Business ideas win dollar backing

By KARYN SCHERER

Dozens of fledgling businesses are expected to benefit from the Government's decision to put its money where its mouth is by setting up its own venture capital fund.

As revealed by the Business Herald in February, the Government plans to set up a $100 million fund to encourage clever business ideas - by taking $50 million from Crown Research Institute profits and another $50 million from state-owned enterprises.

The New Zealand Venture Investment Fund will be modelled on similar initiatives in Israel and Singapore, with the aim being to invest in smaller funds of about $30 million to $50 million.

It is expected to be wound up in about a decade and although it will be managed by private-sector fund managers, it will also help to develop projects being hatched in research institutes and universities.

While reactions to the fund from the bodies expected to provide the money have been mixed, many of those involved in the venture capital industry welcomed the move yesterday, saying there was an urgent need for more money.

Morel Ventures director Jenny Morel, whose No 8 Venture Fund is one of New Zealand's most high-profile early investors, said the fund had the potential to be "fantastic."

However, she warned that the biggest problem it might face was finding people with enough expertise to oversee it.

Ms Morel said she was also concerned that the fund was focusing on good ideas rather than companies with proven plans.

"I hope the Government definition of 'seed' and 'start-up' will flow over into that early-stage expansion. Otherwise I think we'll have a curious situation of a huge amount of funding for very early stage stuff, then falling into a hole."

Virtual Spectator chairman Lindsay Fergusson described the initiative as a step in the right direction.

The fledgling company, which specialises in animated graphics for international sporting events, has become a poster child of the new generation of locally based global businesses.

It was forced to go overseas for funding, and Mr Fergusson conceded that overseas investors were a lot more cautious after the collapse of many technology-based companies. It remained to be seen how much support there would be from the private sector, and the influence of red tape. Another high-profile investor, Warehouse founder Stephen Tindall, said he believed the fund was "absolutely necessary."

"If you compare the amount of money that's being spent on this as opposed to the amount of money that's been spent on arts and people's banks and things, it's not a lot of money."

Mr Tindall, who is a member of the Government's Science and Innovation Advisory Council, said he was convinced the Israeli experience showed the risk to the Government was not unacceptably high.

" ... Provided you set it up so there's a lot of upside for private investors, the Government will get its money back plus interest," he said.

The director of Unitec's centre for innovation and entrepreneurship, Dr Howard Frederick, hailed the Budget as "a watershed in the transformation of New Zealand from a pastoral-based to a value-added, export-driven economy."

He described it as an "entrepreneur's Budget." Other initiatives, such as the $2 million to encourage business incubators and regional development, while small, would have a multiplier effect.

www.nzherald.co.nz/budget

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