Dr Wayne Mapp is the Minister of Science, Research and Technology, as well as an Associate Minister of Economic Development and Tertiary Education. The synergy between these portfolios mean that Dr Mapp should be in a good position to encourage the various parts of the innovation sector to work together to spur economic growth.

Dr Mapp spoke at a New Zealand Venture Capital Association and Angel Association gathering last week at NZX, discussing the importance of early-stage investment. He believes that the current innovation system is overly complex, and that simplification will allow the system to “power up” and attain critical mass. He says that science is at the forefront of the government’s growth strategy, and to expect a number of announcements in the coming months in this area.

Key points:

Government priorities for $750m spent on science:

• Primary sector – but it’s hard to get high growth out of the agricultural sector
• CRI’s
  • They need clearer missions
  • CRI funding needs to be more sustainable
  • The CRI’s should have a clearer sense of accountability to the sectors they serve
• Marsden fund – fundamental science
• Health Research Council
• TechNZ – $50m – there is a huge opportunity to upgrade the brand of TechNZ and to make it the principle vehicle of government funding of business in science

A key challenge is to provide a clear architecture of the linkages between TechNZ, NZVIF and NZTE.

The government is commited to making the transformational decisions that will make that $750m [in science] expenditure more effective, easier to access, and more valuable to our country. The ultimate goal is to be able to say that this [NZ] is the place to do business, this is the place of innovation, this is the place of growth for the future.

Listen to or download the audio:

There were a few recurring themes from many of the talks:

• It’s all about people.  When you invest in a company, you’re investing in a combination of ideas, resources, capacity to execute, and people.  Of these, by far the most important is the people.
• Failure is a great teacher. We tend to underrate previous failure as an experience. No one starts a company with the intention of failing, but we should appreciate and seize the learning opportunities presenting by failure.
• The Kiwi Diaspora is ready and willing to help. Kiwis are everywhere, and most of the overseas speakers with Kiwi connections laboured the point that the Kiwi Expat Association (KEA), NZTE and others are generous with their connections and networks.  You’re silly not to use them.

Stephen Tindall was presented with an Archangel Award, recognising his contributions to the angel space.

It was announced that Colin McKinnon has taken on the position of Executive Director of the Angel Association.  Given that he spends the rest of his time as the Executive Director of the NZ Venture Capital and Private Equity association, hopefully he’ll be able to encourage follow-on investment for successful early stage companies.

Some choice quotes from the summit:

Alan McConnon (Upstart Angels)

The rule of Five: It always takes five times longer, five times as much money, and yields one-fifth of the expected rewards.

The five P’s of due diligence: People, Punters, Portion, Profitability, and Plan.

A good idea is only 20-30% of the value of a company.

Sir Eion Edgar (Sinclair Investments Limited)

Never do anything you wouldn’t want to see on the front page of the papers.

My aim in life: To be sure that everyone owes me a favour

Jim Connor (Sand Hill Angels)

If you want a higher valuation, go get some customers

We love cheap penny-pinching entrepreneurs!

Don’t invest in R&D, only invest in execution.

Bridget Liddell (Fahrenheit Ventures)

NZ companies generally have surprisingly weak digital and internet marketing strategies

Large US companies have become incapable of growing, except by acquisition

All up, the summit was useful, although the ratio of angel investors to others was disappointingly low (my guess would be around the 50% mark); it would also be great to have more time to mingle in structured and unstructured settings.  I might respectfully suggest that (for some people, anyway) lunchtime wine tastings are not the best way to get people to focus on key issues.  That said, I’m glad I went and will be looking forward to next year’s summit.

Israel has one of the most successful Venture Capital industries in the world, and the speakers will discuss the Israeli experience in achieving that success.

Speakers

Ami Samuels
Senior Director, Private Equity at Poalim Capital Markets, a wholly owned subsidiary of Bank Hapoalim.

From 2004 to 2006, Mr. Samuels was a Partner at Star Ventures, an international venture capital fund. From 2001 to 2003, he served as Senior Vice President and Chief Financial Officer of Satlynx, a company specializing in two-way satellite broadband services. From 1998 to 2001, he was Vice President for broadband networks at Gilat Satellite Networks, and from 1989 to 1998, he worked as an investment banker at Lehman Brothers. He holds a BA degree from Haifa University and a MA degree in Management from Yale University.

Oren Monhite Yahav
Senior Vice President, Private Equity & Alternative Investments Hapoalim Securities, a wholly owned subsidiary of Bank Hapoalim.

Mr. Monhite Yahav has an impressive private equity and general business background. Prior to joining Hapoalim Securities, Mr. Monhite Yahav was a Vice President of Pacific Corporate Group (PCG), one of the world’s leading private equity investment advisors. At Pacific Corporate Group, he helped manage the relationships with and develops private equity strategies for the most sophisticated public pension plans in the world. While at PCG, Oren headed the Small/Middle US Corporate Finance (Buyouts) and Secondaries investment groups and led the identification, selection and due diligence of private equity investments. Previously, he was an attorney with Weksler, Bregman & Co., where he advised clients on mergers and acquisitions, private equity investments, and securities issues. Mr. Monhite Yahav is Chairman and Co-Founder of Dbursa Capital Ltd. Mr. Monhite Yahav holds an LL.B from the Radziner Law School in Israel. He received his MBA in Finance from the Yale School of Management.

Date and Times
Tuesday 24th March, Auckland from 5.30pm to 7.30pm, and
Thursday 26th March, Wellington from 5.30pm to 7.30pm

Both functions will be held at the offices of Chapman Tripp.

Cost

$25 (including GST) Members of NZVCA or INZ
$40 (including GST) Non-members

For more information, contact Linda Taylor, NZVCA on 09 309 1090 or support@nzvca.co.nz

Um.  Guys, we need more than one hit … otherwise we start looking like the NZ cricket team from the 1980’s – you know, Richard Hadlee and Everyone Else.

The article describes the bind that VC firms are in since the original NZVIF series A funds were fully committed, and the implications of the dearth of local institutional investment.

NZVCA’s Colin McKinnon is right on the money, when he asserts

… the most important ingredient for the future health of the VC industry in New Zealand will be its people.  The industry needs funds managers who will inspire investor confidence through the quality of their investment choices and ability to nurture young companies through to a successful exit from their funds. These managers should be part of a vibrant network that includes capital markets, serial entrepreneurs, serial institutional investors and a financially literate public.

The industry is improving, albeit slowly, but that’s only natural given the level of resources at New Zealand’s disposal.  Our investment ecosystem is developing, both in breadth and depth, as well as connectedness and transparency.  So good on Idealog and its interviewees for being so open about the state of play.

But don’t take it from me, read the full Idealog article …

The workshop is an intensive, practical programme suitable for experienced practitioners involved in private equity, corporate finance and advisory services, lenders of senior, junior debt and entrepreneurs considering buy outs, and will be led by Michael Dance.

The programme will cover the critical aspects of the transaction cycle from structuring the deal to optimise value through to restructuring deals that have gone wrong; topics covered will include structuring the offer effectively, minimising execution risk and value leakage, creating a robust financial structure, negotiating the key commercial terms of the senior, mezzanine and inter-creditor agreements (from a borrower and lender perspective), addressing the critical issues involving the management team. In light of current market outlook the course will also focus on restructuring, including the restructuring route-map, the restructuring options, the position of directors, management and PE firms and lenders and technical issues such as moving cash around the group and inter-jurisdictional issues.

For more information, visit the NZVCA web site, or download the course description.

The book is “… aimed at young, early stage New Zealand companies looking for funding to help them grow, and focuses on attracting ‘rocket fuel’ or angel and venture capital investment.”

Colin says that he hopes the book will prompt prospective investors to approach the venture capital association.  He continues, “Angels are more informal, philanthropic and are more about being involved in a community of common interest. Venture capital is professional, about fund management and about having a good track record so it can attract more people to the fund.”

I can’t say I’ve ever met an angel investor who thought they were being philanthropic by investing!  And we might even eventually forgive the Herald for showing a picture of Colin against a map of the world that excludes New Zealand, worthy of NZEDGE’s now-defunct collection.

I look forward to reading the book once it hits the shops, and will enjoy Colin’s take on the debate on “Why VC’s and Angels Must be Wed Locked” at the upcoming inaugural Angel Association summit.  The love’s gotta flow in both directions, sweetie!

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.

It’s particularly interesting to note that there have only been 15 deals done so far this calendar year, as compared to 27 done in the first half of calendar 2007.

This gives some validation to the assertion that there’s a capital crunch on for startups at the moment.

Young Company Finance is a joint production of NZVCA, NZVIF, and NZTE Escalator.