The New Zealand government has established a new NZ$300-million ($198 million) venture capital fund that will support early-stage startups in the country, according to the government’s latest budget proposal.
The new fund will use NZ$240 million ($158.6 million) of contributions earmarked for the New Zealand Superannuation Fund (NZ Super Fund), the country’s sovereign wealth fund, between 2018 and 2022. New Zealand Venture Investment Fund (NZVIF) will contribute NZ$60 million ($39.4 million) to the new fund from its existing assets.
The fund, which will be managed by NZVIF, will be established to help fill the “capital gap” for New Zealand firms that expand beyond the early startup phase,” according to the announcement.
“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,” the budget proposal reads.
Economic Development Minister David Parker said New Zealand needs to have well-functioning early-stage capital markets and a healthy start-up ecosystem to grow the knowledge economy.
“New start-ups are well served but mid-sized ones, between about NZ$2 million and NZ$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,” Parker said.
In a separate statement, NZVIF CEO Richard Dellabarca said the new fund is aimed at attracting private sector investors to the domestic VC market and help innovative, knowledge‐intensive businesses to grow.
“This an exciting time for VC and for New Zealand’s growth businesses. The additional government funding, coupled with private sector investment, will deliver a significant boost in the amount of capital available to help New Zealand’s early-stage companies expand,” Dellabarca said.
The model proposed by the government would involve the Guardians of New Zealand Superannuation, the entity that manages the NZ$42-billion NZ Super Fund, appointing NZVIF to manage a fund‐of‐funds, with NZVIF, in turn, appointing a number of private sector VC fund managers.
These fund managers, which will include both domestic and international investors, will select the companies to invest in.
“The new fund’s purpose is a long‐term one: to address the Series A/B capital gap for New Zealand companies and get New Zealand’s VC markets working efficiently to contribute to the development of a more productive national economy,” Dellabarca added.
He expects the capital to be deployed by the end of the year when legislative changes and governance arrangements are completed.