Franceska Banga: Support for promising tech start-ups? Capital idea

Franceska Banga. Photo / Supplied

Opinion

The next time somebody says there is always enough money for good companies, I'm going to throw a bucket of cold water over them.

I say this in light of news of the ProvencoCadmus receivership. No doubt its current status is due to a range of factors and we won't ever know the full story. But it also stands as yet another failure of New Zealand's capital markets to adequately support highly promising technology-based companies.

One thing is for sure: it did not fail because of a lack of capability. ProvencoCadmus was backed by some of New Zealand's most highly regarded and capable technology investors - people like Peter Maire, Stephen Tindall, Alan Hubbard, Rick Christie, and the Todd family.

Such experienced business people know what it takes to build high-growth companies. But do we really think we can build world-leading companies relying on the patient support of the same small core of wealthy New Zealanders?

Growing successful technology companies takes considerable time and money. It requires patient investors with deep pockets; investors who understand that profitability will take time to achieve and that their investment will be relatively illiquid.

ProvencoCadmus failed because it lacked the capital it required to continue growing, in challenging market conditions - not because it was a bad company.

In economies with mature and well-developed capital markets, these investments are found in the portfolios of private equity managers, and will be strongly supported by institutional investors. The pools of capital are deep and investors are there for the long haul.

Because our private capital markets lack scale and depth, they are much harder to find. ProvencoCadmus, therefore, took the public markets option. I am not averse to companies listing publicly but different types of capital suit different stages of business development. The public markets can be a tough place for a new company finding its feet and unlikely to turn a profit for some time with the "instant gratification" mentality of many NZ investors.

Monday's Capital Market Development Taskforce's progress report outlined shortcomings in our investment markets, noting particularly that our private capital and markets are underdeveloped. There are a number of tax and regulatory changes which could improve the sector - and the Government is looking at many of these settings - but, fundamentally, it boils down to the need for more capital.

If growth companies like ProvencoCadmus are successful they not only create wealth for investors but they also make a major contribution to our economy and overall prosperity.

* Franceska Banga is a member of the Capital Market Development Taskforce and chief executive of the NZ Venture Investment Fund. She is also chair of the NZ Private Equity and Venture Capital Association.