Growing Good Ideas And Making Them WorkMaurice Williamson Research, Science and Technology
The Government will help grow ideas and match them with investors, Minister for Research, Science and Technology Maurice Williamson, and Enterprise and Commerce Minister Max Bradford announced today.
"The Government will increase the New Economy Research Fund (NERF) by $25 million, from $11.25 million to $36.25 million in 2000/2001, through a transfer of existing funds from the Public Good Science Fund," Mr Williamson said.
"The increased contestable NERF funding will be available for research into uncharted areas with the aim of creating ideas that will form tomorrow's businesses. The agency responsible for managing the fund will be announced next month.
"The Government has also agreed in principle to increase the funding of the existing Technology New Zealand Scheme, and to extend its scope to encourage research skilled people to commercialise their ideas into business ventures," Mr Williamson said.
Minister for Crown Research Institutes Simon Upton said the Government, as an owner of CRIs, was a major player in growing ideas and making them work.
"We want to ensure that there is every incentive for CRI research to get to market," he said.
Mr Williamson said the Government would also spend over $2 million a year on a national 'ideas' incubator to ensure ideas left the laboratory and entered the economy.
"In a knowledge economy ideas are our greatest assets. We have to nurture them and ensure that good ideas are not stifled by an inability to raise development funding, or by regulations that act as roadblocks.
"The incubator will provide business expertise to get companies to the point where others can invest in them. It will be a mechanism for testing good ideas, fostering fledgling entrepreneurs and turning embryonic businesses into winners," Mr Williamson said.
Mr Bradford said the design and delivery of the incubator initiative would be finalised by September 30.
"We are also going to make it easier for bright ideas to attract the investment they deserve.
"The Government will help the New Zealand Stock Exchange to design and develop a new capital market that can turn people's innovative ideas into commercial reality.
"This market will organise investors and encourage Kiwis to back innovative ideas and become skilled risk-takers.
"The new capital market will focus on companies seeking between $500,000 and $1 million and will be up and running by April next year," Mr Bradford said.
"We will also reduce the costs to firms of raising capital by amending the Securities Act.
"This will increase fundraising options for small and medium enterprises and make it cheaper and easier for them to raise capital by way of issuing equity securities," Mr Bradford said.
SECURITIES ACT, NEW CAPITAL MARKET AND INCUBATOR PROGRAMME KEY FACTS AND FIGURES
The Securities Act 1979 will be amended, with a view to increasing fundraising options for small and medium size enterprises. Changes to the Securities Act will make it cheaper and easier for SMEs to raise capital by way of issuing equity securities. Changes will include:
- Freeing up the current requirements governing pre-prospectus advertising by enabling intending issuers to determine the level of public interest in a potential offer, before incurring the compliance costs associated with prescribed disclosure under the Securities Act. This would be conditional on any resulting offer of securities being made subject to the disclosure requirements of the Act.
- Providing for an exemption from the mandated disclosure requirements of the Act for offers made only to "wealthy and experienced" investors or to persons who have appropriate knowledge of the particular investment.
- Expanding the current power, in section 5 of the Act, to provide for the Securities Commission to grant exemptions to "persons or classes of persons" by clarifying that, without limiting that power, exemptions may be granted on any of the following grounds:
- By reference to the characteristics of the person to whom the offers are made or who are entitled to subscribe
- According to the manner in which the activity is conducted
- By reference to any conditions or qualifications or restrictions applying to participation in the activity
- By reference to warnings, or acknowledgements or other indications of awareness of risk that might otherwise apply to participants in the activity or to whom the liability might otherwise arise.
New Capital Market
Government will provide financial assistance to the New Zealand Stock Exchange to help design and develop a new capital market for innovative ideas and small and medium enterprises. Support for the New Zealand Stock Exchange to develop a new capital market for small and medium enterprises consists of:
- Contributing $169,000 toward the development of the new capital market;
- Providing expert assistance in the detailed design of the new capital market.
The market should be in operation by April 2000.
- The New Capital Market is aimed at creating a mechanism to raise equity for companies that do not meet the $5 million threshold to list on the NZSE.
- The initiative is focused on companies seeking capital of between $500,000 and $1,000,000.
- Companies that list on the new capital market can either be 'shell' (do not have a product or service) companies established to fund a reputable business individual's future projects or companies that have been created to undertake a specific, already defined venture
- A company wanting to list on the new capital market will have to prepare appropriate disclosure documents
- The NZSE will vet the directors and promoters of the company.
Introduction of a national incubator programme aimed at providing capable individuals and SMEs with skill-based assistance to develop their ideas to the point where others can invest in them.
- The design and delivery of the Incubator initiative will be determined by 30 September 1999.
- A possible programme could operate along similar lines to BIZ where:
- the objectives and types of services required could be specified,
- specialists would be contracted through a contestable process to deliver the programme,
- the programme would be developed through close consultation with specialists and evaluation of the assistance,
- the programme addresses the specific skill issue of commercialising ideas by providing individuals with innovative ideas with a "hands-on" combination of investment facilitation, technological development, risk management and business planning expertise,
- funding of $1.125m in 1999/00 and $2.25m in 2000/01 to deliver the incubator programme,
- the programme will be operational before April 2000.
QUESTIONS AND ANSWERS
Q. How does the Bright Future announcement relate to the Foresight Project and Blueprint for Change?
- The Bright Future initiatives are designed to help New Zealand develop towards a knowledge-based economy. They give more emphasis to ideas developed through the Foresight Project and the policies and procedures issued by Government in the Blueprint for Change in May this year. The Bright Future initiatives will boost the wider science and technology sector by raising awareness in business, government and the public, of the need for a highly skilled science and technology workforce with good commercial ideas.
Practical programmes such as the creation of the New Economy Research Fund, increases in funds available to support Post-Doctoral graduates, business incubators and possible expansions to the Technology New Zealand Scheme will make it easier for researchers and their ideas to help New Zealand prosper.
Q. What is the role of research and development in the emergence of a knowledge economy?
- The new "knowledge economy" is already benefiting countries, businesses and individuals who can create new value through good ideas and their smart commercial application. Successful and expanding businesses are those that are investing in good ideas and capturing the commercial benefits through ongoing research and development. This is good for the future of the New Zealand research, science and technology community as it means new research and employment opportunities, increased community recognition, and potentially better rewards.
Q. What type of things will be funded by NERF?
- This new fund will ensure that some of Government's future research investment is directed to areas likely to produce direct economic benefits for New Zealand in the knowledge economy. The new fund will encourage excellent researchers to work in areas which could form the nucleus of tomorrow's new businesses. Some examples of existing "new economy" research areas are biotechnology, telecommunications, advanced materials and scientific and laboratory equipment.
Q. When will the New Economy Research Fund get started?
- The agency responsible for managing NERF and the detailed terms of reference for the fund will be announced by the end of September 1999. The research-purchasing agency will be charged with immediately investing $5.625 million in new research in 1999/2000, and then managing new and existing research contracts for a total of $36.25 million from 2000/01.
Q. What aspects of the current Technology New Zealand Scheme are likely to be expanded?
- Government will investigate expanding the scope and funding of Technology New Zealand to assist researchers to move their ideas out of the lab and into the economy. This will develop alongside the development of business incubators. Specific details about these initiatives will be considered by Government at the end of September 1999.
Q. How will research that does not have a commercial application - be affected by these initiatives?
- The amount of investment in fundamental research by Government through Vote Education, the Health Research Council and the Marsden Fund will not change. Funds available for health research increased by $2.5 million, and for the Marsden Fund by $1 million in the 1999/2000 budget.
Q. Why are some PGSF funds being used to fund other research science initiatives?
- The shift of funding is consistent with the ideas that emerged during the Foresight Project. Many sectors identified a need for Government to have more of its investment directed towards supporting new ideas that can form the basis of new business for New Zealand. Some of this type of research is already happening through the Public Good Science Fund, and the move to NERF simply emphasises its importance for New Zealand.
Q. Does this mean the Government is reducing its expenditure on commodities research?
- No. Commodities exports remain an important part of New Zealand's economic backbone. However, in recent years they have been declining world market prices for such products. The challenge for New Zealand now is to focus on research that will build on our clear strengths in these commodity industries, and create value in whole new related areas. We need research that means we can manufacture and sell high-fashion wool products rather than bales of raw wool, market health vitamin supplements as well as boxes of apples, and export building technology as well as logs.
Q. How does the Securities Act impose cost on raising capital?
- In an attempt to provide investors with sufficient information to allow them to make informed decisions, the Act requires issuers making offers to the public to produce a variety of information, including the preparation of a prospectus and an investment statement. This becomes proportionately more expensive the smaller the offering. Depending on the circumstances, the prescribed information requirements can be unnecessary for all other purposes, except to satisfy the Act. For example, when the issuer has already identified and approached potential investors who are aware of and have an in-depth knowledge of the proposal, the need to comply with the prescriptive requirements of the Act add unnecessary cost.
Q. What are the benefits of the amendments to the Securities Act?
- Pre Prospectus Advertising. By being able to determine potential public interest in advance, the issuer would be able to judge whether it would be likely that sufficient funds would be raised from the offer to cover fundraising targets and the cost of undertaking the issue itself. This may prompt more SMEs into trying to raise equity.
Exemptions for Specific Classes of Investor. Several classes of investor are considered to be better able to judge the level of information they need to make an investment and therefore, to have a reduced need for the information that is required to be disclosed pursuant to the Act. Not having to meet all the information requirements of the Act would significantly reduce the cost of raising equity capital.
Extension of the Securities Commission's Current Exemption Power. The amendments to extend the Securities Commission's exemption power would allow specific circumstances to be taken into account and relief to be granted from the prescriptive requirements in the Act.
New Capital Market
Q. What is the New Capital Market?
- The New Capital Market is a private initiative from the New Zealand Stock Exchange that attempts to fill a finance gap in the venture capital market in New Zealand.
The New Capital Market has a lower threshold for capital raising than the main stock exchange and will provide an opportunity for entrepreneurs or SMEs to raise equity capital to develop an idea or grow a business. It also provides an opportunity for smaller investors to participate in potentially higher risk higher return investments as well as providing them with a mechanism to exit their investment.
Q. What is Government's Role in the New Capital Market?
- One of our aims is to promote innovation in the capital markets. We are working in partnership with the NZSE to ensure that there are no regulatory barriers that will prevent the New Capital Market from progressing. Because of the potential benefits the New Capital Market will bring to the New Zealand economy the Government is assuming some of the development cost and providing some assistance in the area of expert advice in its development. However, once it is operating, there will be no Government involvement whatsoever.
Q. Why do we need an incubator programme?
- The 5 Steps forums have determined that there is difficulty in accessing seed and start up capital. Research shows that this is often due to individuals with marketable ideas or products lacking the specific skills necessary to package their products to potential investors. These specific skills include investment facilitation, technological development, risk management and business planning.
The incubator programme will provide these skills in the front end of the business establishment phase to get companies to the point where others can invest in the idea or product.
Q. How will the incubator programme work?
- These "incubators" will assist innovative start-up companies to attract investment, and receive specialised help with technological development, risk management and business planning. These skills will assist new knowledge-based companies during their establishment phase to a point where they can attract investment through the proposed new capital market, private equity investment or a range of other financing instruments. Specific details will be considered by Government at the end of September 1999.