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$266m venture capital raised in first half of 2005

Friday, 23 September 2005
News Release

$266 million raised in first half of 2005 by NZ’s venture capital and private equity industry

New Zealand’s venture capital and private equity industry has raised $266 million in new capital for the first half of 2005, well up on the $87 million raised for the same period last year, according the latest New Zealand Venture Capital Monitor results.

However, the results show a measured start to the year in dollars invested - with $27 million invested across 25 deals for the six months ended June 30. This represents a decrease in investment value of 65% or $51 million when compared to the first six months of 2004.

Ernst & Young Director and New Zealand Venture Capital Association (NZVCA) council member Jon Hooper expects strong growth in the second half despite a slow start to the year.

“The significant amount of new capital raised reflects the growing awareness of the investment opportunities which exist in New Zealand. With NZ$741 million notionally available for investment, the outlook for the second half of this year is good – we should see more capital flowing into the market.”

The average deal size over the six month period was just over $1 million compared to $3.23 million last year. More than half the investments by value and 64% by number were seed or early stage venture capital investments, totaling $15.3 million.

NZVCA Executive Director Christopher Twiss says it is encouraging to see the continued trend towards investment in seed and early-stage ventures in New Zealand, when globally there has been a shift towards later stage and follow-on investments.

“The results confirm that the New Zealand market is still developing when compared to overseas markets. It’s also a good endorsement to those associated with the New Zealand Venture Investment Fund,” says Mr Twiss.

“We’re an entrepreneurial and innovative country and despite the recent interest in this sector we still have an under-funded venture capital and private equity industry when compared to other OECD countries.”

In line with global trends, health/biosciences was the leading sector, accounting for 26% of total value and 24% of total deals, followed by the technology and communication sectors.

Mr Hooper says the mood of the market was affected by the unknown election results at the time of the survey, with a mixture of neutral and positive responses.

“Approximately half of the survey respondents have a positive outlook for the year, indicating more opportunities and strong investment activity to come in the second half,” says Mr Hooper.

Important Findings for the NZ Venture Capital Monitor include:

- $266 million in new capital raised in six months to 30 June 2005. This compares to $87 million for the same period last year and is well above the total new capital raised for the 2004 year.

- A significant increase in committed capital for the industry as at 30 June 2005 which has grown to $1.85 billion, NZ$741 million being notionally available for investment, an increase of 18% and 35% respectively;

- 25 deals were reported for the 6 months ended 30 June 2005 with an investment value of approximately $27 million, in dollar terms a significant decrease on this period last year.

- While it has been a measured start to the year in dollars invested, early indications are that the second half of 2005 is expected to show strong growth in investment value.

- One divestment was reported for the period, which realised a reported IRR of approximately 77% over a 30 month period;

- The most active sectors in terms of number of both number of investments and the value of those investments continues to be Health and Biosciences (6 deals), followed by Technology (4) and Communications (4);

- A quiet start to the year for Private Equity houses with investors favouring seed and early expansion investments, which jointly accounted for more than half of total investments for the period.


The New Zealand Venture Capital Monitor is a joint initiative involving Ernst & Young and the NZVCA, surveying New Zealand’s leading venture capital and private equity firms to chart the industry’s growth and development.

The full New Zealand Venture Capital Monitor 1st Half Year Results 2005 report is available for downloading from Ernst & Young’s website and the NZVCA website ( www.ey.com/nz and www.nzvca.co.nz) or by emailing marketing@nz.ey.com

ENDS


BACKGROUND — WHAT IS VENTURE CAPITAL AND PRIVATE EQUITY?

Forms of venture capital and private equity can be categorised according to the stage in the life
cycle of a venture, and these are outlined below:

Seed stage
The Venture is at the idea stage or may be in the process of being organised and needs finance for research and
development. This is usually funded by the entrepreneur's own resources.

Start-up/early stage
The company is in the process of being set up or may have been in business for a short time. Such firms have not yet sold their product commercially and have no track record. Companies seeking investment have completed the product development stage and require funds to initiate commercial manufacturing and sales.

Expansion/development stage
The company is now established and requires capital for further growth and expansion. The company may or may not have made a profit at this stage. This is a period of rapid growth and the company will usually require several rounds of capital injection as it achieves the milestones set in the business plan.


About Ernst & Young
Ernst & Young, a global leader in professional services employs 106,000 people in more than 140 countries. Ernst &Young staff pursue the highest levels of integrity, quality, and professionalism to provide clients with solutions based on financial, transactional, and risk-management knowledge in Ernst &Young's core services of audit, tax, and corporate finance.

Further information about Ernst & Young and its approach to a variety of business issues can be found at www.ey.com/nz.

Ernst & Young refers to all the members of the global Ernst & Young organisation.


About the New Zealand Venture Capital Association
The NZVCA is a not-for-profit industry body committed to developing the venture capital and private equity industry in New Zealand. Its core objectives include the promotion of the industry and the asset class on both a domestic and international basis and working to create a world-class venture capital and private equity environment.

Members include venture capital and private equity investors, financial organisations, professional advisors, academic organisations and government and quasi-government agencies.


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