The New Zealand Venture Investment Fund is likely to invest into a number of new venture capital funds, following the government’s announcement of a new $40 million underwrite commitment to NZVIF’s venture capital programme.
NZVIF chief executive Franceska Banga said the $40 million underwrite commitment will enable NZVIF to make new investment commitments to another two, or possibly three, venture capital funds, up to a total of $200 million of investment commitments.
“The government has already committed $160 million to our venture capital programme, and this capital is close to fully committed with six existing venture capital funds and two new funds in the pipeline.
“This $40 million underwrite commitment will enable NZVIF not only to make new fund commitments, but also enables us to reinvest the returns from our existing funds into new venture capital funds.
“It is a timely announcement. We have seen a significant rise in the level of angel investment into start-ups over the past few years. The most successful of those companies are now developing to the stage where they will require new investment to assist their growth, particularly as they start to look build presence in offshore markets. We hope that new venture capital funds can fill that funding gap for promising new companies. Then the companies can stay in New Zealand for longer, and local investors can reap a greater share of their success.
“NZVIF will now consider the best option for committing to new private sector venture capital funds. We expect to make an announcement within the next few weeks on our preferred pathway forward.”
The inimitable Bill Payne has written his final report to NZVIF and The ICEHOUSE on his findings about the entrepreneurial landscape in New Zealand, based on his six-month tenure on our shores, and it makes very interesting reading.
The good news:
Kiwi entrepreneurs and their ventures are on par with their US counterparts in terms of quality
The angel investment scene in NZ is very active and developing rapidly
Incubators are starting to show promising in commercialising laboratory-based innovation
The NZ Government’s commitment to start-up business is laudable.
The bad news:
Like their overseas counterparts, NZ entrepreneurs lack sufficient understanding of marketing, sales channels, capital source, governance, and competitive analysis
Too much incubator support of angel groups has led to “spoiled angels” who are not engaged enough in the entire deal-flow process or mentoring portfolio companies
The Valley of Death between $2m-$5m dollars looms larger than ever given the global financial climate
Current tax regimes discourage investment for trade sale exits.
Key suggestions:
Entrepreneurs should get a footing in local markets before attempting to sell offshore
Companies wanting to get funding should stop writing Investment Memoranda (IMs) and focus on succinct business plans instead
Angel groups should seek to more fully engage their members in all aspects of investment and post-investment activities, rather than relying on external sources
Angels should upskill themselves through better education programmes
NZVIF should not focus on creating more large conventional VC ($100m+) funds, but instead focus on creating 2-5 new smaller ($60-80m) funds
Companies that need more than $5m investment should become successful offshore, and then raise that investment in their target markets
Tax rules should be modified to clarify the tax ramifications of share options, as well as to better facilitate and encourage angel investment.
In all, the report provides a great, informed snapshot of where we are as a sector, as well as providing valuable food for thought for where we go from here.
If you are involved with an angel investment network or fund, the New Zealand Venture Investment Fund Limited would be interested to talk with you about a co-investment relationship. SCIF enter into co-investments alongside “approved Co-investors” through our $40 million Seed Co-investment Fund (Seed Fund) to invest into young companies at the seed and start-up stages. The SCIF partners choose the companies, decide on the details of each investment, and work with the ventures to help them grow and ultimately exit. The Seed Fund is there to support these partners as a passive co-investor.
SCIF invests to a maximum of $500,000 in any eligible company (or group of companies). Co-investment partners must, at minimum, match the amount invested by NZVIF, in each investment.
NZVIF is inviting private investors, investor networks and funds who would like to make an application to become an approved Seed Fund Co-investor to submit written proposals.
The evaluation process takes approximately three months and includes a desktop evaluation, a site visit, and detailed due diligence on the capabilities of the potential investment partner. If successful, a co-investment partnership will be offered by NZVIF.
NZVIF is also looking for expressions of interest from potential partners who would like more information on the requirements of becoming an approved Co-investor.
Process
This is a contestable process and NZVIF is looking for applications from potential Co-investment partners which demonstrates their experience, credibility, commitment and professionalism in early stage investing in New Zealand.
If you’re interested in applying, contact either Chris Twiss or Richard Palmer in the first instance to indicate your interest.
You’ll then be asked to submit an application that addresses the following areas:
Is the proposed angel investment structure a ‘best practice’ commercial and legal structure? The proposal should adequately describe how the applicant intends to govern and manage its operations.
Explain how the proposed structure is commercially and sustainably viable in the medium term.
Does the applicant have in place adequate processes and systems across all stages of the investment process – sourcing deals, due diligence, negotiating terms, managing investments, etc?
Provide a full explanation of the decision making process including details of the key investment personnel, investment committee, and any other parties who will have a role in investment decisions.
Does the applicant have a credible board and investment management team (or individual) who understand and have experience in running an early stage company investment business?
Does the applicant have access to credible and experience investors who understand investing in seed and early stage companies?
What sort of track record and investment strategy does the applicant have in terms of making money in early stage company angel investing?
Does the applicant have the necessary experience with co-investing and deal syndication to ensure access to capital and markets in New Zealand and offshore?
Does the applicant have an extensive pipeline of potential investments?
Is at least $5m of private sector capital available over a 3-4 year period for co-investment with the Seed Fund?
Update: The text of Wayne Mapp’s speech has now been posted on the Beehive web site.
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.
More than $50 million was invested by New Zealand angel investors into 63 young companies in 2009 – a 72 percent increase on the previous 12 month record of $29 million invested in 2008, based on data collected by Young Company Finance.
Full data on 2009, as well as a number of other interesting articles and industry news is available in the latest issue of Young Company Finance #8 – February 2010. This issue also contains an exclusive interview with Dave Moskovitz.
Cumulatively, $127 million has now been invested into young companies by angels since Young Company Finance began collating data in 2006.
NZVIF chief executive Franceska Banga said angel investors are the playing an increasingly significant role in the financing of high-growth, innovative start-ups.
“The increased activity results from a number of years of market development by the angel investment community, NZVIF’s Seed Co-Investment Programme, NZTE’s Escalator Programme, and economic development agencies and incubators throughout the country.
“As the number of companies being invested in grow, and those companies need follow-on investments, the investment activity increases. The challenge facing the industry and our capital markets is to ensure there is sufficient investment capital to fund further growth.
“These companies represent part of the ‘pipeline’ of companies referred to by the Capital Markets Development Taskforce. Some will be the next generation of top New Zealand companies on publicly listed markets- providing our capital markets can provide the investment to allow them to grow and develop through the growth pipeline.”
Of the $50 million invested last year, $20 million was into first round investments – the highest annual dollar value of investment into new companies – and $30 million comprised follow-on investments. In terms of the stage at which investment was made, $8.9 million was seed investment, $29.9 million was at the start-up stage, $11.2 million at the early expansion level, and $300,000 at the expansion stage.
There is greater syndication of deals – meaning angel groups are collaborating with each other to raise funds for investments. In 2009, 48 percent of deals were syndicated and 52 percent were not. In 2006, just 26 percent of deals were syndicated and 74 percent were not.
Deal flow for the year was substantively increased on 2008. In 2009, 63 deals were completed, compared with 29 in 2008 and 49 in 2009. Average deal size in 2009 was $800,000.
Since 2006, by region, 54 percent has been invested in Auckland, 12 percent in Christchurch, 11 percent in Dunedin, 9 percent in Wellington and 5 percent in Palmerston North. Software and services have received 28 percent of the amount invested, followed by pharmaceuticals (23%), technology, hardware and equipment (13%), and food and beverage (12%).
Manawatu Investment Group (MIG) has successfully led an investment in excess of $1 million into functional food business Speirs Nutritionals Partners LP. Speirs Nutritionals is commercialising Massey University developed technology that allows very high loadings of beneficial Omega 3 oils to be included in every day food items, with no impact on the product’s smell or taste.
In March 2009 Speirs Nutritionals signed a world-wide distribution deal with Croda International, a United Kingdom based publically listed company. Through Croda’s international market channels Speirs Nutritionals’ Omega 3 technology is marketed under the brand Omelife.
Dean Tilyard, Chief Executive of Manawatu Investment Group described the investment as a significant capital raising for an early stage New Zealand technology business. Tilyard says ”the climate for early stage capital raising remains tight and this investment reflects the strong technology underpinning Speirs Nutritionals and the significant progress the business has made in establishing a global marketing channel”.
Speirs Nutritionals Chairman Rodney Wong welcomed the involvement of the new investors adding that the new capital comes at a time when the business is transitioning from a focus on technology development to one supporting sales activity through its international partner.
The Halo Fund – a joint venture between seven angel investor groups and the New Zealand Venture Investment Fund – is being redesigned, having closed its fund-raising short of its $5 million target.
Halo Investment Management chairman John McDonald said the fund received strong interest from investors but the investment climate meant it received commitments of $2 million.
“The concept was extremely well received, but unfortunately, in the current environment, we were not able to translate that into sufficient firm commitments to proceed with the Fund.
“There was considerable interest from investors in gaining access to the companies in the angel and venture capital pipeline. We will look at some redesign of the fund and then consider re-launching it, possibly next year, when investment conditions improve.
The Halo Fund was aimed at investors interested in partnering with New Zealand’s most experienced angel investors to invest in new technology, high growth companies in dynamic sectors.
It aimed to invest into 30 plus companies over a two to three year period at the seed and start-up phase in sectors like software, bio-technology, and medical diagnostics.
The New Zealand Venture Investment Fund has recorded its first annual surplus amid its busiest investment year.
In its 2009 annual report, NZVIF posted a net surplus of $3 million and completed 50 investment transactions totalling $18.7 million- a record level despite the demanding investment environment. Over $80m of private capital was raised alongside this.
NZVIF chief executive Franceska Banga said the better than expected result – it had forecast a deficit of $3.4 million – was due to a combination of investment realisations and improvements in the holding value of investments.
“It is still early days for our venture capital funds and the development of the industry, but the year saw encouraging progress. We have equity interests in 81 New Zealand companies in sectors such as ICT, pharmaceuticals, biotechnology, life sciences, and telecommunications. Across NZVIF’s portfolio, there is good revenue growth and, consequently, the combined value of those companies is rising.
“The business environment is, however, tough and venture capital market faces major challenges – particularly when it comes to raising new funds. Individual investors are waiting out the recession and are reluctant to commit money to new ventures before seeing a return on existing investments. Meanwhile, institutional investors remain on the sidelines.
“It has been pleasing to observe the seed investment sector’s continuing growth. Across the total sector, angel investors invested a record $30 million into young New Zealand companies over the first six months of 2009, taking the amount invested over the past three-and-a-half years to over $100 million.”
Shout it from the rooftops – there’s going to be an IPO! It would appear that rumours of the death of the IPO have been greatly exaggerated.
The last start-up IPOs in New Zealand were in the class of 2007 – Xero, Burgerfuel, and NZ Farming Systems Uruguay; I’d argue that Burgerfuel probably didn’t belong in that class, and that NZFSU was more of a property play than an intellectual property play. Xero is the standout, and have deservedly done well after a hard slog.
Biovittoria’s IPO offers angel investors a lot of hope that it’s still possible to take great ideas through the investment cycle and come out the other end as a listed company. With backing by Endeavour Capital, ACC, Stephen Tindall’s K1W1 and the NZ Venture Investment Fund (NZVIF) they’ve managed to bring their product to the point where it’s ready for true international expansion.
Biovittoria appear to be in a great position to exploit their market, with exclusive rights the key ingredient in their PureLo artificial sweetener product. PureLo was the first natural sweetener of its type to achieve United States Food and Drug Administration (FDA) regulatory compliance through its Generally Recognised As Safe (GRAS) status. They expect full FDA approval in February next year. The global artificial sweetener market is worth over USD 3.5 Billion.
AngelLink, a national angel investment network backing New Zealand high growth technology ventures, with an emphasis on life sciences, engineering and ICT, welcomes the inclusion of the Life Science Angels Network into its structure. The move is designed to create greater scale and focus in the life sciences angel investment space.
AngelLink’s members include some of the country’s leading biotechnology and high technology investors including Movac, K1W1 and Sparkbox. AngelLink has also partnered with the NZ Venture Investment Fund (NZVIF) through its Seed Co-Investment Fund.
AngelLink Chairman Chris de Boer says, “Our national network of angel investors and international partnerships provide excellent leverage for high-growth potential start-up companies that are seeking to develop unproven markets or technologies. Life sciences are a key part of AngelLink’s focus. The inclusion of the Life Science Angels Network helps AngelLink achieve greater scale and expertise in this area. As a result we’ll see more investment activity in the life sciences space which will benefit the network and the sector in New Zealand.”
The Life Science Angels Network was created by a collaboration between NZBIO, ICE Angels and Auckland Plus to validate the concept of creating a virtual network of angel investors who are interested in investing in life science technology deals.
Andy Hamilton, Director, ICE Angels says, “When it comes to early stage funding there is a case for some sectors, such as life sciences, to have specialisation. The ongoing viability of the sector depends on its ability to raise funds from a variety of sources and to complete value-creating deals. This access to funding is consistently one of the key constraints identified across the bioeconomy in New Zealand yet, based on international experiences angel investment has the ability to be a key part of the funding solution.”
“Having validated the need for The Life Science Angels Network we readily came to the conclusion that the natural home for the network was actually AngelLink as they already have in place a number of critical partnerships for deal flow in the life sciences space. As a small country we need to take every opportunity to achieve scale.”
The merger will include all research, contacts and emerging international partnerships, including the Australian Life Science Angel Network, Life Science Angels Inc (USA) and Bansea, Singapore.
NZBIO, the national bioscience industry group, has applauded the transfer to AngelLink.
Chief Executive Bronwyn Dilley says, “AngelLink’s strong focus on life sciences and nationwide coverage will be further strengthened by the inclusion of the Life Science Angels Network. Angel Investment is an important part of the investment landscape and a strong, focused approach is vital to the success of a mature New Zealand life science industry. It’s great to see AngelLink continue to gain momentum, as the result will be more early stage life science projects are spun out of the lab into the market with benefits to all.”
AngelLink, which was initiated by WaikatoLink, the commercial arm of the University of Waikato, connects investees to the full continuum of funding through its lifecycle from science to market spanning proof of concept, angel investment, early stage venture capital, expansion stage venture capital, and public markets.
AngelLink was launched at a function at NZX in August. The Minister for Research, Science and Technology, Wayne Mapp was the guest of honour.
At the launch, WaikatoLink Chief Executive Mark Stuart said, “At an industry level there is a real need to make some improvements to generate more economic benefit from life sciences and technology research. We need to start with the end in mind and bring the market in from the start. We need to encourage a co-ordinated approach and funding models that encourage collaboration rather than competition. AngelLink represents a step change in early stage company investment by formalising visibility to upcoming investment opportunities to all of the partners across the investment continuum”.
Dr Mapp said, “The highest priority for the New Zealand Government is growth. Future opportunities will depend on innovation and entrepreneurship and much of this comes from fundamental science. AngelLink will connect research and investors with the intent of getting science to the marketplace. Our future prosperity depends on getting this right.”
The first Australasian Life Science Angels Network Meeting today in Queenstown, part of the annual summit organised by the Angel Association of New Zealand, is the setting for the first meeting between AngelLink, the Australian Life Science Angel Network and Bansea, Singapore.