This week we present the final interview in our series on political party policies on investment and innovation.
The Hon Bill English, former Leader of the Opposition and current Finance Spokesperson has had a hand in National Party economic polices since the mid-1990’s. His approach to innovation and investment is probably best summed up by his opening and closing sentences in the interview:
National’s approach is to create the best broader environment we can create in which people can make their own decisions
and
The economy succeeds when people demonstrate initiative, determination, and commitment, and get a reward for that. Profit is not a dirty word, it is the engine of growth, it’s the source of jobs and investment … We want to create an environment where … angel investors … can thrive.
He alludes to “lower tax rates, less regulation, and certainty about the regulatory environment” as key ingredients in a healthy business environment.
He says that National will review the government’s activities in the innovation ecosystem over the last nine years. “It’s time to ‘freshen [it] up’ – there are 13 innovation agencies, and that’s an oxymoron. Government can’t create an innovation system – this must be done by people with capital and ideas.”
However given the opportunity to comment on whether Labour government’s approach specifics were “good or bad”, he seemed reluctant to provide specific criticism, other than on the R&D tax credit which he says results in much reclassification.
I had gone into the interview expecting more of a positive vision. That said, I have no doubt that if elected, National will have a good look at the existing innovation system, with a view to simplifying it and improving efficiency in delivery.
The newly-formed Angel Association New Zealand will be holding its inaugural conference on 5 November 2008 at Cable Bay Vineyards on Waiheke Island. The conference theme is “Growing Global Companies through Angel Investment”, and features speakers including Stephen Tindall, Joe Platnick (Pasadena Angels, California), and Prof Tom McKaskill (Bond University – he literally “wrote the book” on Angel Investing).
They report that “investment in the venture capital and the mid-market private equity segments was slightly below historical average levels, both deal volumes and average deal size ratios indicate that, market conditions are challenging but the sector remains fundamentally sound.”
They also note that “the venture capital market is reaching a significant point where a number of managers seeded by the New Zealand Venture Investment Fund in 2002-03 are close to fully invested and are now moving into the divestment phase.” They point out that this divestment phase is taking longer than anyone would have liked, blaming current market conditions. The bad news for angels is that follow-on capital could be tight until the VIF-supported VCs can unload sufficient portfolio to free up some cash.
Franceska Banga provides the following interesting quote: “Current market conditions make for ‘great vintage years’ for those that recognise the stage of the investment cycle that we’re in. As business owners adjust their valuation expectations, the opportunities to invest will become apparent.”
Half of the survey respondents were pessimistic about the outlook for the next 6 months, with the other half split between optimistic and neutral; things are looking better for the next 18 months with 59% being optimistic, 33% neutral and only 8% pessimistic.
In total, NZD 22.9m of VC was invested in 1H 2008.
Boris writes a great blog on the Vancouver startup scene, and has been working to try to increase international cooperation and information sharing to help maximise the chances of success for startups.
Up to $8 million is to be invested into start-up businesses under a partnership between a new Nelson-based angel investment group, Venture Accelerator Ltd, and the New Zealand Venture Investment Fund.
Venture Accelerator Ltd is an angel investment group bringing together a number of highly successful business people now residing in the top of the South Island. Shareholders come from Nelson and Blenheim areas.
NZVIF chief executive Franceska Banga said the partnership with Venture Accelerator increases the capital available for new start-up businesses in the Top of the South Island and throughout New Zealand.
“Venture Accelerator Ltd is a network of private investors investing in early stage businesses. They bring considerable business and entrepreneurial experience, and are looking to be very active in searching for and investing in exciting new companies.
“While the group is Nelson-based, it has close links with angel investor groups in other centres and has already been involved in co-investment projects throughout New Zealand. These groups connect start-up ventures with willing investors to facilitate the funding and success of emerging companies.
“Under the partnership, both Venture Accelerator Ltd and NZVIF will each invest up to $4 million into high-potential companies.”
Venture Accelerator Ltd chief executive Mark Houghton-Brown said the group has a passion for the sustainable development of the regional economy and will focus on innovative companies offering significant & progressive solutions where the investment can add significant value.
“New Zealand is generating wonderful innovation but many prospective start-up companies struggle to get their ideas to market successfully, because of the difficulty in finding willing partners with the contacts and the capability to assist them.
“At the same time individual investors often find it difficult engaging with local entrepreneurs in a satisfactory way because of the lack of infrastructure and support. The opportunities for both sides are considerable.
“Venture Accelerator Ltd comprises highly successful business people from the ‘top of the south’ keen to invest in exciting new ventures. Not only do we bring capital, but we also have considerable skills and experience, in a range of sectors, which will be of benefit to helping young companies grow successfully.”
Venture Accelerator Ltd’s partnership with NZVIF is through NZVIF’s Seed Co-Investment Fund. Through the fund, NZVIF partners with groups like Venture Accelerator to invest in early stage businesses with strong potential for high growth.
Franceska Banga said the Seed Co-Investment Fund is an important product in NZVIF’s investment portfolio.
“This is the ninth partnership we have entered into through the Seed Co-Investment Fund. Through these partnerships, we and our partners have jointly invested over $16 million into 18 companies.”
Angel investors Sparkbox and Stephen Tindall’s investment arm K1W1have launched a new “Start-Up Fund” specifically aimed at ICEHOUSE residents. The Start-Up Fund in conjunction with the Government’s Seed Co-Investment Fund (SCIF) will provide up to $150,000 per project, and will fund up to five projects per year.
The ICEHOUSE CEO Andrew Hamilton says the ICEHOUSE Start-Up Fund will provide early stage funding to enable outstanding start-up entrepreneurs with promising ideas to test them and build a case for the next stage of funding from angel investors.
“This is pre-angel and post friends and family funding. Since 2001, The ICEHOUSE has been the most active facilitator of start-up funding in the New Zealand market but too often the funding is too late and great ideas can fall over.”
Hamilton says the ICEHOUSE Start-Up Fund will help to bridge the gap that most budding entrepreneurs must survive in the transition from self-funding their business to external investors, who typically wish to invest in proven business concepts.
“The ICEHOUSE Start-Up Fund will enable people with good ideas to much more quickly determine whether they have a viable concept and, secondly, can they turn it into a business.”
The two partners in the Fund, Sparkbox and Stephen Tindall’s K1W1, are joined by the New Zealand Venture Investment Fund’s Seed Co-Investment Fund (“SCIF”), which will match the investments made. This will enable Kiwi entrepreneurs to get up to $150,000 in funding per project. It is expected that the Fund will fund up to 5 projects a year.
Sparkbox’s Greg Sitters said: “We like what’s going on at The ICEHOUSE. It is clearly New Zealand’s most successful business growth group and its incubator, which accelerates start-ups, is something we have been keen to get alongside for some time. Since the establishment of the angel investment market in New Zealand, led by ICEHOUSE affiliate ICE Angels, we have noticed there is now a gap in the market ‘pre-angel’ and this Fund with K1W1 fits nicely.
“We are targeting new residents of the ICE Accelerator, the ICEHOUSE’s incubator, who often are needing up to $150,000 to prove market size, market interest and to protect intellectual property (IP). If collectively we do our job well, the result should be an increase in the number of ICE Accelerator residents, investable New Zealand companies and successful founders.”
Andrew Duff of Sparkbox, said “The ICEHOUSE Start-Up Fund is an important development which allows Sparkbox, K1W1 and NZVIF to work closely alongside the ICEHOUSE team in order to assist the founders with their ideas, prove markets, protect IP and deliver investible companies to Angel funders.”
Andrew Sharp, General Manager and co-founder of the ICEHOUSE graduate Black Hawk, which is involved in vehicle tracking solutions, says his company would be years ahead of where it is now had the Fund been in place when he was getting the company off the ground in 2005.
“This is brilliant,” says Sharp. “It’s almost impossible to overstate how tough it is to get a start-up company with big ambitions off the ground. I’m sure the ICEHOUSE Start-Up Fund will really help to reduce the failure of promising start-ups that simply can’t fund the development of their ideas.”
About The ICEHOUSE
The ICEHOUSE is a business growth centre focused on making a difference for New Zealand.
It is a charitable trust founded by the University of Auckland Business School partnering with BNZ, Boston Consulting Group, Ernst Young, HP, Microsoft, Minter Ellison Rudd Watts & Telecom/Gen-i.
The founders wanted to help more New Zealand companies to succeed here and internationally. They understood that these success stories would have a significant and long-term impact on New Zealand’s prosperity which is critical to our future.
Since 2001, The ICEHOUSE has worked with 65 start-ups and just under 1,500 established businesses. Its guidance and mentoring has allowed businesses to raise close to $35m for start-ups, while established businesses are growing earnings on average by 31% p.a.
The NZ Herald has run some good articles on high-growth investment in the last week.
NZ’s Angel Industry Flourishes describes NZVIF’s quest to increase the pool of angel investors in NZ. Franceska Banga: “Finding 1000 angels is about deepening the number of angels that are active, and in particular drawing them into formalised networks, as well as encouraging new investors. There are some big pools of cash sitting around New Zealand looking for a home.”
Nothing Ventured begins (perhaps unfairly) with Jenny Morel describing the current state of the VC industry in NZ as “dire” citing the lack of institutional investors; K1W1’s Brian Mayo-Smith chimes in that the $150M they’ve invested is “a bit of a drop in the bucket” compared with what’s needed. Banga again: “The message from the Australian market to our institutions is: ‘Just get started. Stop mucking around and just start.’ Because until they actually bite the bullet and get engaged, they won’t know what they don’t know. It’s just conservatism at the moment.”
Who’s Who in the NZ VC Industry provides profiles of some of the key players. I was left scratching my head though at the journo Karyn Scherer’s opening line that “the purpose of venture capital funds is to give large loans to tiny businesses” … I think Karyn needs to do a little more research into the difference between debt and equity finance.
Computerworld also ran an article last week, Start-ups warned of VC funding pitfalls. Tony Crewdson, the former director of the INCIS project, suggests that entrepreneurs avoid external funding altogether as it “can distract you from your business, and it can also make you create a business you didn’t want.” Unfortunately for those individualists out there, in my experience, most great ideas require more capital to get off the ground than can be funded by organic cash flow. My unsolicited advice to budding entrepreneurs: If you’re planning on building a wildly successful business, you are almost certainly going to require external funding to get offshore. Sure, go in with your eyes open, but start seeking investment well before you need it.