at least another 15 years."

NZVIF chief executive Franceska Banga said the report had been commissioned because it was aware that it was likely to be reviewed by the Government and it wanted to assess the role of Government with the industry.

"We are pretty comfortable with the Government looking at the programme," she said.

The Government did not commit any new money to the NZVIF in the most recent May budget.

But Banga said there were other ways the Government could support the industry, such as allowing reinvestment of any returns made.

She said long-term support of the industry was needed to develop the experience of the managers and to support companies to grow to a sustainable size.