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Venture capitalists reject claim govt fund sidelined industry


Wednesday 25th September 2002

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Leading venture capitalists are rejecting suggestions the industry virtually ground to a halt while they competed for their slice of a $100 million government seed fund.

An article in this month's Unlimited magazine claims the Venture Investment Fund (VIF), which aims to help innovations at an early phase, kept the venture capital industry virtually sidelined for a year .

But that was rejected by two of the industry's major players.

Jenny Morel of No 8 Ventures said that although there were very few venture capital deals were done this year, that was "nothing new".

"New Zealand's never had venture deals done. We had a very brief period in the tech boom where we had a couple of listed VC (venture capital) companies and a couple of private operators going but there has never been much VC in New Zealand."

No 8 Ventures was one of five selected VIF fund managers, along with TMT Ventures, managed by Direct Capital.

Direct Capital's managing director Ross George said that among the big players there was no investment slowdown during the VIF process which was in his opinion took no longer than normal for an institutional fund-raising process.

"We've been investing aggressively over the last two years," he told NZPA.

But he said it was untrue there was no venture capital culture in New Zealand before VIF.

"There was a very, very big venture capital market in New Zealand beforehand but venture capital is not generally public. But the VIF is a very, very welcome addition to it...and frankly a very well timed one, because commercial funding is sort of drying up now."

One factor expected to make raising venture capital difficult for new fund managers is the "tech wreck" of April 2001 which largely scared away many public investors.

The collapse in tech stock values internationally saw New Zealand companies like IT Capital and Advantage either fail to get far off the ground or lose most of their value.

Another hurdle, in Jenny Morel's view, was the short-term mentality of the New Zealand investor.

"A venture capital fund by its nature will give you negative returns at the beginning and it's very back-end loaded.

"We live in a market with no history of venture capital. Our institutional investors don't invest in venture capital. The big fund managers, the pension funds, don't invest...And even amongst wealthy private individuals in New Zealand we have a sort of DIY approach to investment."

Each of the fund managers is required to raise $2 for every $1 that the Government invests, bringing the total fund to $300 million.

Science Minister Pete Hodgson is hopeful that some of the Government's money will make it into the market by the end of the year.

In a speech to a trade awards last night, Mr Hodgson said the VIF was the process of signing final contracts with the five successful fund managers "which could see money flowing into new investments by next month".

The Government plans to exit the fund in six years, selling down its stakes for no more than the cost of capital.

"The exit conditions have been carefully designed to ensure that our private sector partners have the incentive to buy us out sooner rather than later," he said.

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