Bridging the venture capital gap
There is evidence of a gap in domestic capital markets that may be slowing the growth of New Zealand firms – this gap is not being filled by current venture capital. The Government has therefore asked the managers of one of New Zealand's sovereign wealth funds to support its goal to strengthen and deepen this market.
A new $300 million fund will be established to help fill the 'capital gap' for New Zealand firms that expand beyond the early start-up phase.
The $300 million fund will use $240 million of contributions earmarked for the New Zealand Superannuation Fund (NZS Fund) between 2018 and 2022 and $60 million from the New Zealand Venture Investment Fund's (NZVIF) existing assets.
The Guardians of New Zealand Superannuation (Guardians) will apply a best practice commercial approach to support the NZVIF in making venture capital investments to take start-up businesses to the next level.
Economic Development Minister David Parker says this will help transform the economy to be more productive, sustainable and inclusive in a digital age.
"We need to have well-functioning early stage capital markets and a healthy start-up ecosystem to grow the knowledge economy. Our goals include raising the number of start-ups that develop into successful companies.
"New start-ups are well served but mid-sized ones, between about $2 million and $15 million in size, are not well supported.
"Filling that gap will help reduce pressure on companies to sell prematurely to overseas buyers, which happens when you have weak early-stage capital markets.
"The world is in the middle of a technological revolution and we need to chase down as many of these commercial opportunities as possible. We also want to increase the amount of technology that gets commercialised and to lift the level of innovation in New Zealand," David Parker says.
Contributions to the NZS Fund will continue with an additional $9.6 billion forecast to be contributed over the next five years.
The Guardians will provide governance and leverage their investment expertise to maximise the new fund's success. The new fund will be administered by the Guardians, and invested by NZVIF through private sector fund managers.
After 15 years all funds (including the principal and returns and the $60 million from NZVIF) will be returned to the Crown to fund superannuation.