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.
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.
Today, we continue our Politics of Angel Investment series with an interview with Rodney Hide, the leader of ACT.
ACT’s policies revolve around reducing government. It’s a simple message, easy to understand, and clear in its impact on investment and innovation. They want to reduce taxes, government expenditure, and the impact of government on our daily lives, leaving us to get on with the job in our selected spheres of expertise, and sinking or swimming on our own merits.
Rodney’s key points:
Entrepreneurs drive the entire economy
Governments are incapable of predicting which ideas are going to be great
The main task is to grow the economy, and catch up to and surpass Australia
Key policy areas:
Fiscal: reduce government spending – taxpayer rights bill would cap government spending at rate of inflation
Regulatory: reduce rules and regulations; they stifle innovation — regulatory responsibility bill protects property rights and freedom to contract
Education: Break state monopoly in education; fund students not schools – that would enable innovation to flourish
The state should be right out of business; they should stick to core business of providing police force and critical infrastructure. Ministry of Economic Development would be disbanded; if state planning worked, the USSR and Korea would have been staggering successes.
Taxes should be as low, flat, broad, and neutral as possible. In an ideal world you should be able to run the state on GST and get rid of income tax. If you have to have an income tax, it should be flat. The worst tax you can inflict on an economy is a capital gains tax, which is especially bad for entrepreneurs.
Broadband: Rodney disagrees with unbundling and the pretend split of Telecom and the constant regulation of the Telecommunications sector. ACT would pare back regulation to a bare minimum, especially the Resource Manangement Act.
Rodney closes by saying, “Angel investors, innovators, and entrepreneurs are the heroes of our economy … I salute them!”