Incubators are hatching success says Mallard

Trevor Mallard

Economic Development Minister Trevor Mallard says Government investment in business incubators is creating success stories, but he is concerned about New Zealand's capital markets and attitudes towards backing businesses.

Performance figures released yesterday by Mallard show that during the 2006 financial year, 20 out of 34 incubator companies - 59 per cent - had met the criteria to be deemed "high growth".

To reach that status, a company must achieve two of the following during incubation: Double its full-time staff, generate $500,000 in revenue, or raise external capital of $500,000.

The companies must also have the potential to generate revenue of at least $5 million within three years of graduating.

Mallard said he was pleased the Incubator Support Programme had met one of its primary performance measures, which was to get 20 high-growth companies graduating each year by June 30, 2006.

There were also some failures, but that had to be accepted.

"Part of what this is about is having some risk taking," Mallard said.

"If we're going to achieve anywhere near our potential, we're going to have to take some risks with companies - and some of those companies won't work."

Mallard used the release of the incubator figures to express concern at New Zealand's business environment.

"I have a general view that the New Zealand capital markets are not very sophisticated," he said.

"They are conservative, and we don't have a well-developed private equity market in New Zealand - we have a developing one."

Mallard said banks were "much more interested in lending on physical property than they are on intellectual property development".

The Government puts $3.1 million into the incubator programme each year through New Zealand Trade and Enterprise (NZTE).

The programme was established in 2001, and since then a total of $13.55 million has been ploughed into it through a process that sees incubators throughout the country compete for funding. NZTE is currently funding nine incubators nationwide.

Mallard said that the 34 businesses which graduated from incubators in the 2006 financial year raised $8.5 million in capital and tripled their annual revenues. One third of their revenues was from exports.

Government-funded business assistance programmes have been under review in recent months, and Mallard said he still has "some questions" about the co-ordination of the various schemes. In particular he wants a more co-ordinated approach across the various Government agencies involved, including the Tertiary Education Commission.