Elevate NZ Venture Capital Fund is open for business
Elevate Venture Capital Fund Launch event: Wednesday 4 March, 2020.
Hon David Parker Associate Minister of Finance
It is a pleasure to be here tonight at the launch of our new venture capital fund Elevate New Zealand.
I know my colleagues Minister Robertson and Minister Twyford wanted to join us tonight, but had to stay in Wellington.
I think we should acknowledge from the outset that we are making this announcement against the background of uncertain times; for the rules-based international trading system but also – more recently - the international health crisis of coronavirus and its rapidly-evolving impact on trade, growth and the global economy.
Our response to coronavirus is led by our responsibility to protect the health and wellbeing of our people. That is why our first priority will always be a public health response.
But we also must respond to the economic consequences.
We are in a strong position to stand up to the economic impacts of coronavirus, with unemployment down to 4 per cent, low public debt (down to 19.5% of GDP from 22.5% when we took office) a surplus in the first seven months of the fiscal year, an extensive programme of infrastructure in the pipeline and stronger economic growth than the countries we usually compare ourselves to.
The independent Reserve Bank has room to move on monetary policy – more than many of its counterparts -- and the so-called “automatic stabilisers” will play their part. They include the increased government spending on social support, which in hard times like these helps hold up consumer demand. A floating exchange rate also aids adjustment.
The virus is having an impact and while the ultimate extent of that is, of course, unclear we know it will be significant in the short term.
Only yesterday we learned that it may have cost as much as $300m in lost exports to China last month and we know it is also having a significant impact on tourism, our log exports and other businesses.
That is why we are assessing and preparing for three scenarios. They are not predictions.
The World was already coming to the end of an expansionary cycle, and COVID-19 was perhaps a trigger for the international economy, as well as a cause.
While New Zealand now has the additional challenge caused by the substantial effects of COVID-19, the underlying objectives of improving productivity, diversifying the mix of our export goods and services and improving market access remain.
That is why it is important to maintain the momentum of our efforts to diversify and expand our export markets while showing support for the rules-based order, which is so important to all countries – but especially smaller economies like ours.
So far this year I have visited London, Switzerland, Fiji, the United Arab Emirates and, just last week, India after trips to Korea and China late last year, for trade talks with a range of economies, promoting the interests of our exporters and the workers who rely on them.
As a Government, we have tried to weight the economy to productive investment through extension of the bright line test on residential property from two to five years, and also through the tax system via a 15 per cent R&D tax credit, which will be extended to pre-profit companies from April 1st. We are making productivity enhancement investments via the Provisional Growth Fund, the Green Investment Fund, and our record additional $12 billion investment in infrastructure – of which $8bn has been committed so far; looks like its counter cyclical timing will be damn near perfect.
Measures that’s we’re taking in response to COVID-19 to date include:
- Expanding the Regional Business Partner programme by investing $4m to help regional partners to support local businesses.
- Bolstering MSD support with the set-up of Rapid Response Teams. These teams will hone in on the regions most affected by COVID-19 – with an initial focus on the most heavily affected workers, which are in the forestry sector across East Coast, Northland, Taranaki, and Bay of Plenty regions.
- Last night we convened a meeting of Business NZ, the Council of Trade Unions, and business representatives from affected industries to discuss the ongoing economic response to coronavirus.
- Common sense changes by Fisheries for our rock lobster industry, allowing release back into the wild to mitigate the impact of cancelled orders from China. Consultation has just closed on possible rock lobster quota carry-over and Cabinet is working through advice on this.
- $11m tourism package for marketing and support for the most affected areas.
- Ministry of Primary Industries is directly assisting affected exporters and also holding regular sessions with industry groups.
We are well aligned with Stephen Toplis’ comments today in regards to what he believes the Government should be doing:
- Educate folk about the impending risks
- Focus aggressively on bolstering resources going to the health sector
- Provide short term assistance to businesses with cash flow difficulties by such means as ensuring government payments to suppliers are timely and offering selective tax holidays
- Ensure that folk who lose their jobs, or who can’t attend work for an extended period of time, have access to benefits they are entitled to in a timely fashion
- Ensure that the infrastructure of government is maintained.
Moving to the announcement we are making today.
We are in the midst of a technological revolution with the confluence of global economic developments including the advent of rapidly rising computer power, automatic sensors, robotics, big data, artificial intelligence, the internet of things, and genetics.
These innovations usually have global application, and will often threaten existing businesses or ways of doing things. New firms and technologies can drive societal change at pace, which we sometimes don’t expect, but the potential upsides born out of this “revolution” are exponential.
As Government we would like to maximise New Zealand’s share of these new market opportunities before they are exploited internationally and we experience the law of diminishing returns.
There are huge opportunities for New Zealand to harness innovation and to develop the talent and technologies that will create a productive economy – generating economic and also social and environmental benefits.
A focus for the Government has been on the future of work – and enabling all New Zealanders to benefit from new technologies and lifting our productivity through innovation.
Fostering innovation by investing in high growth tech savvy firms creates employment and gives New Zealand a competitive edge in global markets. Ultimately, this raises the country’s productivity and leads to economic growth.
To be more productive, sustainable, and inclusive we need to develop new points of comparative advantage, and if we want to develop these new sectors and encourage them to grow, we need to invest in them. Tonight is the realisation of the commitment we made to help bridge the venture capital gap with the $300 million that we announced in last year’s budget.
This will increase the commercialisation of technology in New Zealand and lift the level of innovation and productivity across the country.
But we also know that the commercialisation of science and the introduction of disruptive innovation and technology tend to require entrepreneurial skills and a business environment that supports these new firms.
We have a growing start-up culture:
Companies like MARS Bioimaging, who have developed a world-leading colour x-ray which produces clearer and more accurate images that will help doctors give more precise diagnosis all over the world.
Or Hamilton agri-tech firm - Innovative Dairy Systems who have developed a machine with the capacity to produce up to eight tonnes of cheese per hour.
Or Biolumic – the Palmerston North start-up whose UV technology is now helping to improve crop yields across North America and Europe.
However, many of our high-growth early-stage New Zealand entities have historically struggled to access the capital or connections that they need to innovate and expand.
Many are forced to delay growth ambitions or seek capital offshore where venture capital funding is significantly more advanced and large pools of capital are available. This has often led to an increased risk of earlier-than-necessary sell off of New Zealand innovation to offshore interests, with the potential gains to investors and New Zealand being reaped overseas, rather than being recycled back into New Zealand and the next generation of emerging high growth companies. This was especially true in 2009 after the Global Financial Crisis hit. We don’t yet know what the liquidity effects of COVID-19 will be, but the importance of this contribution to venture capital markets may heighten.
New Zealand has on average 300 – 500 start-up firms entering what we call the Series A and B investment pipeline. The challenge for these firms is getting the level of funding to scale up and grow. Assuming natural attrition and failure rates we should expect to see around 40 of these firms securing Series A or B investment. In reality only half that number secured investment deals in 2018.
Over recent years, New Zealand has been averaging around one technology company with a market valuation of a billion dollars-plus a year, with the likes of Xero, Lanzatech and Rocket Lab. Whilst most won’t be this big, as more capital becomes available we want to see more and more of these new companies emerging, with the resulting positive benefits on New Zealand’s productivity and economic performance.
By establishing Elevate New Zealand we are not only supporting New Zealand’s most innovative firms that are looking for investment now, we are stimulating capital available to invest in young techy savvy firms in the future.
By leveraging the existing market credibility of the NZ Growth Capital Partners (NZVIF new name) and the expertise and skills residing in the Guardians of the NZ Super Fund, we are sending a signal to private market investors and institutions that this fund is set up for success. Initially, that success is to increase the venture capital available to high growth entities but ultimately is to develop New Zealand’s venture capital markets to function with less government support.
Stimulating New Zealand’s capital markets overall will lift economic performance and contribute to building a productive nation. We are not trying to stop companies selling down overseas. There are many good reasons for doing so. We just don’t want that to be driven by the inadequacy of the NZ market.
I must also reflect on the process that got us here tonight. Specifically, I must acknowledge the public submissions on the Venture Capital Act and the separate market consultation on the Policy Statement as this work was invaluable in improving the bill and now fund. Thank you for being part of this.
We worked hard to listen to the market, as well as the Guardians and NZ Growth Capital Partners (NZVIF) – as experts in the field. I’m pleased to say that our engagement with the market showed widespread support for this initiative, a fund of funds model, which is a testament to everyone here.
Lifting productivity and transitioning our economy is an important part of the Government’s overall economic strategy. Disruptive technologies that shift our economy away from emission-dependant sectors, or that offer innovative ways to use resources less intensely, will be fundamental to a sustainable future. This is another of the pillars of the September 2019 economic plan realised by the Minister of Finance, Grant Robertson.
I expect the next wave of sustainable technologies to be supported to commercialisation by venture capital markets. This capital is increasingly raised from New Zealand investors, resulting in a sustainable New Zealand market.
Before I finish I want to thank so many people for getting us here today:
- Matt Whineray, Catherine Savage, and their Guardian’s team
- Richard Dellabarca, Murray Gribben, and the NZVIF (now NZ Growth Capital Partners) team
- Landon McMillan and his team at MBIE and Joe Sant and his team at Treasury for the policy side
- The Prime Minister’s Business Advisory Council, and Peter Beck in particular
And lastly, to everyone in the room tonight. The whole of industry support and feedback is what got us here tonight.
I think we all share the same aim; to improve the standard of living of new Zealanders, through supporting thriving capital markets in New Zealand that are comparable to global counterparts.
Thank you for working with us as we work to realise this vision.