24 May 2001

$100 million seed capital to back NZ's innovators

The Government is backing New Zealand's innovators with a $100 million seed capital investment fund.

The New Zealand Venture Investment Fund is being launched to finance business start-ups, in partnership with private sector venture capital.

"This is a bold initiative to accelerate the development of New Zealand's venture capital sector, which is vital to the formation of innovative new businesses," said Research, Science and Technology Minister Pete Hodgson.

"New businesses based on technology and on high value-added products and services will be a key part of New Zealand's economic transformation. They will need seed capital, but that end of the venture capital market is presently under-developed.

"In partnership with private venture capital, the NZ Venture Investment Fund will invest in a number of 'drop-down' funds focussed on seed and start-up investments in New Zealand businesses. The parent fund will be a minority investor in the drop-down funds, which will be managed by private-sector fund managers. They will typically be about $30-50 million in size.

"Our aim is to increase the level of seed and start-up investment activity in the New Zealand venture capital market, following a strategy used successfully by countries such as Israel and Singapore. Besides increasing the supply of capital we want to accelerate the development of a larger pool of business people with the necessary skills and expertise."

Mr Hodgson said the establishment of the NZ Venture Investment Fund would facilitate the commercialisation of innovations from Crown Research Institutes and universities as well as the private sector.
"New Zealanders are bursting with bright ideas with great business potential. But we are not turning enough of these ideas and innovations into new businesses. Accelerating the development of the venture capital market is an initiative that meshes with the Government's other policies – in economic development, education, science – to strengthen our innovation system."
Mr Hodgson said the Government's involvement in the venture capital market through the NZ Venture Investment Fund would be short-term. The initiative had been carefully designed, in close consultation with the venture capital sector, to accelerate the closure of a market gap.

"This is a one-off injection of capital. The NZ Venture Investment Fund will have a clear exit strategy for all its investments, so the Government will gradually withdraw from the market.

"When New Zealand's seed capital market is humming, when Government involvement is no longer needed, we'll be out. We anticipate investing over the next year or three in drop-down funds that will typically operate for 7-10 years."

Mr Hodgson said the risk involved in early-stage capital investment meant some investments would inevitably fail, but expert fund management would balance that with successes. One of the operating principles for the fund would be that, at minimum, the Crown would recover its capital plus an amount equivalent to the cost of borrowing that capital over the lifetime of the fund.

A Government-appointed board of private sector venture capital experts will oversee the establishment of the fund. Mr Hodgson said further details of the fund's operation would be announced shortly.

"Meanwhile the Government has again increased its direct investment in research through Vote Research, Science and Technology, with new funding of $11.6 million," Mr Hodgson said.

"This includes an extra $2.3 million for the New Economy Research Fund, which supports cutting-edge research with commercial prospects, and a $2 million increase for the Marsden Fund, which supports excellent 'blue skies' or basic research. There is $5 million to move health research to a fully-funded basis and $1 million more for environmental research.

"The Government understands that funding for basic research underpins New Zealand's innovation system as a whole. While the seed capital fund will improve the commercialisation of ideas, continued support for basic research will keep the ideas flowing."

ENDS

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