Critics have long lambasted successive governments for their failure to reverse NZ’s woefully poor long-term economic performance.
So Point of Order found something positive to address this in legislation – given a third reading in Parliament last week – that will establish a $300m Venture Capital Fund.
It’s the brainchild of Associate Finance Minister David Parker who in an earlier life in Dunedin had something to do with the establishment of A2 Milk, now one of the top capitalised firms on the NZX.
Parker reckons the fund will play an important role in building a more productive, inclusive and sustainable economy. As he puts it, NZ needs fast-growing businesses operating in a healthy, well-capitalised venture capital market.
Parker contends new start-ups are well served by angel investors with some seed capital support from the government, but mid-sized ones, between about $2m and $20m in size, often struggle to find a source of funding in NZ.
“Developing early stage capital markets will strengthen the pipeline of innovative firms that have the potential to grow from NZ, generating employment, lifting productivity and economic growth and boosting international connections.
“I expect the fund will be leveraged by investments from the private sector, so far more than $300m will flow into the sector. The effect will be to ensure more of our start-ups and are not forced to sell – or forced to sell too soon – because of the capital constraints they face.”
The Fund will begin with $260m of available capital. The remaining $40m will be made available when required and is expected to support the fifth year of the Fund’s investment period.
The Guardians of NZ Superannuation will oversee and monitor performance of the Fund. From early 2020, the NZ Venture Investment Fund (NZVIF), on behalf of the Guardians, will start formally engaging with private sector venture capital fund managers.
In his third reading speech Parker noted how the world is in the midst of a technological revolution which is born of the confluence of affordable computing power, mobile positioning systems, sensors, robotics, big data and the internet of things, artificial intelligence, and a better understanding of genetics.
“We know that the enormity of these changes is such that governments around the world, including in NZ, are having to deal with the challenges that this throws up. I think the estimate from McKinsey is that in the next 20 to 30 years, about 60%t of the jobs in NZ could theoretically be automated, and that, in reality, around 30% will be.
“ The enormity of that change, I think, measures the size of the opportunity, because the flipside of the challenge is the enormous business opportunity that arises from these opportunities to improve the efficiency of existing methods of production or the opportunities to commercialise new products and services that are borne of this revolution”.
New Zealanders may be already familiar with companies like Xero, Datacom and Lanzatech which have been hugely successful in their fields. Others like ERoad, Pushpay, Vista, and Plexure which are also making their mark on the NZX.
Outfits like Rocket Lab and Vend are also at the sharp end of the technological revolution.
Yet too many high-growth, early-stage companies struggle to access capital. Some of them are well-funded, but the conversion rate of early-stage ventures to high-growth companies is lower than international countries with which NZ compares itself.
Helen Clark’s Labour Government held the knowledge wave conference, where there was general agreement that NZ needed to lift the diversity and value of what it offered the rest of the world. Three sectors were identified: creative, biotechnology, and ICT.
The subsequent National Government morphed the biotech more towards food and beverage. Parker says as a result these technology exports are now one of NZ’s highest growing.
National supported the legislation before the House, with its spokesman Andrew Bayly arguing NZ needs a more sustainable venture capital industry.
He told Parliament this Venture Capital Fund is a way of dealing with what people term the valley of death in investment circles.
“You have the seed capital, which is the very first stage; then you have the venture capital; and then you have private equity, before you move on to traditional banking arrangements which help fund and turbocharge our businesses. So this is a way of dealing with that valley of death—that second stage—where people, who are often young people, invest their time and a lot of their money, and often their family’s money, to try and start up these new businesses that in the end, ultimately, sometimes achieve great things”.