The government-owned venture capital (VC) operation is hoping to lure more KiwiSaver providers into the sector, according to its latest annual report.
KiwiSaver funds represent 8 per cent of money invested in the local venture ‘ecosystem’ over the 12 months to June 30, the NZ Growth Capital Partners (NZGCP) 2024 report notes.
“While we have seen some increased appetite from KiwiSaver funds, this remains the exception rather than the norm,” NZGCP says. “We believe that there is much opportunity in this area, particularly as the existing vintages mature and their returns are proven to have risen.”
High net worth individuals account for 35 per cent of VC investing in NZ followed by family offices (21 per cent) and fund-of-funds (14 per cent): offshore investors (6 per cent) and iwi (1 per cent) round off the total, figures cited in the report show.
NZGCP was formed out of the ashes of the Venture Investment Fund (VIF) over 2019 to 2020 with a brief to re-energise the local start-up investing scene via two vehicles: the Elevate fund-of-funds – backed by a $300 million commitment from the government, diverting contributions to the NZ Superannuation Fund (which also oversees the operation); and, the Aspire early-stage fund seeded directly with government money.
As at June 30, the Elevate fund was valued at about $163 million (including $161 million of government-contributed capital) while the underlying external managers had invested some $440 million into more than 120 NZ start-ups since inception.
But the NZGCP report highlights a looming capital crunch ahead with the Elevate third-party managers expected to invest primarily into existing portfolio companies rather than new opportunities.
The trends suggests “that the number of new investments they make will fall dramatically over the next 24 months unless they can raise new funds soon or other new and existing funds are established”.
“Although we saw small signs of a more positive outlook in valuations, exits and fundraising towards the very end of FY24, market conditions remain extremely difficult,” the report says.
“High cost of living, elevated interest rates, and slow realisations keep private investors on the sidelines. This is compounded by the lack of local institutional appetite for venture capital.”
Meanwhile, Aspire (essentially a rebranded version of the original core VIF founded in 2002) also plodded through the 2023/24 financial year, reporting a $10 million deficit including investment losses of $6.3 million.
Aspire missed a number of quantitative and qualitative targets such as capital-raised and deal pipelines.
“This year we have seen a decrease in performance against the prior year as well as against targets; this was as a result of broader economic and market conditions that not only impacted Aspire but all venture capital firms within New Zealand too,” the report says. “Some of the decline was also influenced by a pullback in Aspire’s investment activity to preserve our cash runway.”
NZGCP chief, Rob Everett, and chair, Annabel Cotton, note in the report that cashflow in the organisation had been hit by the “lack of portfolio realisations” during the year.
“This in turn affected the cash we have had available to invest and influenced some of our divestment decisions.”
The government-owned investment bureau also kept expenses 9 per cent under budget for the period amid a broader public service cost clampdown with a year-end staff cull to boot.
“… at the very end of the year, we launched a process to reduce our staff numbers and ensure our cost base reflects current and anticipated market conditions to ensure we are operating as efficiently as possible,” the report says. “Such processes are inherently disruptive and can be damaging to staff morale and we want to recognise the admirable professionalism shown by our people but particularly those directly impacted by the process.”
NZGCP reported 21 employees as at June 30 compared to 20 at the same date last year. Total senior staff costs amounted to $1.4 million including $462,025 in CEO remuneration.
Everett joined as NZGCP chief in January 2022 after leaving the top job at the Financial Markets Authority the previous year.