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Tech-based incubators get two years extra govt funding; new accelerators announced

Thursday 6th October 2016

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The government has extended funding for the three technology incubators for a further two years after a Ministry of Business, Innovation & Employment review of the start-up eco-system.

The three privately-owned technology incubators, Astrolab in Auckland, WNT Ventures in Tauranga, and Powerhouse in Canterbury, were originally expected to stand on their own two feet at the end of a three-year pilot. They were set up in late 2014, modelled on the Israeli incubator system, to commercialise capital intensive intellectual property mainly from universities and Crown Research Institutes.

They were expected to become financially sustainable after three years through returns on exiting early investments but it took longer than expected for some to set up and make investments. The Israeli model allows funding for 8 years.

Powerhouse, which was an existing incubator, last month extended its A$20 million initial public offer on the ASX for a week. Chief executive Stephen Hampson has failed to return calls on whether it has raised its minimum A$10 million and the ASX website says TBA (to be announced) next to the intended listing date.

Callaghan Innovation, the MBIE-funded innovation agency, said funding allocated for all incubators (both technology and founder-focused) shrank to $3.5 million in the 2015/2016 year from $5.6 million the previous year and will be kept at this level for the next two years.

Following the review, MBIE has changed its mind about ending operational funding for the five founder-focused incubators mid-next year unless they changed to a new business model, and has recommended the “hybrid” model of both technology and founder-focused incubators continue.

Stefan Korn, chief executive of Wellington-based incubator CreativeHQ, said MBIE’s review concluded the founder-focused incubators were important because they provide talent.

“Even with the best IP (intellectual property) in the world we need entrepreneurs to execute on that. That’s what the founder-focused incubators produce,” he said.

The government has also announced today three accelerator programmes that will be funded for one year from the $3 million over four years allocated for accelerators in the Innovative New Zealand package announced in the Budget. That matched the existing $750,000 per year funding.

Callaghan Innovation invited tenders for accelerator programmes for one year until funding for all start-up support programmes is decided on in 2017 for the following two years.

Accelerators typically speed up growth of an existing start-up within a set timeframe, working with a group of mentors to build out the business and getting seed investment, while incubators focus more on taking disruptive ideas, getting pre-seed investment, and over time building a business model and company.

Science and Innovation Minister Steve Joyce said accelerators have proven worldwide to create the conditions to get early-stage businesses to the point where they can grow, attract capital, and generate revenue under their own steam.

The three new programmes include two through Creative HQ – the Kiwibank FinTech Accelerator focused on financial technology, and another focused on the energy sector.

CreativeHQ has been running digital-based accelerators under the Lightning Lab brand since 2013 in Auckland, Wellington, and Christchurch. Korn said the brand would continue and he was a strong advocate of industry-focused accelerators.

“We typically look at opportunities globally and what are the investment hotspots and what are the sectors being disrupted and that’s why we chose fintech and energy,” he said.

The three-month financial technology accelerator will launch later this month in partnership with Kiwibank while the energy one is still in the early stages with a crowd-sourcing competition planned to turn up good ideas in the energy sector that could end up in the accelerator.   

The third programme is the Auckland-based Icehouse digital technology accelerator which will offer up to $100,000 of seed investment along with six months of mentoring, global connections and further funding.

Icehouse chief executive Andy Hamilton said after partnering on Lightning Labs in Auckland, it decided to focus on running one that could be more aligned to its own angel and seed investment funds.

“We didn’t want the accelerator to be isolated from our model, but to be part of the model,” he said.

The Icehouse and ICE Angels launched a $10 million seed fund, Tuhua, earlier this year to invest in 25 kiwi start-ups over the next three years.

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