Monday 21st March 2016
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Wellington fund manager Movac has secured a cornerstone commitment of up to $20 million from the government-backed New Zealand Venture Investment Fund for its new capital growth fund, which aims to raise between $80 to $100 million from Kiwi investors.
Movac’s previous funds have invested in some well-known and promising local companies such as Trade Me, Green Button, PowerbyProxi, and Aroa Biosurgery.
It’s the second time NZVIF has invested into one of Movac’s funds, having previously invested around $14 million so far of a $16.5 million commitment to the manager's third fund.
The move comes as the 13-year-old NZVIF’s future remains in doubt with the government undertaking a review due to be completed later this year. Any Crown funding exit is likely to be in 2018 or 2019 though out-going chief executive Franceska Banga said the fund is unlikely to become self-sustaining until 2025. The next two to three years are critical for seeing whether it achieves the level of cash returns from exiting mature investments that would allow self-funding, she said.
Since its establishment, NZVIF has invested almost $150 million in 190 companies, alongside private investment of $1.7 billion. It has a $250 million venture capital fund that invests in other venture capital funds on a two-to-one basis with at least $2 of private capital needed to be raised for each taxpayer dollar invested. Its $50 million NZ Seed Co-Investment Fund (SCIF) invests directly into startups on a one-for-one basis.
The government let it transfer $12 million last year from the venture capital fund to SCIF which was close to running out of money to invest and Banga said one of the things it was discussing with government was running the two funds out of “one bucket” in future.
In the meantime, Banga said it was business as usual after the government last July extended the Crown’s $100 million underwrite facility until 2018, and then at a reduced figure of $60 million to 2022 as more returns become available for reinvestment.
The latest Movac investment leaves NZVIF’s venture capital fund with around $40 million of uncommitted capital left to invest.
Movac managing partner Phil McCaw said the Movac Fund 4 will be its biggest to date, at least double the previous one, and should allow investment into eight Kiwi companies.
“With NZVIF’s commitment we are now raising capital from a range of private and institutional investors,” he said. He hopes to launch the fund by July with prospective deals with two local companies already well down the pipeline.
Having NZVIF as a cornerstone investor is crucial to attracting other investors, he said.
“It’s about getting momentum and, to some extent, having someone that has done extensive due diligence on the fund gives a level of confidence to other investors,” McCaw said.
The fourth fund will focus on later stage companies raising growth capital in the post seed and angel investment stages.
“Angel investment is pretty active and is doing a good job of getting the market started but at the $3 million to $10 million level for scaling, is where there is a gap in the market,” McCaw said.
NZVIF has been a catalyst in the early-stage capital markets and Banga said one change the fund is seeking through the review is an ability to provide more follow-on investment, which is currently limited to just half a million dollars, to its start-ups.
SCIF has invested in 123 start-ups since 2005 of which around 10 percent are delivering 90 percent of the value, which is standard for early-stage investing. Banga said the most important on-going role for NZVIF and New Zealand is to continue feeding that pipeline at a time of unprecedented technological disruption worldwide.
“High net worth angel investors putting their money in are very much encouraged by our participation alongside,” she said. “That contributes to the good activity we’re seeing at the front end of the market.”
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