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New investment fund to help high growth SMEs

New investment fund to help high growth SMEs

A new investment programme aimed at small to medium sized businesses with strong potential for high growth, particularly in the technology area, was announced today by Economic Development Minister, Jim Anderton.

The Seed Co-investment Fund (SCIF) will be available for co-investments of up to 50 per cent of an equity investment, where other investor groups will contribute the balance required. Crown investment will be limited to $250,000 in any single proposal by pre-qualified investment partners. The programme will commit up to $40 million capital over five years.

"Many SMEs find it extremely difficult to attract investors because their businesses are smaller than those which usually attract venture capital. The Seed Co-investment Fund will support the further development of early-stage investment markets through this co-investment scheme aimed at the first-round of seed and start-up investment," Jim Anderton said.

The SCIF programme objectives are to: Attract and catalyse investment that would not have occurred without the programme; Develop greater professional capacity in the market for intermediating funds between investors and newer technology-based firms; Enhance networks for early stage investment; Lift the skills of specialists, and numbers of specialists with the skills needed to assess and manage early-stage technology-based investment.

"The New Zealand Venture Investment Fund Ltd (VIF) will manage the Seed Co-investment Fund. They have the necessary skills to complete due diligence, manage ongoing relations and contracts with partners, and provide input on the state of development of the early stage investment market. In addition, VIF has appropriate incentives and governance arrangements to achieve the objectives of the programme while protecting the Crown from unreasonable financial risk," Jim Anderton said.

The New Zealand Venture Investment Fund Limited (VIF) is a Crown Owned Company established under the Companies Act 1993 and incorporated on 1 July 2002. VIF is responsible for implementing the New Zealand Government venture capital programme.

The detail design of the SCIF programme will include consultation with principal participants in the early-stage equity markets. The government and VIF will be engaging interested parties immediately to get the programme underway.

It is anticipated that the SCIF’s initial investments will be committed before July 2006 with the programme ramping up in 2006/07.

The Government has taken significant steps over the last five years to address issues firms face in accessing finance. The programmes target the development of markets that provide equity to new high-growth firms, reduce tax and regulatory barriers to venture capital investment, and aim to reduce the information gap between firms and the investment community.

Recent measures to improve access to finance include: Escalator - provides innovative small businesses that need capital to expand with skills and assistance to pursue investment opportunities; Incubators - provides services that assist businesses to become established and profitable during their start-up phase; Equity Investment Fund - capital for CRIs to support larger-scale commercialisation operations ($16 million of capital); Pre-Seed Accelerator Fund - assists an innovative process or product move from the conceptual stage to the point where it is demonstrably marketable; Taxation of Venture Capital - tax exemption for non-residents on the sale of shares in companies that they have invested into alongside the VIF; Limited Partnerships - introduction of a limited partnership regime to remove barriers to venture capital investment; Securities law - exemption notice regime for capital raising in specific circumstances.

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