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CRIs not delivering venture capital deals

Wednesday 15th September 2010

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The number of deals put forward from publically funded research is low, yet represents a quarter of all New Zealand Venture Investment Fund punts, according to the Ministry of Economic Development.

In its just released ‘Evaluation of the Venture Investment Fund’, the MED said that VIF, which started in 2004, and has made $74 million of investments alongside New Zealand venture capital firms’ $147 million, is still too young to properly judge its performance. Any exit and payback from the investment in a range of software, biotechnology telecoms, healthcare and other companies is not expected before at least 2014.

The Crown Research Institutes and universities only contributed 127 deals representing 6% of a total of 2,129 deals viewed by VIF over five years. However out of 48 investments jointly made by VIF and private sector institutions, 11 deals representing 23% of the total came from publically funded sources. Nine of those deals were from universities, two from a CRI.

“While there are different drivers between CRIs and universities to commercialise innovations, the lack of incentive is similar,” MED said.

“Neither have a strong profit motive or specific incentives to transfer technology into private sector companies. They also both require continuity of income.”

Anthony Scott, chief executive of CRI-collective industry body Science New Zealand said people should be wary when viewing the number of deals flowing from the institutes.

“There’s a sensitivity there, especially as the instruction from government over the past few years has been to transfer knowledge and technologies to existing companies within New Zealand, and not be involved in the financial risk associated with start ups,” Scott said.

“We should be looking at licences, royalties and the development of patents as a better indicator of the value CRIs are making to the country.”

MED said that compared to international standards, New Zealand’s venture capital industry is still immature, and funds are yet to demonstrate a track record and adequate return on investment. The report said VIF has had a significant impact on the level of venture capital activity, though at this stage little can be said about the quality of the activity.

In its recommendations, MED said that as with other international government venture capital funding options it studied, VIF may be tempted to invest in less-risky later stage companies and technologies.

VIF should refocus on early-stage companies, and also grow the venture capital base and support the establishment of at least two other funds not associated with current fund managers.

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