Six Venture Capital Funds Ready
midday 15 May 2002
Six Venture Capital Funds Ready to Back Brilliant Kiwi Businesses
Six venture capital fund managers have cleared the most difficult hurdle in their bid to kick start brilliant New Zealand ideas and bring them to market. If all goes well, they should be able to use $100 million in Government money, matching it with $200 million of private investment to commercialise kiwi ingenuity.
The Government’s Venture Investment Fund (VIF) has chosen these six managers in order to enter into negotiations to establish VIF Seed Funds that invest in high potential New Zealand start-up and early stage businesses.
The six - a range of fund managers including those with impressive USA and Asian links, investment experience, high tech and biotech track records - have qualified through a rigorous selection process including tough due diligence by specialist private equity investment advisers Wilshire Australia Pty Ltd. Wilshire have assessed the six fund managers as “investment grade” for institutional investors, based upon their international best practice benchmarks.
The venture capital funds are now entering the final leg to receive Government investment. To do so, they must be able to show they can match every $1 in public money with $2 from the private sector and enter into contracts that have been developed by VIF in line with international industry best practice and VIF objectives.
As final terms are agreed with the prospective fund managers VIF will announce the capital allocation to each fund. Chairman of VIF John Grant says:
“This continues to be a competitive process, as we have more proposals for VIF capital than we have available to invest. It is anticipated that successful applicants will be fully operational within a few months.”
The six - cut down from a list of forty-four since last year - include well known kiwi entrepreneurs and venture capitalists.
- NZ Biotech Fund No. 1 Limited (based in Otago, and focused on agri-biotech innovations, managed by Quest VC Limited, whose directors include entrepreneur Howard Paterson);
- Endeavour I-Cap (associated with Neville Jordan the first New Zealander to list a company on the Nasdaq (MAS Technology) and Dr David Teece, an expatriate kiwi investment leader based in San Francisco);
- IO Fund (a joint venture between Infratil, the listed New Zealand infrastructure investment company, and Orion New Zealand, a South Island electricity network management company);
- iGlobe Treasury Funds (a joint venture between an established Singaporean venture capital company with worldwide high tech investments, and New Zealand based merchant banker Tony Bishop);
- TMT Ventures (a venture capital fund seeded by Telecom New Zealand and managed by Direct Capital and US based private equity investor Advent International);
- No 8 Ventures 2002 Fund (No 8 Ventures is an established venture capital fund manager with strong US links, focused on IT, electronics and biotechnology.)
“The idea behind the Venture Investment Fund,” says Mr Grant, “is exciting and visionary. It’s also a tried and true “fund of funds” approach. Like similar, highly successful funds in Israel, Singapore and Australia, the Venture Investment Fund was established by Government last year to stimulate venture capital in New Zealand focused on the funding of early stage ideas. Seed funding of new businesses with high growth potential is a gap in the market. As in other countries, investment is just not happening at the early seed and start-up stage without the Government.”
The selected venture capital fund managers will independently choose innovative businesses to invest in, without Government involvement, and help pilot those businesses to success.
As overseas, some businesses chosen by each fund will make it, some will not, says Mr. Grant. “The risks are high, but so are the rewards,” he says. “At the beginning of the 80s, the Singaporean Government invested SG$48 million in a similar scheme. The Singaporean VC industry today has cumulatively raised about $10.2 billion of funds. In Australia, Government schemes such as the Innovation Investment Fund (IIF) have also supported venture capital growth. In Australia AUD$3.4 billion has been raised for venture capital investment over the 3 years to June 2001.”
The Minister of Research, Science and Technology the Honourable Pete Hodgson says:
“I’m delighted that six high quality funds have made it to this point following a rigorous process. It’s an outstanding result. Through these funds, we’re one step closer to another Hamilton Jet or Gallagher Fence. They have the capability of identifying commercial opportunities out of New Zealand’s impressive research, these days most likely focused on our experience in biotechnology and agritechnology.
“By bringing kiwi innovation to market, the country will benefit from employment, export growth, and offshore expansion and relationships. As another commentator said recently, this is the engine room of our economy.”
BACKGROUND TO FUNDS AND TO VIF
15 May 2002
What is the Venture Investment Fund?
The Venture Investment Fund [VIF] is an exciting venture capital “fund of funds” initiative set up by the Government of New Zealand. NZ$100 million of Government money is to be matched by $200 million from the private sector, and invested into early stage businesses which are developing brilliant, innovative ideas with high growth potential. The concept is to ensure New Zealand’s best business ideas are brought to market, reaching their full commercial potential and creating export opportunities, offshore relationships, and jobs in New Zealand. VIF has carefully selected private sector venture capital fund managers, after a rigorous process. VIF will then co-invest alongside the private sector (but as the minority investor) into the new venture capital funds, VIF Seed Funds. The new VIF Seed Funds will be capitalised with $1 of public money for every $2 of private investment. The venture capital fund managers will then select and invest in the innovative New Zealand businesses, and provide advice to guide them towards success.
Why was VIF needed?
VIF was needed because good kiwi business ideas find it hard - if not impossible - to get funding for early stage ventures. This means many brilliant new ideas in New Zealand never make it to the market. Good ideas, researched and invested in at our Crown Research Institutes, Universities and other research facilities are often lost. In countries like Australia, Singapore and Israel, venture capital for early stage businesses has been kick-started by the Government, with impressive results. Experience in these countries has shown that capital won’t flow to new ideas unless and until Government support and commitment is available.
The Board of the Venture Investment Fund in New Zealand includes John Grant, known as the “father of venture capital” in Australia. A highly experienced venture capitalist and business person in his own right, John has worked closely with the Australian government in developing the venture capital market there.
[www.nzvif.com for further information]
ALL INFORMATION EMBARGOED UNTIL 12 MIDDAY
15 MAY 2002
FUND PROFILES - BACKGROUNDER
- NZ Biotech Fund No. 1 Limited (Quest VC Limited)
Southlander Howard Paterson and his fellow directors believe there is an “underdeveloped source of wealth in the ideas generated by New Zealand’s life scientists.” This fund, managed by Dunedin’s Quest VC Limited, will focus on commercialising agri-biotech innovations. Howard, NBR’s “New Zealander of the Year”, is one of the country’s top entrepreneurs. He’s invested in a stable of biotech companies including A2 Corporation, BLIS Technologies, Botry-Zen, PharmaZen and CG Surgical. Other Quest VC directors include Dr Max Shepherd, former professor of experimental biology and founder of biotech companies including bioSouth, which specialises in taking science to the market; Dr Cheung-Tak Hung, former senior lecturer and researcher at the University of Otago who, since 1988, has focused on commercialising science innovations; Mike Bennett, a former partner with Russell McVeagh and one of the top biotech patent attorneys in Australasia; David Parker, a former South Island law partner who has played a pivotal role in creating recent biotech start-ups promoted by Howard Paterson; and Stuart McKenzie, a successful engineer and project manager now focused on commercialising NZ inventions.
- Endeavour I-Cap
Endeavour Capital Limited will lead and manage the fund working closely with I-cap Partners Limited, Industrial Research and the University of Waikato. Endeavour was founded by Neville Jordan and Mark Dossor. Neville was the CEO and founder of MAS Techology Limited, a leading edge developer of microwave radio which listed successfully on the NASDAQ in 1997. (It was later merged with a US based company). I-Cap was formed in 2000 by Dr David Teece, a kiwi expat in the US, and NZ based investment bankers Tony Hannon and Nick Lodge as a private equity firm. It has offices in Auckland, San Francisco and Luxembourg. David Teece is the chairman of LECG, a significant global economics consulting business, and is the Mitsubishi Bank Professor of International Business and Finance at the University of California (Berkeley).
- IO Fund
This fund is a joint venture between Infratil, the listed New Zealand infrastructure investment company, and Orion New Zealand, a South Island electricity network management company. The fund will led by Ian McInnes head of IT and Systems Development from Orion New Zealand and Graeme Thomson of HRL Morrison. Orion has already invested in and helped develop some significant and innovative New Zealand companies. With $60 million invested in venture capital in the last decade, Orion has a stake in Pulse Data International (based in Christchurch) which has developed electronic devices for blind and partially sighted people. These devices are now exported throughout the world. Orion also has a stake in Transflux, an innovative fluid heater developed in Christchurch, which is being manufactured and marketed around the world. Last year, Orion also signed a contract with Toshiba International Corporation for distribution of its products to Asia-Pacific and India.
- iGlobe Treasury Funds
This is a joint venture between established Singaporean venture capital company iGlobe partners (headed by Soo Boon Koh) and New Zealand based merchant banker Tony Bishop. IGlobe Partners are a venture fund that operates globally from Singapore, investing in technology driven companies which are able to grow quickly. Its current portfolio includes: 3PAR, a storage system company based in California which simplifies the consolidation and centralisation of information; Excelics Semiconductor, based in California, which provides high performance RF and microwave devices based on advanced material and design.
New Zealand based Tony Bishop, through TMFL (Treasury Merchant Finance Limited) has focused on providing equity and management support of recent years to start up technology companies.
- TMT Ventures
This is one of Australasia’s largest early stage venture programmes. It targets the region’s converging telecommunications, media and technology sectors. Initiated by seed investor Telecom New Zealand, TMT Ventures is a joint venture between Direct Capital Private Equity and US based Advent International. Direct Capital has invested in excess of NZ$130 million since it was established in 1994, and has completed 31 investments, including 15 in the technology sector and six in start-up companies. Notable successes include Genesis, PC Direct and Blue Star. Twenty-eight institutional investors have invested in Direct Capital, including nine from offshore. Direct Capital also manages a $15 million seed and early stage fund for Carter Holt Harvey. Advent International is a leading US venture firm with 17 offices around the world and over US$5 billion under management. TMT Ventures’ key executives include Ross George, a founding director of Direct Capital Private Equity; Gavin Lonergan, Campbell Olsen and Esther Vernon.
- No 8 Ventures - 2002 Fund
No 8 Ventures is an established fund manager with international links, strong private investment, and a focus on IT, electronics and biotechnology. Established in 1999, its first fund of NZ$27 million is fully committed in nine investments. No 8 Ventures seeks to invest in New Zealand technology companies able to grow and list on major exchanges. Director Jenny Morel also founded Morel & Co Ltd, an investment bank that specialises in technology companies. Director Peter Allport is chairman of New Zealand Crop and Food Research Ltd and recently retired as chairman of Tourism New Zealand. Franklin “Pitch” Johnson, who will “mentor” and advise the fund, is a legend of venture capital in Silicon Valley and was founding funder of Amgen, the largest biotech company in the world. No 8 Ventures’ Investment Committee includes Dennis Chapman (founder of Christchurch’s Swichtec); Hugh Fletcher, former Chief Executive of Fletcher Challenge Ltd; Andrew Lark, Vice President of Global Communications and Marketing for Sun Microsystems; and Alastair Scott, an investor in No 8 Ventures who formerly served as Managing Director for Credit Suisse Financial Products and CS First Boston in London and Tokyo.