Govt extends underwrite to start-up investor, NZVIF, to 2022

Monday 13th July 2015

The government is extending its underwrite of the Crown funded start-up investor, New Zealand Venture Investment Fund, through to 2022 and allowing $12 million to be transferred to the investor's cash constrained seed fun, but the level of support will drop from 2018.

The Crown’s $100 million underwrite facility will be extended until 2018 and then reduced to $60 million until 2020, as returns to NZVIF from earlier investments become available for reinvestment. The move, along with a $470,000 increase in operational funding, allows the fund to make co-funding commitments to new venture capital funds and partnerships.

Economic Development Minister Steven Joyce said the NZVIF played an important role in developing the start-up and growth capital markets for New Zealand companies.

“It has been instrumental in building up New Zealand’s angel and venture capital investor markets from small beginnings to the point where private and public venture capital investment since 2003 has reached $1.1 billion. The angel investment formal market has provided a further $353 million since it started in 2006,” he said.

NZVIF chief executive Franceska Banga said the underwrite gives certainty to the market over the availability of the fund’s capital for investment in coming years.

Joyce said the government expects NZVIF to become self-sustaining over time and the extension of the underwrite guarantee gives the fund time to make that adjustment. Banga said that would happen in the next few years as returns from investments grow.

“NZVIF invests $15 to $20 million a year into technology start-ups through these funds and angel groups. For every dollar NZVIF invests, private investors put in almost nine times that, so this decision is very good news for the emerging pipeline of start-up companies,” Banga said.

NZVIF had asked for a government top up of its seed fund, which invests in early stage companies, as it was running out of money to co-invest at the levels it had been with angel groups. The seed fund was set up in 2006 to support the development of formal angel investment.

The government’s response has been to allow $12 million to be transferred to the seed from NZVIF’s $260 million Venture Capital Fund, which invests in start-ups and young growth companies through privately-managed venture capital funds.

Many of the 115 companies the seed fund has invested in are still at an early stage – averaging four years of investment – and it takes on average seven to eight years for returns to come through.

Since its establishment in 2002, NZVIF has invested $147 million, alongside private investors, into 187 of New Zealand’s most promising growth companies including Xero, Orion Health, PowerbyProxi, Vend and Booktrack.

It said in a report last week that it had broken even or made money on 21 percent of its exited investments, which is said was in line with early-stage investment expectations. The fund manager has exited 62 investments to date, of which 13 have broken even or produced a positive net return. Eight returned between 1.0 and 1.99 times the total invested, one was between 2.0 and 3.0 times investment and another four realised more 3.0 times the total invested.

The seed fund has broken even or made money on five exits out of 26 while the Venture Investment Fund has had eight successful exits out of 26.

NZVIF also said 84 percent of the 95 firms in the seed fund and 63 per cent of the 40 companies in the venture fund portfolio are valued at the fund manager’s investment or better.

BusinessDesk.co.nz

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