Underwrite to boost new venture capital funds

Minister for Economic Development Gerry Brownlee today announced a $40 million underwrite for the New Zealand Venture Investment Fund's venture capital programme to encourage more private investment into new venture capital funds.

"Increasing the level of innovation in the New Zealand economy is one of the government's key economic drivers," Mr Brownlee said.

"Innovative companies need risk capital from our capital markets to develop and prosper.  We have a developing venture capital sector but building it further requires continued government backing in order to attract more private capital.

"The government's $40 million underwrite of the venture capital programme - to which the government has already committed $160 million - gives NZVIF the flexibility it needs to invest into new private sector venture capital funds.  Those venture capital funds, which will have to raise private capital, will then invest into innovative companies.

"To date, the venture capital programme is having a healthy economic impact.  Between 2003 and 2009, NZVIF's venture capital programme invested around $75 million through six venture capital fund managers into 48 young New Zealand companies.

"That public investment - by the government through NZVIF - has helped to catalyse private investment into those 48 companies, who cumulatively raised total investment capital of $438 million.

"Between 2003 and 2009, those 48 companies have earned around $675 million in revenue - including $564 million from exports - and exhibited high growth.  In the three years to 2009, combined company revenue grew by 56 per cent each year.

"Moreover, this is an investment by the government upon which we expect to see a return."

Mr Brownlee said New Zealand's capital markets need to comprise a healthy venture capital sector.

"The Capital Markets Development Taskforce highlighted the issue of insufficient risk capital hampering the development of innovation-based young companies in its report last year.

"This $40 million underwrite underlines the government's commitment to partnering with the private sector to improve New Zealand's economic performance.  It will generate more private investment into innovative young companies and support the continued development of New Zealand's venture capital industry."

Background

The government has committed $160 million to NZVIF for its venture capital programme.  That $160 million is almost fully committed by NZVIF into six existing and two prospective private venture capital funds.  The $40 million underwrite will enable NZVIF to invest into a number of new funds based on the returns it expects to make on its current investments.  The underwrite enables NZVIF to make new investment commitments up to a total of $200 million; it is highly unlikely that the $40 million will ever be drawn upon.