This year’s Budget announced $300m of new Government funding for NZ’s fledging venture capital industry, and Minister Parker wasted no time introducing a Bill to set up a new fund to manage this money.
In this article we will look at what the Bill covers, who it’s likely to benefit, and how it might affect the New Zealand venture capital landscape.
The draft legislation was tabled in Parliament on 22 August.
The highlights are:
The Bill itself largely deals with the mechanics of establishing the new fund, and its management and governance.
The interesting commercial details, like eligibility criteria for VCs and the investment criteria that each successful VC will be required to follow, are left to a policy statement to be issued by the Minister.
MBIE released a draft of the policy statement for targeted industry consultation last week. Industry workshops are scheduled for 12 September and 16 September, with the consultation period closing on 20 September. Email email@example.com for a copy of the consultation document.
This may seem like a tight timeframe, but the Minister is aiming to have the Bill in force by the end of 2019. The intention, it seems, is to have the VCF deploying funding to the first VCs as early as possible in 2020.
The draft policy statement proposes that the VCF:
VCs must match the funding received from the VCF with at least an equal amount of private funding. VCs will need to invest:
We expect the consultation process will refine these details, probably to give VCs a little more flexibility around investment decision making.
However, regardless of the details, we think the large amount funding on offer, coupled with the developing depth and strength of NZ’s tech sector, will make VCF funding highly attractive to NZ’s investment community.
The best-case scenario is that the new fund spurs a wave of professional VC style seed, Series A and B investment activity, as happened in Singapore in response to similar Government programmes. If this happens, this will likely create powerful momentum for the NZ tech sector.
There will be some impact on the current investment landscape:
We expect to see the likes of Movac, GD1, Tuhua and Punakaiki polishing their resumes and IMs. Some of the PE funds with a successful track record of investing in tech, like Pioneer and Pencarrow, might also be thinking about this opportunity.
We also expect overseas fund managers to think about setting up in NZ to take advantage of the new funding and activity this will stimulate. Blackbird have timed their run to perfection with the announcement of Partner Sam Wong setting up a dedicated, Auckland based NZ fund. It won’t just be the Australian VCs that are interested, we are also aware of interest from some niche investors in the US and Southeast Asia.
VCs will want to get their applications into VCF as early as possible, in order to get amongst the current crop of NZ tech companies seeking out Series A and B funding. Equally, we think the VCF will want to start deploying funding as soon as possible, because investment horizons are long. The sooner the money is deployed, the quicker the NZ VC sector will develop and boost NZ tech companies.
As far as the VCs themselves are concerned, we think there are two key elements they will need to address to be successful both in terms of deal flow and investment returns:
We are excited about the VCF and the energy it will bring to the sector in 2020 and beyond.
We will follow the industry consultation process with interest.
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