There will be no transfer of wealth from taxpayers to private investors, if the Crown-owned New Zealand Venture Investment Fund is allowed to reinvent itself, chief executive Richard Dellabarca says.
Dellabarca said there was a gap in the finance market for a venture capital fund with assets of about $300m to $500m that could provide “Series A” funding of the order of $5m to $30m to Kiwi companies.
“If NZVIF is going to do anything, it is going to be in this space, and we have got to think what is the best way to leverage the assets, capital and experience we have,” he said.
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NZVIF was set up by the Labour government in 2002 to jump start the venture capital industry by investing taxpayer-dollars alongside private venture capital funds in cash-hungry young businesses.
A since-scrapped clause let private investors buy-out NZVIF’s investment in their funds on terms that were favourable to the private owners, if their funds did well.
Finance Minister Steven Joyce said last year that he wanted NZVIF to become “self-sustaining”.
Dellabarca said NZVIF had presented “several different models” to ministers which they were now considering, but it was also possible NZVIF could be wound-up.
One venture capitalist suggested NZVIF could “morph” into a private sector fund.
There is also speculation a rule change could allow NZVIF to invest directly in high-growth companies, rather than through venture capital funds.
Dellabarca, a former investment banker, was appointed to head NZVIF last year, amid an expectation he could help bring in external capital.
He ruled out the possibility that private interests might be able to acquire NZVIF’s assets – worth $161 million – on favourable terms as part of any transition to a new commercial model, saying that was “not going to occur”.
“I don’t think anything like the buy-out clause will be used again. The Crown won’t commit to anything where there is not a commercial return to the Crown,” he said.
Dellabarca confirmed that as well as not being willing to put fresh capital into NZVIF, the Government also wanted NZVIF to meet its own running costs of about $2.6m a year.
One reason for the shortage of Series A capital was that Kiwi venture capital funds – including funds in which NZVIF made its early investments – had not achieved a track record of profitability, he said.
That was down to their relative inexperience and “lack of scale”, the Global Financial Crisis, and a previous lack of angel capital which meant there was in the past a shortage of investment-ready young companies, he said.
“If we continue developing sub-scale funds, you are not going to generate the returns which are going to be attractive to investors. We have got to break the cycle … and then you are likely to attract a wider range of institutional, domestic and offshore investors.”
Colin McKinnon, chief executive of the Venture Capital Association, has voiced concerns about NZVIF competing against the private venture capital funds it was originally set up to encourage.
Government-funded organisations overseas had not had not a good track record of picking winners, he said.
Requiring NZVIF to meet its own operational costs would mean it would “cease to provide a contribution to its original policy objectives”, he said.
“Capital from the Venture Investment Fund should be returned to the investors, who are the New Zealand taxpayer.
“If the Government wants to start a new programme funded by taxpayer dollars it should design and fund a new programme. Not allow funds to be siphoned to a new programme,” he said.