Up to 30 per cent of the newly-established NZ government Venture Capital Fund (VCF) could be allocated to “foreign” entities, rules included in the just-released policy statement confirm.
Designed to bolster access to capital for promising NZ start-up companies, the $300 million VCF also has a mandate to support the local venture capital scene.
And while the bulk of VCF investments must flow through funds with a NZ “connection”, the concept is broadly defined in the policy statement to include funds with:
- a track record of investing in New Zealand entities;
- collaborating with domestic investors and funds;
- hosting one or more investment committee meetings in New Zealand;
- undertaking capital raising activities in New Zealand and developing a New Zealand investor base;
- having senior investment personnel attend pitch events and/or networking events, recruiting, training; and,
- developing new staff and providing exposure to global best practice.
“The intention of this programme is to use a mix of fund managers including those that have previously operated in New Zealand and know the market well, but also international managers that are able to bring international connectivity, expertise, and new skill sets to the market,” the VCF policy statement says.
“Acknowledging the requirement to further develop the breadth of the skill base in this sector, government may also support one or two new fund managers which show significant potential and/or where they have a strong track record and other required capabilities albeit outside of venture capital fund management.”
However, Lance Wiggs, principal of LWCM (which manages NZ venture capital outfit Punakaiki), said the loose definition ‘NZ connection’ would favour offshore firms over local managers.
Wiggs said while last-minute changes to the VCF legislation adding support for local industry as a goal was positive, the details suggested larger, overseas managers would dominate the ultimate fund-of-funds line-up.
“The added language helps,” he said. “But the way the mandate is written creates a temptation for the VCF to go with the biggest offshore managers. The NZ connection definition is very broad – the local industry always struggled with that.”
Due to start dishing out money in the first half of this year, the VCF will be seeded by $240 million originally destined for the NZ Superannuation Fund (NZS) and $60 million sourced from the NZ Venture Investment Fund (NZVIF).
The NZS takes on governance and administrative roles for the VCF, which will be managed by the NZVIF.
Established in 2002, the government-owned NZVIF (which also runs the related Seed Investment Fund launched in 2006) “succeeded in catalysing the early stage capital markets in New Zealand, which did not exist prior to the programmes”, the VCF policy statement says.
“However, they have not yet enabled the early stage capital markets to be self-sustainable,” the document says.
The VCF is intended to both bridge the gap in early-stage investment for NZ companies and build the local venture capital market.
“In time, more developed venture capital markets, with better resourced and connected fund managers that generate returns appropriate for the sector, should help attract private capital and new investors into this sector,” the policy statement says. “The potential investors in this space may include domestic institutions, KiwiSaver funds, corporates, iwi, private family investments, retail investors, and some offshore investors.”
In a statement, Finance Minister Grant Robertson said the VCF, along with other government policies, would “help weight investment towards the productive sectors, lift economic performance and contribute to building a productive nation”.
Robertson said the VCF must also “take into account the Government’s economic strategy and plan to transition to a low carbon economy”.