Venture Capital and its Development in New Zealand

Consulting firm LECG recently released a report on Venture Capital and its Development New Zealand.

The report’s lead author, Harvard Business School Professor of Business Banking Josh Lerner, was interviewed on Radio NZ’s Nine to Noon programme:

Lerner urges government policy makers to focus on creating an environment that is conducive to venture investment, not on direct market intervention, and to be patient – developing a VC market is a long term prospect at the best of times, and “the global financial crisis will have undoubtedly added many years to the process of developing a sustainable venture capital market in New Zealand”.

The report concludes:

Venture capital has the potential to contribute very significantly to New Zealand’s economic growth, and to the level of innovation and efficiency of its young and emerging businesses, as it is an important complement to other aspects of New Zealand’s innovation and growth systems (e.g. to publicly and privately funded R&D, university and CRI research programmes, and so forth).

However, developing a viable venture capital industry is a long term task, and is not easy. It requires prolonged commitment from those involved directly and from policy makers. Over recent years the growth in New Zealand’s venture capital activity is encouraging but modest. The VIF Venture Capital Funds are growing slowly and at this stage their value is just under the amount invested. Few divestments have been made and none of the options to buy out the Crown’s stake in these Funds within the first five years have been exercised (these options have now lapsed for four of the six Funds).

…

In our view the government should maintain a steady and predictable policy with respect to the development of a venture capital market. The global financial crisis will have slowed the ability of the VIF Venture Capital Funds to grow and exit their investee businesses over the medium term. In reality, given that four of them are now more than half way through their 10 year terms and face these added difficulties, these Fund managers may find it challenging to raise further funds without government assistance. This suggests that government support is likely to be necessary for at least the next generation of funds. If this is accepted, it suggests the government should be viewing its involvement in this sector for at least another fifteen years (assuming each generation of fund is about ten years).